-----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, PmQVQSBrcMBSQztAGZHHgWbb/h01n9tBVz+uSOTN08V7BYxjPSAEyWRfxOq1sTaw 7EdAgv0BDK+2x+ZovZ90xQ== 0000950124-00-001125.txt : 20000310 0000950124-00-001125.hdr.sgml : 20000310 ACCESSION NUMBER: 0000950124-00-001125 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000309 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: 001-15373 FILM NUMBER: 564814 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 FORM 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 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 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 of incorporation (I.R.S. Employer Identification Number) or organization) 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: COMMON STOCK, PAR VALUE $.01 PER SHARE 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 1, 2000: Common Stock, par value $.01, $102,580,595 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 1, 2000: Common Stock, par value $ .01, 7,152,024 shares outstanding ================================================================================ 2 ENTERBANK HOLDINGS, INC. 1999 ANNUAL REPORT ON FORM 10-K
Page Business........................................................................ 1 Properties...................................................................... 5 Legal Proceedings............................................................... 6 Submission of Matters to Vote of Security Holders............................... 6 Market for Common Stock and Related Stockholder Matters......................... 6 Selected Financial Data......................................................... 8 Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 9 Quantitative and Qualitative Disclosures About Market Risk...................... 22 Financial Statements and Supplementary Data..................................... 32 Management...................................................................... 32 Beneficial Ownership of Securities.............................................. 32 Certain Related Party Transactions.............................................. 33 Independent Auditors' Report.................................................... 34 Consolidated Financial Statements............................................... 35 Signatures ..................................................................... 61 Exhibit Index ................................................................. 63
3 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Readers should note that in addition to the historical information contained herein, some of the information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified with use of terms such as "may," "will," "expect," "anticipate," "estimate" and similar words, although some forward-looking statements are expressed differently. You should be aware that 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. PART I ITEM 1: BUSINESS GENERAL Enterbank Holdings, Inc. (the "Company") was incorporated under the laws of the State of Delaware on December 30, 1994, for the purpose of providing a holding company structure for the ownership of Enterprise Bank, a Missouri banking corporation, (the "Bank"). The Company acquired the Bank in May 1995 through a tax-free exchange with 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 chartered Missouri banking corporation. From 1988 through 1996, the Bank provided commercial banking services to its 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, Missouri and the St. Louis County 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 Merchant Banc, Inc. ("Merchant Banc") (formerly Enterprise Capital Resources, Inc.) in 1995 as a wholly owned subsidiary to provide merchant banking services to closely-held businesses and their owners. Merchant Banc's current operations include a minority interest in Enterprise Merchant Banc, LLC, which focuses on providing equity capital and equity-linked debt investments to growing companies in need of additional capital to finance internal and acquisition-related growth. Additionally, Merchant Banc receives fee income for its role as a financial advisor in capital raising transactions as well as mergers and acquisitions. It focuses on "second stage" and mezzanine financing for established companies rather than "seed money" for start-up operations. Enterprise Financial Advisors ("EFA"), 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 EFA, the Company entered into solicitation and referral agreements with Moneta Group, Inc. ("Moneta"). These agreements were renegotiated with the introduction of trust services by EFA. These agreements call for Moneta to provide assistance in staffing, training, marketing and regulatory compliance for EFA. Moneta refers customers, when appropriate, to the Bank and receives a share of the revenue generated in the form of options in the Company's common stock and a percent of the gross margin generated in EFA as compensation. The agreements with Moneta also allow EFA to offer a full range of products and services with the depth and expertise of a large planning firm. EFA 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" or "Company." 1 4 The Company's executive offices are located at 150 North Meramec, Clayton, Missouri 63105. The Company's telephone number is (314) 725-5500. MERGER AGREEMENT On January 5, 2000 the Company announced that it had executed a merger agreement with Commercial Guaranty Bancshares, Inc. ("CGB"). CBG, located in Overland Park, Kansas, is a bank holding company which owns all of the outstanding stock of First Commercial Bank, N.A., a national bank headquartered in Overland Park. Pursuant to the Merger Agreement, CGB would be merged with a newly formed subsidiary of the Company and would become a wholly-owned subsidiary of the Company. Each outstanding share of CGB common stock would be converted into 2.1429 shares of Company common stock in a tax-free transaction which would be accounted for as a pooling of interests. An aggregate of approximately 1,793,300 Company shares would be issued in the transaction and an additional approximately 254,700 Company shares would be subject to stock options exchanged for options to purchase CGB shares. Consummation of the merger is subject to approval by the shareholders of both the Company and CGB, approval by the Board of Governors of the Federal Reserve System and certain other customary conditions. Overland Park is an affluent, fast-growing suburb of Kansas City, Missouri, which the Company believes will provide the Company an attractive opportunity to expand its banking and related businesses. At December 31, 1999, CGB had assets of $128 million and deposits of $107 million. 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 merger with CGB will allow the Company to also serve Johnson County and the greater Kansas City area. 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 the Merchant Banc. 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. If consummated, the merger with CGB will allow the Company to serve customers on both sides of Missouri and in Kansas. This expansion is in line with the Company's strategic plan. 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 of withdrawal accounts, and individual retirement accounts. Interest-bearing accounts earn interest at rates established by management based on competitive market factors and management's desire to increase or decrease certain types of deposits. The Company believes that its ability to solicit deposits will be enhanced as a result of the merger. 2 5 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 or below the Bank's all-in 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 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 units consists of several committee reviews. The Presidents of each geographic banking unit, the Bank's Chief Financial Officer, and the unit's Chief Executive Officer review and vote on any aggregate loan relationships greater than the Banks's Internal Lending Limit and all insider loans. Any aggregate loan relationships greater than the Bank's Internal Lending Limit are reviewed and examined by each banking unit's Director Loan Committee consisting 3 6 of all members of the unit's Board of Directors. These directors serve on a rotating basis at their respective banking units. Notwithstanding the required approvals for insider loans, all such loans are subsequently ratified by the full Board of Directors of the Company at the Quarterly Board Meeting. 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. The Company recently signed the merger agreement with CGB. Johnson County is one of the fastest growing counties in the Midwest and has demographical characteristics consistent with those of the Company's current areas of operation. CGB shares the same business philosophies concerning service and the same target market as the Company making it a good strategic fit for the organization as a whole. ENTERPRISE MERCHANT BANC The Merchant Banc was established in 1995 to provide merchant banking services to closely held businesses and their owners. Its current operations include a minority investment in Enterprise Merchant Banc, LLC, which focuses on providing equity capital and equity-linked debt investments to growing companies in need of additional capital to finance internal and acquisition-related growth. Additionally, the Merchant Banc receives fee income for its role as a financial advisor in capital raising transactions as well as mergers and acquisitions. It focuses on "second stage" and mezzanine financing for established companies rather the "seed money" for start up organizations. The Company recently restructured its ownership and control positions of various merchant banking operations. As a result of this restructuring, the Company maintains 100% ownership the Merchant Banc which in turn has a minority interest in Enterprise Merchant Banc, LLC. The minority interest in the LLC includes a 4.9% voting and common stock ownership interest with a 24.9% economic interest. The new structure provides the ability to achieve economic benefits comparable to those available under the previous structure, yet satisfies Federal Reserve regulations concerning ownership and control. ENTERPRISE FINANCIAL ADVISORS Enterprise Financial Advisors was organized as a division of Enterprise Bank in late 1997 to provide fee-based personal and corporate financial consulting and trust services to the Company's target market. Personal financial consulting includes estate planning, investment management, retirement planning, trust services and custodial services. Corporate consulting services are focused in the areas of retirement plans, management compensation and management succession issues. Some investment management services are provided through Argent Capital Management, a money management company that invests principally in large capitalization companies. The Company owns approximately an 8% interest in Argent Capital Management. As a part of the organization of Enterprise Financial Advisors, the Company entered into solicitation and referral agreements with Moneta Group, Inc., a nationally recognized firm in the financial planning industry. Under the agreements, Moneta provides assistance in staffing, training, marketing and regulatory compliance and in return receives a share of the gross margin generated by Enterprise Financial Advisors for planning and trust services. In exchange for customer referrals, Moneta receives compensation in the form of Enterbank stock options. The agreements are intended to leverage the trust powers of Enterprise Bank with the established expertise and marketing power of Moneta, thereby 4 7 enabling Enterprise Financial Advisors to offer a full range of products and services with the depth and expertise of a large financial planning firm. 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, 1999, the Company had approximately 151 full time equivalent employees. None of the Company's employees are covered by a collective bargaining agreement. Management believes that its relationship with its employees is good. ITEM 2: PROPERTIES All of the Company's banking facilities are leased under agreements that expire in 2004, 2003, 2011 and 2016, 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 one 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 be 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 market conditions and inflation. The Merchant Banc facility in Kansas is leased under an agreement that expires in 2003. A portion of the Merchant Banc facility is sublet for the same amount as the lease and the proceeds are used to reduce the Company's occupancy expense. The Company has no future rental options for the Kansas office. The Company's aggregate rent expense totaled $814,538, $749,086 and $436,524 in 1999, 1998 and 1997, respectively, and sublease rental income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and 1997, 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 2000 $ 1,034,379 2001 1,043,145 2002 1,053,740 2003 1,019,589 2004 955,437 2005 and thereafter 3,784,092
For leases that renew or are subject to periodic rental adjustments, the monthly rental payments will be adjusted based on then-current market conditions and rates of inflation. 5 8 The following is a list of the Company's current facilities:
Operating Unit Address Description - -------------- ------- ----------- Enterprise Bank, Clayton 150 North Meramec Commercial and Retail Clayton, Missouri 63105 Banking Enterprise Bank, St. Charles 300 St. Peters Centre Blvd. Commercial and Retail St. Peters, Missouri 63376 Banking Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd. Commercial and Retail Sunset Hills, Missouri 63127 Banking Enterprise Bank, St. Louis 1281 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
ITEM 3: 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 adverse effect on the business, financial condition, results of operations or cash flows of the Company or any of its subsidiaries. ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted to vote of security holders in the quarter ended December 31, 1999. ITEM 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS As of March 1, 2000, the Company had approximately 607 common stock shareholders of record and a market price of $18.00. 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 reported to the National Association of Securities Dealers ("NASD"). Based solely on the sales reported to the NASD, the Company believes the high and low sale prices for the common stock and dividends declared were as follows in the quarters indicated:
Dividends Market Price (1) Declared (1) -------------------------- ---------------- High Low 1999 ------------- ------------ First Quarter $ 12.50 $ 10.33 .0100 Second Quarter 14.00 12.50 .0100 Third Quarter 15.17 14.00 .0100 Fourth Quarter 18.25 15.17 .0100 1998 First Quarter $ 8.58 $ 7.00 .0083 Second Quarter 10.00 8.58 .0083 Third Quarter 10.67 9.33 .0083 Fourth Quarter 10.33 9.83 .0083
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective September 29, 1999. There may have been other transactions at other prices not known to the Company. 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. 6 9 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 primary source for the payment of dividends by the Company is dividends payable to the Company by the Bank. The amount of dividends, if any, that may be declared by the Company will be dependent on many factors, including future earnings, bank regulatory 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 sock. COMMON STOCK On August 18, 1999 the Board of Directors approved a 3 for 1 stock split, in the form of a stock dividend, of the Company's common stock for shareholders of record on September 29, 1999. On September 29, 1999, the Company's shareholders approved the 3 for 1 stock split and an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 3,500,000 to 20,000,000. All share and per share amounts in this Annual Report have been restated to reflect the split. The authorized capital stock of the Company consists of 20,000,000 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, 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. 7 10 ITEM 6: SELECTED FINANCIAL DATA
Year ended December 31, ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ------------- ---------- ----------- ---------- ------------ (Dollars and number of shares in thousands, except per share data)(1) STATEMENT OF INCOME DATA Interest income $ 32,137 $ 25,414 $ 18,759 $ 12,554 $ 10,914 Interest expense 14,352 11,869 8,582 5,569 4,887 ---------- ---------- ---------- ---------- ---------- Net interest income 17,785 13,545 10,177 6,985 6,027 Provision for loan losses 1,021 711 775 345 631 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 16,764 12,834 9,402 6,640 5,396 Noninterest income 2,565 2,079 476 1,239 836 Noninterest expense 13,386 10,052 6,339 5,146 4,187 ---------- ---------- ---------- ---------- ---------- Income before income tax expense 5,943 4,861 3,539 2,733 2,045 Income tax expense 2,244 1,850 1,317 1,031 741 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of a change in accounting principle 3,699 3,011 2,222 1,702 1,304 ========== ========== ========== ========== ========== Cumulative effect on prior years of a change in asset classification 121 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net income 3,820 3,011 2,222 1,702 1,304 ========== ========== ========== ========== ========== Basic earnings per share(1) 0.54 0.43 0.35 0.37 0.30 Diluted earnings per share(1) 0.50 0.40 0.33 0.32 0.26 Cash dividends per common share(1) 0.04 0.033 0.030 0.027 0.023 Basic weighted average common shares and common stock equivalents outstanding(1) 7,136 7,053 6,285 4,614 4,389 Diluted weighted average common shares and common stock equivalents outstanding(1) 7,705 7,545 6,675 5,252 5,056 - --------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Cash and due from banks $ 14,798 $ 29,701 $ 13,897 $ 9,261 $ 8,110 Federal funds sold 54,825 14,250 32,825 23,250 16,230 Investments in debt and equity securities: Trading, at fair value 910 -- -- -- -- Available for sale 23,808 45,592 12,515 14,006 16,065 Held to maturity 680 699 919 1,240 842 ---------- ---------- ---------- ---------- ---------- Total investments 25,398 46,291 13,434 15,246 16,907 ---------- ---------- ---------- ---------- ---------- Loans, net of unearned loan fees (2) 385,102 273,818 225,560 134,133 110,464 Allowance for loan losses 4,235 3,200 2,510 1,765 1,400 Total assets 488,001 375,304 291,365 184,584 153,706 Total deposits 435,798 339,180 264,301 168,961 141,140 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000 -- -- -- -- Borrowings 6,920 6,000 -- 300 -- Shareholders' equity 32,764 29,240 26,067 14,758 12,052 Book value per common share(1) 4.59 4.11 3.78 2.96 2.75 Tangible book value per common share(1) 4.59 4.11 3.77 2.95 2.73 - ---------------------------------------------------------------------------------------------------------------------- SELECTED RATIOS Return on average assets 0.94% 0.94% 0.97% 1.12% 0.99% Return on average equity 12.31 10.86 9.78 12.73 11.13 Total capital to risk-weighted assets 11.82 10.97 12.28 11.53 11.40 Leverage ratio 10.74 9.16 11.42 9.62 9.11 Net yield on average earning assets 8.39 8.59 8.84 8.90 9.00 Cost of interest-bearing liabilities 4.49 4.88 5.03 4.89 4.94 Net interest margin 4.66 4.59 4.79 4.96 4.98 Nonperforming loans as a percent of loans 0.08 0.00 0.02 0.12 0.10 Nonperforming assets as a percent of assets 0.14 0.22 0.29 0.56 0.64 Net loan charge offs (recoveries) as a percent of average loans (0.00) 0.01 0.02 (0.02) 0.24 Allowance for loan losses as a percent of loans, net of unearned loan fees 1.10 1.17 1.11 1.32 1.27 Dividend payout ratio 7.41 7.81 8.49 7.21 7.87 Average equity to average assets ratio 7.60 8.70 9.97 8.76 8.89 - ----------------------------------------------------------------------------------------------------------------------
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective September 29, 1999. (2) Excludes mortgage loans held for sale. 8 11 ITEM 7: 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, 1999. 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 1999 COMPARED TO FISCAL 1998 The Company has a history of approximately 30% growth in total assets for the last several years. This has been accomplished for several reasons. The St. Peters and Sunset Hills banking units started in 1997 experienced 29% and 75% growth, respectively in 1999. The Company also grows with the addition of business development officers. The Company hired 7 business development officers during 1999. In addition, the economy in which the Company conducts business has been very good for the past several years. These factors have contributed to the Company's continued growth. FINANCIAL CONDITION Total assets at December 31, 1999 were $488 million, an increase of $113 million, or 30%, over total assets of $375 million at December 31, 1998. Loans were $385 million, an increase of $111 million, or 41%, over total loans of $274 million at December 31, 1998. Federal funds sold and investment securities were $80 million, an increase of $19 million, or 31%, from total federal funds sold and investment securities of $61 million at December 31, 1998. Total deposits at December 31, 1999 were $436 million, an increase of $97 million, or 29%, over total deposits of $339 million at December 31, 1998. Most of the deposit growth occurred in the money market deposits, and certificates of deposit. Money market deposits grew $49 million, or 33%, during 1999. Certificates of deposit grew $38 million or 37% during 1999. Growth in transaction and money market deposit accounts is attributed primarily to direct calling efforts by relationship officers. Growth in certificates of deposit is also due to an enhanced presence in the marketplace and an increase of 55% in network CDs. 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 refers to such deposits as network CDs. Total shareholders equity at December 31, 1999 was $32.8 million, an increase of $3.6 million over total shareholders equity of $29.2 million at December 31, 1998. The increase in equity is due to an increase in retained earnings of $3.5 million for the twelve months ended December 31, 1999, and the exercise of incentive stock options by employees, less dividends paid to shareholders. RESULTS OF OPERATIONS Net income was $3.8 million for the year ended December 31, 1999, an increase of 27% over net income of $3.0 million for the same period in 1998. Diluted earnings per share for the years ended December 31, 1999 and 1998 were $0.50 and $0.40, respectively. The Company's net income increased due to growth in interest earning assets and an increase in noninterest income offset by an increase in interest bearing liabilities and noninterest expenses. NET INTEREST INCOME The largest component of the Company's income is net interest income. Net interest income (presented on a tax equivalent basis) was $17.9 million, which yielded a net interest margin of 4.66%, for the year ended December 31, 1999, compared to net interest income and net interest margin of $13.6 million and 4.59%, for the same period in 1998. 9 12 The $4.3 million, or 32%, increase in net interest income was driven by a 30%, or $88 million, increase in average earning assets, a change in the mix of earning assets and a decrease in the yield on interest bearing liabilities. Average earning assets increased to $385 million for the year ended December 31, 1999. The mix of earning assets shifted from lower earning investment securities and federal funds sold to higher yielding loans. The increase in the earning assets and shift in mix is attributable 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. Average loans as a percent of average total assets increased to 83.92% in 1999 from 79.06% in 1998. For the same periods, the yield on average loans was 8.80% and 9.16%, respectively. The decrease in loan yield in 1999 compared to 1998 partially offset the margin benefits obtained by increasing the loan to asset ratio during the same period. The yield on average earning assets decreased to 8.39% for the year ended December 31, 1999 from 8.59% for the same period in 1998. The decrease in asset yield was primarily due to a general decrease in average yield on loans and federal funds sold. The yield on interest bearing liabilities decreased to 4.49% for the year ended December 31, 1999 from 4.88% for the same period in 1998. The yield on all deposits decreased in 1999 as compared to 1998. This drop is due to a concerted effort by the Asset/Liability Committee to decrease the interest paid on deposits. This general drop in yields was partially offset by deposits shifting to higher yielding money market accounts. 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 $0.40 and $0.33, 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. 10 13 The $3.4 million, or 33%, increase in net interest income was driven primarily by a 39%, or $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 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. 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, 1999. 11 14
Year ended December 31, -------------------------------------------------------------------------------- 1999 1998 ------------------------------------- -------------------------------------- Percent Interest Average Percent Interest Average Average of Total Income/ Yield/ Average of Total Income/ Yield/ Balance Assets Expense Rate Balance Assets Expense Rate -------- -------- -------- ------- -------- -------- -------- ------- (Dollars in Thousands) Assets Interest-earning assets: Loans (1) $342,565 83.92% $30,134 8.80% 251,916 79.06% $23,084 9.16% Taxable investments in debt securities 18,687 4.58 979 5.24 15,887 4.99 878 5.53 Non-taxable investments in debt securities(2) 622 0.15 40 6.43 619 0.19 40 6.46 Federal funds sold 22,637 5.54 1,113 4.92 27,679 8.69 1,469 5.31 Interest earning deposits 20 - 1 5.00 795 0.25 40 5.03 -------- ------ ------- -------- ------ ------- Total interest-earning assets 384,531 94.19 32,267 8.39 296,896 93.18 25,511 8.59 Non-interest-earning assets: Cash and due from banks 18,178 4.45 17,422 5.47 Office equipment & leasehold improvements 3,068 0.75 2,686 0.84 Minority interest in EMB LLC 175 0.04 Prepaid expenses and other assets 5,846 1.43 4,609 1.45 Allowance for possible loan losses (3,530) (0.86) (2,985 (0.94) -------- ------ -------- ------ Total assets $408,268 100.00% $318,628 100.00% ======== ====== ======== ====== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing transaction accounts $ 26,430 6.47% $ 491 1.86% 20,503 6.43% $ 492 2.40% Money market 178,423 43.70 7,833 4.39 117,027 36.74 5,361 4.58 Savings 1,789 0.44 44 2.46 1,496 0.47 37 2.47 Certificates of deposit 102,277 25.05 5,386 5.27 102,897 32.29 5,912 5.75 Notes payable 1,029 0.25 79 7.68 - - - - Federal funds purchased 27 0.01 2 5.83 - - - - Federal Home Loan Bank advances 6,788 1.66 331 4.88 1,447 0.45 67 4.63 Guaranteed preferred beneficial interests in EBH-Subordinated Debentures 1,978 0.48 186 9.40 - - - - -------- ------ ------- -------- ------ ------- Total interest-bearing liabilities 318,741 78.06 14,352 4.50 243,370 76.38 11,869 4.88 Noninterest-bearing liabilities: Demand deposits 56,568 13.86 46,326 14.54 Other liabilities 1,930 0.47 1,213 0.38 -------- ------ -------- ------ Total liabilities 377,239 92.40 290,909 91.30 Shareholders' equity 31,029 7.60 27,719 8.70 -------- ------ -------- ------ Total liabilities & shareholders' equity $408,268 100.00% 318,628 100.00% ======== ====== ======== ====== Net interest income $17,915 $13,642 ======= ======= Net interest margin 4.66% 4.59% ==== ==== Year ended December 31, ----------------------------------------- 1997 ----------------------------------------- Percent Interest Average Average of Total Income/ Yield/ Balance Assets Expense Rate -------- -------- -------- ---------- Assets Interest-earning assets: Loans (1) 177,532 77.89% $16,834 9.48% Taxable investments in debt securities 17,859 7.84 1,018 5.70 Non-taxable investments in debt securities(2) 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 Non-interest-earning assets: Cash and due from banks 11,580 5.08 Office equipment & leasehold improvements 1,677 0.74 Minority interest in EMB LLC Prepaid expenses and other assets 3,829 1.68 Allowance for possible 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 funds purchased - - - - Federal Home Loan Bank advances 105 0.05 11 10.48 Guaranteed preferred beneficial interests in EBH-Subordinated Debentures - - - - -------- ------ ------- 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 & shareholders' equity 227,914 100.00% ======== ====== Net interest income $10,192 ======= Net interest margin 4.79% ====
(1) Average balances include non-accrual loans and loans held for sale. The income on such loans is included in interest but is recognized only upon receipt. Loan fees included in interest income are approximately $961,000, $625,000 and $671,000, for 1999, 1998 and 1997, respectively. (2) Non-taxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. 15 During 1999, an increase in the average volume of earning assets resulted in an increase in interest income of $7,863,000,partially offset by a decrease of $1,107,000 due to a decrease in rates on earning assets. Increases in the average volume of interest-bearing demand deposits, savings and money market accounts, and notes payable and other borrowing resulted in an increase in interest expense of $3,193,000. Changes in interest rates on the average volume of interest-bearing liabilities resulted in a decrease in interest expense of $710,000. The increase in the volume of both earning assets and interest bearing liabilities are due to the previously mentioned 30% growth the Company experienced during 1999. The decrease in the average rate of earning assets was a result of interest rate pressures and competition in the Company's market. The decrease in the average rate of interest bearing liabilities was a result of a concerted effort by the Asset/Liability Committee to decrease the interest paid on deposits. The net effect of the volume and rate changes associated with all categories of interest-earning assets during 1999 as compared to 1998 increased interest income by $6,756,000 while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities increased interest expense by $2,483,000. During 1998, an increase in the average volume of earning assets resulted in an increase in interest income of $7,335,000, partially offset by a decrease of $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. 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:
1999 Compared to 1998 1998 Compared to 1997 Increase (Decrease) Due to Increase (Decrease) Due to -------------------------- ------------------------------ Volume(1) Rate(2) Net Volume(1) (Rate(2) Net --------- ------- --- --------- -------- --- (Dollars in Thousands) Interest earned on: Loans $ 8,007 $ (957) $ 7,050 $ 6,834 $ (584) $ 6,250 Taxable investments in debt and equity securities 149 (48) 101 (111) (29) (140) Nontaxable investments in debt and equity securities (3) -- -- -- (12) -- (12) Federal funds sold (254) (102) (356) 584 (24) 560 Certificates of deposit (39) -- (39) 40 (2) 38 ------- ------- ------- ------- ------- ------- Total interest-earning assets $ 7,863 $(1,107) $ 6,756 $ 7,335 $ (639) $ 6,696 ------- ------- ------- ------- ------- ------- Interest paid on: Interest-bearing demand deposits $ 124 $ (125) $ (1) $ 119 $ (79) $ 40 Money market rate deposits 2,704 (232) 2,472 1,826 (69) 1,757 Savings deposits 7 -- 7 6 (1) 5 Time deposits (35) (491) (526) 1,485 (94) 1,391 Notes payable 39 40 79 (2) (1) (3) Federal Home Loan Bank Advances 260 4 264 34 33 56 Federal funds purchased 1 1 2 (5) (6) (11) Guaranteed Preferred Debt 93 93 186 -- -- -- ------- ------- ------- ------- ------- ------- Total $ 3,193 $ (710) $ 2,483 $ 3,463 $ (217) $ 3,246 ------- ------- ------- ------- ------- ------- Net interest income $ 4,670 $ (397) $ 4,273 $ 3,872 $ (422) $ 3,450 ======= ======= ======= ======= ======= =======
(1) Change in volume multiplied by yield/rate of prior period. (2) Change in yield/rate multiplied by volume of prior period. (3) Nontaxable investments in debt securities are presented on a fully tax-equivalent basis assuming a tax rate of 34%. NOTE: The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each. 13 16 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, -------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------------- ---------------- ---------------- --------------- ---------------- 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 $ 99,646 25.86% $ 81,346 29.70% $ 69,490 30.81% $ 43,876 32.71% $ 43,728 39.59% Real estate: Commercial 51,756 13.43 33,242 12.14 37,349 16.56 24,946 18.60 25,507 23.09 Construction 88,237 22.90 76,739 28.03 47,771 21.18 23,362 17.42 11,634 10.53 Residential 72,311 18.76 69,978 25.56 63,772 28.27 37,449 27.92 24,537 22.21 Consumer and other 73,152 19.05 12,513 4.57 7,178 3.18 4,500 3.35 5,058 4.58 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total loans $385,102 100.00% $273,818 100.00% $225,560 100.00% $134,133 100.00% $110,464 100.00% ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
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, 1999, $212 million in loans, or 55% of the loan portfolio, involved real estate as part or all of the collateral package, as compared to $180.0 million or 66% and $148.9 million or 66% in 1998 and 1997, respectively. Of these loans, $90.0 million or 42%, for 1999, were personal and business loans and loans on owner-occupied properties as compared to $75.6 million or 28% and $55.2 million or 37% for 1998 and 1997, respectively. Management views these types of loans as having less risk than traditional real estate loans because the primary source of repayment for these loans is not dependent upon the cash flow or sale of the real estate securing the loans. When evaluating the appropriateness of the allowance for loan losses, these loans are evaluated based on commercial considerations such as the financial condition, cash flow and income of the borrower as well as the value of all collateral securing the loans, including the market value of any real estate securing the loan. During 1999, the Company reexamined its loan classifications. The result was a movement of approximately $50 million from the real estate category into the consumer and other loan category. Going forward the Company intends to report its loans with this new classification. 14 17 The following table sets forth the interest rate sensitivity of the loan portfolio at December 31, 1999:
Loans Maturing or Repricing --------------------------------------------------------------------- After One In One Through After Year or Less Five Years Five Years Total ---------------- -------------- ----------- -------------- (Dollars in Thousands) FIXED RATE LOANS (1) Commercial and industrial $ 6,368 $ 30,822 $ 873 $ 38,063 Real estate: Commercial 5,568 28,280 2,237 36,085 Construction 6,822 15,302 1,771 23,895 Residential 9,103 26,305 804 36,212 Consumer and other 3,035 24,735 12 27,782 ---------------- -------------- ----------- ------------- Total $ 30,896 $ 125,444 $ 5,697 $ 162,037 =============== ============= ========== ============ VARIABLE RATE LOANS (1) Commercial and industrial $ 61,583 $ -- $ -- $ 61,583 Real estate: Commercial 15,672 -- -- 15,672 Construction 64,342 -- -- 64,342 Residential 36,100 -- -- 36,100 Consumer and other 45,368 -- -- 45,368 ---------------- -------------- ----------- ------------- Total $ 223,065 $ -- $ -- $ 223,065 =============== ============= ========== ============= TOTAL LOANS (1) Commercial and industrial $ 67,951 $ 30,822 $ 873 $ 99,646 Real estate: Commercial 21,240 28,280 2,237 51,757 Construction 71,164 15,302 1,771 88,237 Residential 45,203 26,305 804 72,312 Consumer and other 48,403 24,735 12 73,150 ---------------- -------------- ----------- ------------- Total $ 253,961 $ 125,444 $ 5,697 $ 385,102 =============== ============= ========== =============
(1) Loan balances are shown net of unearned loan fees and loans held for sale. PROVISION FOR LOAN LOSSES The provision for loan losses was $1,021,000, $711,000, and $775,000 in 1999, 1998, and 1997 respectively. During 1999, the increase in provision reflects loan growth of $111 million during 1999 versus loan growth of $48 million during the same period in 1998. The provision for loan losses did not increase with the loan growth because the Company experience continued quality of the loan portfolio and net recoveries of $14,000. 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, 19997. 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 has charged off a total of $473,000 in loans from January 1, 1995 through December 31, 1999. Total recoveries for the same period are $225,000, resulting in a five-year net charge-off experience of $248,000, or 0.05% per year of average loans for the same period. 15 18 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, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- --------- --------- --------- -------- (Dollars in Thousands) Allowance at beginning of period $ 3,200 $ 2,510 $ 1,765 $ 1,400 $ 1,000 -------- -------- -------- -------- -------- Loans charged off: Commercial and industrial 19 30 90 -- 19 Real estate: Commercial -- 19 45 -- 118 Construction -- -- -- -- -- Residential -- -- 27 -- 106 Consumer and other -- -- -- -- -- -------- -------- -------- -------- -------- Total loans charged off 19 49 162 -- 243 -------- -------- -------- -------- -------- Recoveries of loans previously charged off: Commercial and industrial 18 18 44 -- -- Real estate: Commercial 15 10 50 4 12 Construction -- -- -- -- -- Residential -- -- 38 15 -- Consumer and other -- -- -- 1 -- -------- -------- -------- -------- -------- Total recoveries of loans previously charged off 33 28 132 20 12 -------- -------- -------- -------- -------- Net loans charged off (recovered) (14) 21 30 (20) 231 -------- -------- -------- --------- -------- Provisions charged to operations 1,021 711 775 345 631 -------- -------- -------- -------- -------- Allowance at end of period $ 4,235 $ 3,200 $ 2,510 $ 1,765 $ 1,400 ======== ======== ======== ======== ======== Average loans $342,565 $251,916 $177,532 $120,849 $ 94,737 Total loans 385,102 273,818 225,560 134,133 110,464 Nonperforming loans 294 2 50 161 107 Net charge-offs (recoveries) to average loans (0.00)% 0.01% 0.02% (0.02)% 0.24% Allowance for loan losses to loans 1.10 1.17 1.11 1.32 1.27
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 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 16 19 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 probable 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 operating results would be negatively impacted. Both management and the Board of Directors continually monitor changes in asset quality, market conditions, concentration of credit and other factors, all of which impact the credit risk associated with the Company's loan portfolio. As of December 31, 1999, 1998, and 1997, the Company had twelve, thirteen, and eleven impaired loans in the aggregate amounts of $1,064,000, $1,087,000, and $967,000 respectively, all of which are considered potential problem loans. Non-performing assets decreased from $808,000 as of December 31, 1998 to $690,000 as of December 31, 1999. The Company sold half of its foreclosed property in December 1999. Non-performing assets decreased from $856,000 as of December 31, 1997 to $808,000 as of December 31, 1998. 17 20 The following table sets forth information concerning the Company's nonperforming assets as of the dates indicated:
As of December 31, ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 --------- -------- --------- --------- ---------- (Dollars in Thousands) Nonaccrual loans $ 294 $ 2 $ 50 $ 131 $ 107 Loans past due 90 days or more and still accruing interest -- -- -- 30 -- Restructured loans -- -- -- -- -- --------- -------- --------- --------- ---------- Total nonperforming loans 294 2 50 161 107 Foreclosed property 396 806 806 874 881 -------- -------- --------- --------- ---------- Total nonperforming assets $ 690 $ 808 $ 856 $ 1,035 $ 988 ======== ======== ========= ========= ========== Total assets $488,001 $375,304 $ 291,365 $ 184,584 $ 153,706 Total loans, net of unearned loan fees 385,102 273,818 225,560 134,133 110,464 Total loans plus foreclosed property 385,498 274,624 226,366 135,007 111,345 Nonperforming loans to total loans 0.08% 0.00% 0.02% 0.12% 0.10% Nonperforming assets to total loans plus foreclosed property 0.18 0.29 0.38 0.77 0.89 Nonperforming assets to total assets 0.14 0.22 0.29 0.56 0.64
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.
As of December 31, ---------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------- ---------------- ------------------ ------------------ ------------------ 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 $1,404 25.86% $ 848 29.70% $ 656 30.81% $ 423 32.71% $ 348 39.59% Real estate: Commercial 494 13.43 447 12.14 316 16.56 253 18.60 265 23.09 Construction 763 22.90 679 28.03 465 21.18 413 17.42 93 10.53 Residential 817 18.76 798 25.56 605 28.27 381 27.92 510 22.21 Consumer and other 592 19.05 112 4.57 82 3.18 56 3.35 44 4.58 Not allocated 165 -- 316 -- 386 -- 239 -- 140 -- ------ ----- ------- ------ ------- ------ ------ ------ ------ ------ Total $4,235 100.00% $ 3,200 100.00% $ 2,510 100.00% $1,765 100.00% $1,400 100.00% ====== ====== ======= ====== ======= ====== ====== ====== ====== ======
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. 18 21 NONINTEREST INCOME The following table depicts the annual changes in various noninterest income categories:
December 31, December 31, 1999 versus 1998 1998 versus 1997 ------------------------------------------ ------------------------------------- $ Change 1999 1998 $ Change 1998 1997 ---------- ----------- ---------- ----------- ---------- ---------- Merchant Banc management fee $ (101,600) $ 90,000 $ 191,600 $ 33,000 $ 191,600 $ 158,600 Merchant Banc consulting fees (220,000) 12,500 232,500 224,500 232,500 8,000 Financial Advisory Income 594,810 594,810 -- N/A -- -- Gain on trading assets 202,454 202,454 -- N/A -- -- Service charges on deposit accounts 368,599 621,472 252,873 79,421 252,873 173,452 Gain on sale of ORE 130,050 130,050 -- N/A -- -- Gain on sale of mortgage loans (433,759) 809,110 1,242,869 1,163,921 1,242,869 78,948 Loss on investment in the Enterprise Fund L.P. (5,564) (7,763) (2,199) 2,705 (2,199) (4,904) Other noninterest income (47,966) 113,103 161,069 99,190 161,069 61,879 ------- ------- ------- ------ ------- ------ Total noninterest income $ 487,024 $2,565,736 $2,078,712 $ 1,602,737 $2,078,712 $ 475,975 ========== ========== ========== =========== ========== ==========
Total noninterest income was $2,565,736 in 1999, representing a $487,024 increase from 1998. The increase was primarily the result of increases in Financial advisory income, service charges on deposit accounts, gain on trading assets and a gain on the sale of ORE property. The Company began offering financial advisory and trust services in October 1998. The $594,810 increase in fees was the result of several life insurance and financial planning transaction fees. The $368,599 increase in service charges on deposit accounts was due to a concerted effort by the Company's management to alter service charges and other fees to stay competitive in the marketplace. In connection with the adoption of SFAS 133, the Company elected to reclassify an equity investment from held-to-maturity to trading. The Company recorded a $197,546 gain on marking the asset to market during the second quarter of 1999, which is treated as a cumulative effect of change in account principle. In the fourth quarter of 1999 the Company obtained a purchase agreement for the equity investment which resulted in a $202,454 gain in the fair value. This gain was recognized as noninterest income. The asset was subsequently sold on February 2, 2000. The $130,050 gain on sale of ORE was a result of the sale on foreclosed property the company has owned since 1992. The above mentioned increases were offset by a $321,600 decrease in Merchant Banc income, a $433,759 decrease on the sale of mortgage loans and a $47,966 decrease in other income. The decrease in Merchant Banc fees were a result of the aforementioned restructuring. The decrease in the gain on sale of mortgages was due to an increase in interest rates during 1999. Over half of the gain on sale of mortgage loans in 1998 were due to refinancing. The demand for refinanced mortgage loans dramatically decreased with the rise in interest rates. Most of the mortgage loans originated during 1999 were from the purchase of new or existing homes. Total noninterest income was $2,078,712 in 1998, representing a $1,602,737 increase from 1997. The increase was 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 were 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 was due to an increase in service charges on a larger deposit base and other fees. NONINTEREST EXPENSE Total noninterest expense was $13,386,172 in 1999 representing a $3,334,470 or 33% increase from 1998. The increase in noninterest expenses were primarily attributable to: 1) the new financial advisory services started in 1998, 2) growth in the new banking facilities opened during 1997 in St. Peters and Sunset Hills; and 3) expenses related to growth in the Company. During 1999, the Company's financial advisory division increased its staff and other expenses to support the Company's growth in this business segment. The Company added 35 employees to support its growth and established market presence. 19 22 The following table depicts changes in noninterest expenses in the above mentioned operations:
December 31, December 31, ---------------------------------------- ------------------------------------- 1999 versus 1998 1998 versus 1997 ---------------------------------------- ------------------------------------- $ Change 1999 1998 $ Change 1998 1997 ----------- ----------- ----------- ----------- ----------- ---------- Merchant banking division $ (123,959) $ 467,778 $ 591,737 $ 409,361 $ 591,737 $ 182,376 St. Peters and Sunset Hills banking units 1,317,255 5,246,240 3,928,985 1,871,666 3,928,985 2,057,319 Mortgage operations (37,986) 817,419 855,405 724,830 855,405 130,575 Enterprise Financial Advisors 953,434 1,163,497 210,063 210,063 210,063 -- Other operations 1,225,726 5,691,238 4,465,512 497,206 4,465,512 3,968,306 ----------- ----------- ----------- ----------- ----------- ---------- Total noninterest expense $ 3,334,470 $13,386,172 $10,051,702 $ 3,713,126 $10,051,702 $6,338,576 =========== =========== =========== =========== =========== ==========
The increases were primarily due to increases in salaries and benefits expense, occupancy and equipment expense and other operating expenses related to the above mentioned operations and staff additions. Total noninterest expense was $10,051,702 in 1998 representing a $3,713,126 or 59% increase from 1997. The increase in noninterest expenses were 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, 3) the new financial advisory services started in 1998; and 4) expenses related to the origination and sale of mortgage loans. The increases were 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 13% in 1998 as compared to 1997 which was due to normal increases related to growth. INCOME TAXES Income tax expense was $2,244,404, $1,850,275 and $1,316,590 for 1999, 1998, and 1997, respectively. The effective tax rate was 38%, 38% and 37% for the years ended December 31, 1999, 1998, and 1997, 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. 20 23 The following table reflects the Company's GAP analysis (rate sensitive assets minus rate sensitive liabilities) as of December 31, 1999:
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 $ 151 $ 18,729 $ 4,462 $ 2,055 $ 25,397 Interest-bearing deposits 1 -- -- -- 1 Loans, net of unearned loan fees 231,188 22,773 125,444 5,697 385,102 Federal funds sold 54,825 -- -- -- 54,825 -------------- ------------- ---------- -------- ------------- Total interest-sensitive assets $ 286,165 $ 41,502 $ 129,906 $ 7,752 $ 465,325 -------------- ------------- ---------- -------- ------------- Liabilities: Interest-bearing transaction accounts $ 31,533 -- -- -- 31,533 Money market and savings accounts 200,672 -- -- -- 200,672 Certificates of deposit 32,264 91,030 17,786 26 141,106 Guaranteed preferred beneficial interests in EBH-subordinated debentures -- -- -- 11,000 11,000 Federal Home Loan Bank advances -- -- 6,000 920 6,920 -------------- ------------- ---------- -------- ------------- Total interest-sensitive liabilities $ 264,469 $ 91,030 $ 23,786 $ 11,946 $ 391,231 ============== ============= ========== ======== ============= Interest-sensitivity GAP GAP by period $ 21,696 $ (49,528) $ 106,120 $ (4,194) $ 74,094 ============== ============= ========== ======== ============= Cumulative GAP $ 21,696 $ (27,832) $ 78,288 $ 74,094 $ 74,094 ============== ============= ========== ======== ============= Ratio of interest-sensitive assets to interest-sensitive liabilities: Periodic 1.08 0.46 5.46 0.65 1.19 Cumulative GAP 1.08 0.92 1.21 1.19 1.19 ============== ============= ========== ======== ============
The Company made certain assumptions in preparing the table above. These assumptions included: Loans will repay at historic repayment speeds; interest-bearing demand accounts and savings accounts are interest sensitive due to immediate repricing of remaining balance for each period presented; and fixed maturity deposits will not be withdrawn prior to maturity. A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the table. As indicated in the preceding table, the Company was asset sensitive on a cumulative basis for all periods except the 3 to 12 month period at December 31, 1999 based on contractual maturities. In this regard, a decrease in the general level of interest rates would generally have a negative effect on the Company's net interest income as the repricing of the larger volume of interest sensitive assets would create a larger reduction in interest income as compared to the reduction in interest expense created by the repricing of the smaller volume of interest sensitive liabilities. Likewise, an increase in the general level of interest rates would have a positive effect on net interest margin. As a policy, the Company focuses more attention to the cumulative GAP ratios than any specific periods ratios since the cumulative GAP takes into account the repricing nature of the assets and liabilities for a specific period plus all previous periods which would have been affected by interest rate movements. 21 24 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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, 1999, 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. 22 25 The following tables present the scheduled maturity of market risk sensitive instruments at December 31, 1999:
Beyond 5 Years or No Stated Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total -------- -------- -------- -------- -------- -------- --------- Assets: Investment in debt and equity securities $ 19,792 $ 4,459 $ -- $ -- $ -- $ 1,146 $ 25,397 Interest-bearing deposits 1 -- -- -- -- -- 1 Federal funds sold 54,825 -- -- -- -- -- 54,825 Loans, net of unearned loan fees 248,863 25,970 44,079 21,746 36,562 7,882 385,102 ------- -------- ------ ------- -------- -------- --------- Total $323,481 $ 30,429 $ 44,079 $21,746 $ 36,562 $ 9,028 $ 465,325 ======= ======== ====== ======= ======= ======== ========= Liabilities: Savings, Now, Money Market deposits $232,206 $ -- $ -- $ -- $ -- $ -- $ 232,206 Certificates of deposit 123,294 15,278 1,013 1,417 78 26 141,106 Guaranteed preferred beneficial interests in EBH-subordinated debentures -- -- -- -- -- 11,000 11,000 Federal Home Loan Bank advances -- 3,000 -- 3,000 -- 920 6,920 -------- -------- ---------- ------- -------- -------- --------- Total $355,500 $ 18,278 $ 1,013 $ 4,417 $ 78 $ 11,946 $ 391,232 ======== ======== ========== ======= ======== ======== ========= Average Estimated Total Interest Rate Fair Value ----- ------------- ---------- Assets: Investment in debt and equity securities $25,397 5.28% $ 25,394 Interest-bearing deposits 1 5.00 1 Federal funds sold 54,825 4.92 54,825 Loans, net of unearned loan fees 385,102 8.80 384,491 ------- ---------- Total $ 465,325 $ 464,711 Liabilities: Savings, Now, Money Market deposit $ 232,206 4.05% $ 232,206 Certificates of deposit 141,106 5.27 141,438 Guaranteed preferred Beneficial interests in EBH-subordinated debentures 11,000 9.40% 11,000 Federal Home Loan Bank advances 6,920 4.88 6,925 ----- ----- Total $ 391,232 $ 391,569
23 26 BALANCE SHEET TREND The following table summarizes certain trends in the Company's balance sheet during the three-year period ended December 31, 1999:
December 31, -------------------------------------------------- 1999 1998 1997 ------------- ------------- -------------- (Dollars in Thousands) Total assets $ 488,001 $ 375,304 $ 291,365 Earning assets 465,325 334,364 271,967 Deposits 435,798 339,180 264,301 Loans to deposits 88.37% 80.73% 85.34% Loans to total assets 78.91 72.96 77.41 Investment securities to total assets 5.20 12.33 4.61 Earning assets to total assets 95.35 89.09 93.34 ============= ============= ============= Loans $ 385,146 $ 273,915 $ 225,608 Unearned loan fees (44) (97) (48) ------------- ------------- ------------- Net loans $ 385,102 $ 273,818 $ 225,560 ============= ============= ============= Investment securities - HFT $ 910 $ -- $ -- Investment securities - AFS 23,807 45,592 12,515 Investment securities - HTM 680 699 919 ------------- ------------- ------------- Total investments $ 25,397 $ 46,291 $ 13,434 ============= ============= ============= Investment securities - AFS $ 23,807 $ 45,592 $ 12,515 Investment securities - HTM 680 699 919 Investment securities - HFT 910 -- -- Federal funds sold 54,825 14,250 32,825 Interest-bearing deposits 1 5 148 Net loans 385,102 273,818 225,560 ------------- ------------- -------------- Total earning assets $ 465,325 $ 334,364 $ 271,967 ============= ============= ==============
The ratio of earning assets was 95.35%, 89.09% and 93.34% for years ending December 31, 1999, 1998 and 1997, respectively. Earning assets increased $130,961,000 and $62,397,000, or 39% and 23%, for the years ended December 31, 1999 and 1998, respectively. Total assets increased $112,697,000 and $83,939,000, or 30% and 29%, 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, --------------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------------- --------------------------- --------------------------- (Dollars in Thousands) Average Interest Average Interest Average Interest Balance Expense Rate Balance Expense Rate Balance Expense Rate -------- -------- ---- -------- -------- ---- -------- ------- ---- Noninterest-bearing demand deposits $ 56,568 $ -- --% $ 46,326 $ -- --% $ 33,247 $ -- --% Interest-bearing transaction accounts 26,430 491 1.86 20,503 492 2.40 15,840 452 2.85 Money market accounts 178,423 7,833 4.39 117,027 5,361 4.58 77,198 3,604 4.67 Savings accounts 1,789 44 2.46 1,496 37 2.47 1,270 32 2.52 Certificates of deposit 102,277 5,386 5.27 102,897 5,912 5.75 77,081 4,521 5.87 -------- -------- ---- -------- -------- ---- -------- ------ ---- $365,487 $ 13,754 3.76% $288,249 $ 11,802 4.09% $204,636 $8,609 4.21% ======== ======== ==== ======== ======== ===== ======== ====== ====
24 27 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 $45 million at December 31, 1999, $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, 1999:
Remaining Maturity Amount ------------------ ------ (Dollars in Thousands) Three months or less $ 10,188 Over three through six months 10,522 Over six through twelve months 28,799 Over twelve months 6,812 ---------- $ 56,321 ==========
The table below sets forth the carrying value of investment securities held by the Company at the dates indicated:
December 31, ------------------------------------------------------------------------------------ 1999 1998 1997 ------------------------- ------------------------- ------------------------- 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 $ 22,685 89.33% $ 44,720 96.61% $ 11,963 89.05% Municipal bonds 656 2.58 669 1.45 881 6.56 Mortgage-backed securities 24 0.09 30 0.06 38 0.28 Federal Home Loan Bank stock 1,122 4.42 872 1.88 552 4.11 Trading securities 910 3.58 -- N/A -- N/A -------- -------- -------- --------- --------- -------- $ 25,397 100.00% $ 46,291 100.00% $ 13,434 100.00% ======== ======== ======== ========= ========= ========
As of December 31 1999, debt securities with an amortized cost of $679,806 were classified as held to maturity securities and debt and equity securities with an amortized cost of $23,913,796 were classified as available for sale securities. The market valuation account for the available for sale securities was adjusted to approximately $106,000 to decrease the recorded balance of such securities at December 31, 1999 to fair value on that date. The Company had one security classified as a trading asset with a fair value of $910,000 at December 31, 1999. The trading asset was sold at for $910,500 on February 2, 2000. 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. 25 28 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. The following table summarizes maturity and yield information on the investment portfolio at December 31, 1999:
Carrying Value Yield (1) --------------- ------------ (Dollars in Thousands) U.S. Treasury securities and obligations of U.S. government corporations and agencies: 0 to 1 year $ 18,729 5.63% 1 to 5 years 3,956 5.36 5 to 10 years -- -- No stated maturity -- -- -------------- ------------- Total $ 22,685 5.58% ============== ============= Municipal bonds: 0 to 1 year $ 150 6.75% 1 to 5 years 506 5.27 5 to 10 years -- -- No stated maturity -- -- -------------- ------------- Total $ 656 5.61% ============== ============= Mortgage-backed securities: 0 to 1 year $ -- -- 1 to 5 years -- -- 5 to 10 years -- -- No stated maturity 24 5.85% -------------- ------------- Total 24 5.85% ============== ============= Federal Home Loan Bank stock: 0 to 1 year $ -- -- 1 to 5 years -- -- 5 to 10 years -- -- No stated maturity 1,122 6.71% -------------- ------------- Total $ 1,122 6.71% ============== ============= Trading Securities 0 to 1 year $ -- -- 1 to 5 years -- -- 5 to 10 years -- -- No stated maturity 910 33.00% -------------- ------------- Total $ 910 6.10% ============== ============= Total 0 to 1 year $ 18,880 5.64% 1 to 5 years 4,462 5.35 5 to 10 years -- -- No stated maturity 2,056 18.34 -------------- ------------- Total $ 25,397 6.61% ============== =============
(1) Weighted average tax-equivalent yield 26 29 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 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, --------------------------------- 1999 1998 1997 ------ ------ ------ Tier 1 capital to risk weighted assets 10.78% 9.89% 11.20% Total capital to risk weighted assets 11.82 10.97 12.28 Leverage ratio (Tier 1 capital to average assets) 10.74 9.16 11.42 Tangible capital to tangible assets 6.71 8.63 9.79
At December 31, 1999, the Company's Tier 1 capital was $43.8 million compared to $29.2 million and $26.0 million at December 31, 1998 and 1997, respectively. At December 31, 1999, the Company's total capital was $48.1 million compared to $32.4 million and $28.6 million at December 31, 1998 and 1997, respectively. YEAR 2000 Overview The Year 2000 ("Y2K") issue refers to the ability of a date-sensitive computer program to recognize 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 disruption 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. The Cost of Y2K Compliance: The total cost to the Company to assess, correct and verify Y2K issues was approximately $185,000, consisting of $125,000 in salaries and benefit costs allocated to Y2K projects and $60,000 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 27 30 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. 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 could be material to the operations and financial performance of the Company and its subsidiaries. As of March 1, 2000 the Company had encountered no significant Y2K related problems. IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement 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. In connection with the adoption of SFAS 133, the Company elected to reclassify an equity investment from held-to-maturity to trading. The Company recorded a $197,546 gain on marking the asset to market during the second quarter of 1999, which is treated as a cumulative effect of change in account principal. In the fourth quarter of 1999 the Company obtained a purchase agreement for the equity investment which resulted in a $202,454 gain in the fair value. This gain was recognized as noninterest income. The asset was sold on February 2, 2000 for $910,500. 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 28 31 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. Federal legislation permits bank holding companies to acquire control of banks throughout the United States. In addition, and subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring "control" of a bank holding company, such as the Company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Under Federal Reserve regulations applicable to the Company, control will be 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. Recent Developments: The Gramm-Leach-Bliley Act ("GLBA") was signed into law on November 12, 1999. This major banking legislation now permits affiliation among depository institutions and entities whose activities are considered "financial in nature" or incidental or complementary to such activities. Activities which are expressly considered financial in nature include, among other things, securities and insurance underwriting and agency, investment management and merchant banking. With certain exceptions, GLBA similarly expanded the authorized activities of subsidiaries of national banks (and indirectly through the wild card powers provisions of state law, Missouri banks). These provisions become effective March 11, 2000. In general, these expanded powers are reserved to bank holding companies, to be known as financial holding companies ("FHC") and banks, where all depository institutions affiliated with them are well capitalized and well managed based on applicable banking regulations and meet specified Community Reinvestment Act ratings. GLBA authorizes the Federal Reserve and the United States Treasury, in cooperation with one another, to determine what additional activities are permissible as financial in nature. Maintenance of activities which are financial in nature will require FHC's and banks to continue to satisfy applicable well capitalized and well managed requirements. Bank holding companies which do not qualify for FHC status are limited to non-banking activities deemed closely related to banking prior to adoption of GLBA. To become an FHC, the Company would file a declaration with the Federal Reserve electing to engage in activities permissible for an FHC and certifying that it is eligible to do so because it meets the requirements outlined above. The Company currently meets the requirements to make an election to become a FHC; however, the Company's management has not determined at this time whether it will seek such an election. The Company is examining its strategic business plan to determine whether, based on market conditions, the relative financial conditions of Company and its subsidiaries, regulatory 29 32 capital requirements, general economic conditions, and other factors, Company desires to utilize any of its expanded powers provided in GLBA. In addition to the creation of FHC's, GLBA establishes a scheme of "functional regulation" of financial services businesses which is intended to reflect the primacy of regulation over activities and entities by regulators routinely responsible for such activities and entities and with the appropriate expertise in the area of regulation. This applies both in allocating responsibility for supervising different companies within an FHC and in supervising different activities within the same company. In this connection, GLBA clarifies the regulation by states of insurance products sold by depository institutions, repeals some of the exemptions enjoyed by banks under federal securities laws relation to securities offered by banks and licensing of broker-dealers and investment advisors. GLBA also adopts restrictions on financial institutions regarding the sharing of customer non-public personal information with non-affiliated third parties unless the customer has had an opportunity to opt out of the disclosure. GLBA also imposes periodic disclosure requirements concerning the financial institution's policies and practices regarding data sharing with affiliated and non-affiliated parties. This act will be the subject of extensive rule making by federal banking regulators and others. The effects of this legislation will only begin to be understood over the next several years and at this time cannot be predicted with any certainty. 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. As of December 31, 1999, 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, issuance 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. Once the merger with CGB is complete, the Company will control FCB N.A., a nationally chartered bank. If the Company maintains their charter they will also be subject to regulation by the Office of the Comptroller of Currency ("OCC"). 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 30 33 transactions must be secured in prescribed amounts. The Bank is also subject to the provisions of Section 23B of the Federal Reserve Act that, among other things, prohibit an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies. The Bank is subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC shall evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. The company has a satisfactory rating under CRA. Other Regulations. Interest and certain other charges collected or contracted for by the Bank are subject to state usury laws and certain federal laws concerning interest rates. The Bank's loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978 governing these and provision of information to credit reporting agencies; the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the Bank also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. Deposit Insurance. The deposits of the Bank are currently insured by the FDIC to a maximum of $100,000 per depositor, subject to certain aggregation rules. The FDIC establishes rates for the payment of premiums by federally insured banks for deposit insurance. An insurance fund (BIF) is maintained for commercial banks, with insurance premiums from the industry used to offset losses from insurance payouts when banks and thrifts fail. The FDIC has adopted a risk-based deposit insurance premium system for all insured depository institutions, including the Bank, which requires premiums from a depository institution based upon its capital levels and risk profile, as determined by its primary federal regulator on a semiannual basis. DIVIDENDS The principal source of the Company's cash revenues comes from dividends received from the Bank. The amount of dividends that may be paid by the Bank to the Company depends on the Bank's earnings and capital position and is limited by federal and state law, regulations, and policies. CAPITAL REGULATIONS The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure, and minimize disincentives for holding liquid assets. The resulting capital ratios represent qualifying capital as a percentage of total risk-weighted assets and off-balance-sheet items. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies 31 34 contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimums. The current guidelines require all bank holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio, a portion of which must be Tier 1 capital. Tier 1 capital includes common shareholders' equity, qualifying perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance for loan and lease losses. Tier 2 capital includes the excess of any preferred stock not included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments, subordinated debt and intermediate term-preferred stock, and general reserves for loan and lease losses up to 1.25% of risk-weighted assets. Under these guidelines, banks' and bank holding companies' assets are given risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance-sheet items are given credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property and, under certain circumstance, residential construction loans, both of which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% rating, and direct obligations of or obligations guaranteed by the United States Treasury or United States Government agencies, which have a 0% rating. The federal bank regulatory authorities have also implemented a leverage ratio, which is Tier 1 capital as a percentage of average total assets less intangibles, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included on pages 35 through 40, below. PART III MANAGEMENT ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to pages [4] through [10] of the Company's Proxy Statement for its annual meeting to be held April 19, 2000. 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 entire Board of Directors performs the functions of audit and compensation committees. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to pages [4] through [6] of the Company's Proxy Statement for its annual meeting to be held April 19, 2000. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to pages [8] through [10] of the Company's Proxy Statement for its annual meeting to be held April 19, 2000. 32 35 ITEM 13: CERTAIN RELATIONSHIPS AND 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 $279,725 in 1999. ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED OR INCORPORATED BY REFERENCE AS PART OF THIS REPORT:
ENTERBANK HOLDINGS INC. AND SUBSIDIARIES 1. Financial Statements: Page Number --------------------- ----------- Independent auditors report 34 Consolidated Balance Sheets at December 31, 1999 and December 31, 1998 35 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 36 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 38 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 39 Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997 40 Notes to Consolidated Financial Statements 41 2. Financial Statement Schedules ----------------------------- None other than those included in the Notes to Consolidated Financial Statements. 3. Exhibits See Exhibit Index
(B) REPORTS ON FORM 8-K On October 7, 1999 Registrant filed a report on Form 8-K to report, under Item 5, completion of its $10 million cumulative Preferred Securities offering and to report its third quarter results. 33 36 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting standards No. 133, Accounting for Derivative Instruments and Hedging Activities. /s/ KPMG LLP February 18, 2000 34 37 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1999 and 1998
Assets 1999 1998 ------ ------------- ------------- Cash and due from banks $ 14,798,216 $ 29,701,018 Federal funds sold 54,825,000 14,250,000 Interest-bearing deposits 469 5,035 Investments in debt and equity securities: Trading, at fair value 910,000 -- Available for sale, at estimated fair value 23,807,572 45,592,327 Held to maturity, at amortized cost (estimated fair value of $676,851 in 1999 and $704,723 in 1998) 679,806 698,609 ------------ ------------ Total investments in debt and equity securities 25,397,378 46,290,936 ------------ ------------ Loans held for sale 1,438,335 6,272,124 Loans, less unearned loan fees 385,101,759 273,817,522 Less allowance for loan losses 4,235,000 3,200,000 ------------ ------------ Loans, net 380,866,759 270,617,522 ------------ ------------ Other real estate owned 396,072 806,072 Office equipment and leasehold improvements 3,228,256 3,063,123 Accrued interest receivable 2,473,781 1,648,775 Investment in Enterprise Merchant Banc LLC 572,009 -- Investment in Enterprise Fund, L.P. 546,710 424,484 Prepaid expenses and other assets 3,458,459 2,224,829 ------------ ------------ Total assets $ 488,001,444 $ 375,303,918 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Deposits: Demand $ 62,486,092 $ 61,114,961 Interest-bearing transaction accounts 31,532,705 24,234,717 Money market accounts 197,935,760 149,177,922 Savings 2,736,638 1,471,647 Certificates of deposit: $100,000 and over 56,321,178 43,326,061 Other 84,785,457 59,854,862 ------------ ------------ Total deposits 435,797,830 339,180,170 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 -- Federal Home Loan Bank advances 6,920,386 6,000,000 Accrued interest payable 962,205 608,056 Accounts payable and accrued expenses 557,338 275,563 ------------ ------------ Total liabilities 455,237,759 346,063,789 ------------ ------------ Shareholders' equity: Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 7,143,636 shares at December 31, 1999 and 7,115,511 shares at December 31, 1998 71,436 71,155 Surplus 19,285,957 19,216,564 Retained earnings 13,476,400 9,941,792 Accumulated other comprehensive gain (loss) (70,108) 10,618 ------------ ------------ Total shareholders' equity 32,763,685 29,240,129 ------------ ------------ Total liabilities and shareholders' equity $ 488,001,444 $ 375,303,918 ============ ============
See accompanying notes to consolidated financial statements. 35 38 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 -------------- -------------- --------------- Interest income: Interest and fees on loans $ 30,018,530 $ 23,001,165 $ 16,795,887 Interest on debt and equity securities: Taxable 978,651 878,147 1,017,897 Nontaxable 26,102 26,565 34,630 Interest on federal funds sold 1,112,929 1,468,652 909,326 Interest on interest bearing deposits 697 39,740 1,289 -------------- -------------- -------------- Total interest income 32,136,909 25,414,269 18,759,029 -------------- -------------- -------------- Interest expense: Interest-bearing transaction accounts 490,791 492,581 410,915 Money market accounts 7,833,783 5,361,463 3,604,225 Savings 43,942 36,918 32,357 Certificates of deposit: $100,000 and over 2,160,871 2,189,803 1,658,554 Other 3,224,838 3,722,039 2,862,256 Federal funds purchased 1,597 -- 11,035 Guaranteed preferred debenture expense 186,605 -- -- Federal Home Loan Bank advances 331,042 66,527 -- Notes payable 78,650 -- 2,888 -------------- -------------- -------------- Total interest expense 14,352,119 11,869,331 8,582,230 -------------- -------------- -------------- Net interest income 17,784,790 13,544,938 10,176,799 Provision for loan losses 1,021,256 710,899 775,064 -------------- -------------- -------------- Net interest income after provision for loan losses 16,763,534 12,834,039 9,401,735 -------------- -------------- -------------- Noninterest income: Service charges on deposit accounts 621,472 252,873 173,452 Gain on sale of ORE 130,050 -- -- Financial advisory income 594,810 -- -- Gain on trading assets 202,454 -- -- Other service charges and fee income 212,669 585,169 228,479 Gain on sale of mortgage loans 809,110 1,242,869 78,948 Income from investments in EMB, LLC 2,934 -- -- Loss on investment in Enterprise Fund, L.P. (7,763) (2,199) (4,904) -------------- -------------- -------------- Total noninterest income 2,565,736 2,078,712 475,975 -------------- -------------- -------------- Noninterest expense: Salaries 6,748,905 5,103,863 3,221,147 Payroll taxes and employee benefits 1,386,603 999,579 620,438 Occupancy 977,422 879,046 552,063 Furniture and Equipment 431,005 389,274 227,061 FDIC insurance 30,139 40,638 21,846 Data processing 457,529 306,691 237,248 Other 3,354,569 2,332,611 1,458,773 -------------- -------------- -------------- Total noninterest expense 13,386,172 10,051,702 6,338,576 -------------- -------------- -------------- Income before income tax expense 5,943,098 4,861,049 3,539,134 Income tax expense 2,244,404 1,850,275 1,316,590 -------------- -------------- -------------- Income before cumulative effect of a change income accounting principle $ 3,698,694 $ 3,010,774 $ 2,222,544 ============== -------------- -------------- Cumulative effect on prior years of a change in asset classification, net of taxes 121,491 -- -- -------------- -------------- -------------- Net income $ 3,820,185 $ 3,010,774 $ 2,222,544 ============== ============== ==============
See accompanying notes to consolidated financial statements. 36 39 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997 ---------------- --------------- --------------- Per share amounts (1) Basic earnings per share: Income before cumulative effect of change in accounting principle $ 0.52 $ 0.43 $ 0.35 Cumulative effect on prior years of a change in asset classification $ 0.02 $ -- $ -- ================ =============== =============== Net income $ 0.54 $ 0.43 $ 0.35 ================ =============== =============== Basic weighted average common shares common stock equivalents outstanding 7,135,697 7,052,289 6,286,077 Diluted earnings per share: Income before cumulative effect of a change in accounting principle $ 0.48 $ 0.40 $ 0.33 Cumulative effect on prior years of a change in asset classification $ 0.02 $ -- $ -- ================ =============== =============== Net income $ 0.50 $ 0.40 $ 0.33 ================ =============== =============== Diluted weighted average common shares and common stock equivalents outstanding 7,704,800 7,544,820 6,674,901
- ----------------------------------------------------------- See accompanying notes to consolidated financial statements. 37 40 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholder's Equity Years Ended December 31, 1999, 1998, and 1997
Net unrealized holding gains (losses) on Total Common Stock available- share- ------------------------- Retained for-sale holders' Shares Amount Surplus earnings securities equity ------------------------- -------------- ------------- ------------ ------------- Balance, December 31, 1996 4,987,080 $ 49,870 $ 9,562,710 $ 5,138,612 $ 6,701 $ 14,757,893 Net income -- -- -- 2,222,544 -- 2,222,544 Dividends declared ($.03 per share) -- -- -- (195,085) -- (195,085) Stock options exercised 160,500 1,605 265,895 -- -- 267,500 Issuance of Common Stock 1,747,656 17,477 9,004,637 9,022,114 Other comprehensive income -- -- -- -- (8,174) (8,174) ----------- ------------ -------------- ------------- ------------- -------------- Balance, December 31, 1997 6,895,236 68,952 18,833,242 7,166,071 (1,473) 26,066,792 Net income -- -- -- 3,010,774 -- 3,010,774 Dividends declared ($.03 per share) -- -- -- (235,053) -- (235,053) Stock options exercised 220,275 2,203 383,322 -- -- 385,525 Other comprehensive income -- -- -- -- 12,091 12,091 ----------- ------------ -------------- ------------- ------------ ------------- Balance, December 31, 1998 7,115,511 71,155 19,216,564 9,941,792 10,618 29,240,129 Net income -- -- -- 3,820,185 -- 3,820,185 Dividends declared ($.04 per share) -- -- -- (285,577) -- (285,577) Stock options exercised 28,125 281 69,393 69,674 Other comprehensive income -- -- -- -- (80,726) (80,726) ----------- ------------ -------------- ------------- ------------- -------------- Balance, December 31, 1999 7,143,636 $ 71,436 $ 19,285,957 $ 13,476,400 $ (70,108) $ 32,763,685 =========== ============ ============== ============= ============= ==============
See accompanying notes to consolidated financial statements. 38 41 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------- Cash flows from operating activities: Net income $ 3,820,185 $ 3,010,774 $ 2,222,544 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle, net of taxes (121,491) -- -- Depreciation and amortization 592,101 488,790 311,132 Provision for loan losses 1,021,256 710,899 775,064 Write-downs and losses on other real estate owned, net -- -- 24,259 Gain on sale of other real estate owned (130,050) (26,546) -- Net accretion of debt and equity securities (188,295) (288,951) (207,715) Net increase in trading securities asset (788,509) -- -- Loss on investment in Enterprise Fund, L.P. 7,763 2,199 4,904 Mortgage loans originated (56,541,117) (94,433,924) (8,455,878) Proceeds from mortgage loans sold 62,184,016 90,728,913 7,210,582 Gain on sale of mortgage loans (809,110) (1,242,869) (78,948) Increase in accrued interest receivable (825,006) (200,432) (512,479) Increase in accrued interest payable 354,149 58,997 239,549 Other, net (951,856) (526,545) (700,997) ------------ ------------ ------------- Net cash provided by (used in) operating activities 7,624,036 (1,718,695) 832,017 ------------ ------------ ------------- Cash flows from investing activities: Purchases of interest-bearing deposits -- -- (148,349) Proceeds from maturity of interest-bearing deposits 4,566 143,314 -- Purchases of available for sale debt securities (27,241,172) (49,683,878) (18,788,955) Purchases of available for sale equity securities (250,700) (320,000) (90,500) Purchases of held to maturity debt securities (100,000) (256,689) (101,076) Proceeds from maturities of available for sale debt securities 49,400,000 17,250,000 20,580,000 Proceeds from maturities and principal paydowns on held to maturity debt securities 103,000 460,785 407,956 Net increase in loans (111,270,493) (48,275,994) (91,597,180) Proceeds from sale of other real estate owned 540,050 24,327 184,095 Purchases of office equipment and leasehold improvements (757,234) (1,225,736) (1,520,563) Write-down of office equipment and leasehold improvements -- 2,522 -- Investment in Enterprise Merchant Banc LLC (572,009) -- -- Investment in Enterprise Fund, L.P. (129,989) (201,000) 319,500 ------------ ------------ ------------- Net cash used in investing activities (90,273,981) (82,082,349) (90,755,072) ------------ ------------ ------------- Cash flows from financing activities: Net increase in demand and savings accounts 58,691,948 67,358,128 65,187,192 Net increase in certificates of deposit 37,925,712 7,521,408 30,152,353 Increase in Federal Home Loan Bank Advances 920,386 6,000,000 -- Proceeds from issuance of guaranteed preferred subordinated debentures 11,000,000 -- -- Decrease increase in notes payable -- -- (300,000) Cash dividends paid (285,577) (235,053) (195,085) Proceeds from the issuance of common stock -- -- 9,022,114 Proceeds from the exercise of stock warrants and common stock options 69,674 385,525 267,500 ------------ ------------ ------------- Net cash provided by financing activities 108,322,143 81,030,008 104,134,074 ------------ ------------ ------------- Net increase (decrease) in cash and due from banks 25,672,198 (2,771,036) 14,211,019 Cash and cash equivalents, beginning of year 43,951,018 46,722,054 32,511,035 ------------ ------------ ------------- Cash and cash equivalents, end of year $ 69,623,216 $ 43,951,018 $ 46,722,054 ============ ============ ============= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 14,003,833 $ 11,810,334 $ 8,342,681 Income taxes 2,239,000 2,014,266 1,509,322 ============ ============ ============= Noncash transactions: Transfers to other real estate owned in settlement of loans -- 97,781 140,000 Loans made to facilitate the sale of other real estate owned 515,240 100,000 -- Transfer of held to maturity security to trading 510,000 -- -- ============ ============ =============
See accompanying notes to consolidated financial statements. 39 42 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------- -------------- -------------- Net income $ 3,820,185 $ 3,010,774 $ 2,222,544 Other comprehensive income, before tax: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period (122,312) 18,319 (12,385) ------------- -------------- -------------- Other comprehensive income, before tax (122,312) 18,319 (12,385) Income tax benefit (expense) related to items of other comprehensive income 41,586 (6,228) 4,211 ------------- -------------- -------------- Other comprehensive income, net of tax (80,726) 12,091 (8,174) ------------- -------------- -------------- Comprehensive income $ 3,739,459 $ 3,022,865 $ 2,214,370 ============= ============== ==============
See accompanying notes to consolidated financial statements. 40 43 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997 NOTE 1--ORGANIZATION On May 9, 1995, Enterbank Holdings, Inc. (the "Company") was formed as a bank holding company. Enterbank Holdings, Inc. exchanged 4,390,200 shares of Enterbank Holdings, Inc. for all 73,170 (100%) of outstanding shares of Enterprise Bank in a sixty-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. Additionally, Enterprise Capital Resources, Inc. ("ECR") 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 ECR. Subsequent to December 31, 1997, ECR 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. In 1999, the Company formed EBH Capital Trust I ("EBH Trust"). EBH Trust is a Delaware business trust created for the single purpose of offering trust preferred securities and purchasing the junior subordinated debentures of Enterbank Holdings. On January 5, 2000, the Company signed a merger agreement with Commercial Guaranty Bancshares, Inc. located in Overland Park, Kansas. Commercial Guaranty ("CGB") is the bank holding company for First Commercial Bank, N.A. ("FCB"). The Company expects the merger to be completed sometime in the middle of 2000. The agreement provides for CGB shareholders to receive 2.1429 shares of Enterbank common stock in a tax-free exchange utilizing the pooling of interests method of accounting. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company provides a full range of banking services to individual and corporate customers located within St. Louis, Missouri and the surrounding communities through its subsidiary, Enterprise Bank (the Bank). The Company is subject to competition from other financial and nonfinancial institutions providing financial services in the markets served by the Company's subsidiaries. Additionally, the Company and its subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The more significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below: BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements of the Company and its subsidiaries have been prepared in conformity with generally accepted accounting principles and conform to predominant practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions which significantly affect the reported amounts in the consolidated financial statements. Estimates which are particularly susceptible to change in a short period of time include the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of amounts due from borrowers on loans. Actual amounts could differ from those estimates. 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. 41 44 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements INVESTMENTS IN DEBT AND EQUITY SECURITIES The Company currently classifies investments in debt and equity securities as follows: Trading - includes securities which the Company has bought and held principally for the purpose of selling them in the near term. 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. Debt and equity securities classified as trading are carried at estimated fair value. The realized and unrealized gains and losses on trading securities are included in noninterest income. 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 trading, 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 include 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, 1999. The Company does not retain servicing on any loans originated and sold, nor did the Company have any purchased mortgage servicing rights at December 31, 1999. 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. 42 45 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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. 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. 43 46 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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. NEW ACCOUNTING STANDARDS Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities. This statement 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. 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. All share and per share calculations have been adjusted to give retroactive effect to a 3 for 1 stock split effective September 29, 1999. 44 47 ENTEBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of basic earnings per share are as follows:
1999 1998 1997 -------------- -------------- -------------- BASIC Net income attributable to common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544 ============== ============== ============== Weighted average common shares outstanding 7,135,697 7,052,289 6,286,077 ============== ============== ============== Basic earnings per share $ 0.54 $ 0.43 $ 0.35 ==== ==== ==== The components of diluted earnings per share are as follows: 1999 1998 1997 -------------- -------------- -------------- DILUTED Net income attributable to common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544 ============== ============== ============== Weighted average common shares outstanding 7,135,697 7,052,289 6,286,077 Stock options 569,103 492,531 388,824 -------------- -------------- -------------- Diluted weighted average common shares outstanding $ 7,704,800 $ 7,544,820 $ 6,674,901 ============== ============== ============== Diluted earnings per share $ 0.50 $ 0.40 $ 0.33 ==== ==== ====
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, 1999 and 1998, approximately $849,000 and $8,001,000, respectively, of cash and due from banks represented required reserves on deposits maintained by the Bank in accordance with Federal Reserve Bank requirements. During 1999, the Company restructured its deposit categories to reduce the required reserves. 45 48 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, 1999 and 1998 is as follows:
1999 -------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value -------------- -------------- -------------- --------------- U. S. Treasury securities and obligations of U.S. government corporations and agencies $ 22,791,596 $ 612 $ 106,836 $ 22,685,372 Federal Home Loan Bank stock 1,122,200 -- -- 1,122,200 -------------- -------------- -------------- --------------- $ 23,913,796 $ 612 $ 106,836 $ 23,807,572 ============== ============== ============== =============== 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 ============== ============== ============== ===============
The amortized cost and estimated fair value of debt and equity securities classified as available for sale at December 31, 1999, 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 $ 18,823,017 $ 18,729,091 Due after one year through five years 3,968,579 3,956,281 Securities with no stated maturity 1,122,200 1,122,200 -------------- --------------- $ 23,913,796 $ 23,807,572 ============== ===============
A summary of the amortized cost and estimated fair value of debt and equity securities classified as held to maturity at December 31, 1999 and 1998 is as follows:
1999 ------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value -------------- -------------- -------------- --------------- Mortgage-backed securities $ 23,538 $ 44 $ -- $ 23,582 Municipal bonds 656,268 353 3,352 653,269 -------------- -------------- -------------- --------------- $ 679,806 $ 397 $ 3,352 $ 676,851 ============== ============== ============== =============== 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 ============== ============== ============== ===============
46 49 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The amortized cost and estimated fair value of debt and equity securities classified as held to maturity at December 31, 1999, 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 $ 150,670 $ 150,283 Due after one year through five years 505,598 502,986 Mortgage-backed securities 23,538 23,582 -------------- --------------- $ 679,806 $ 676,851 ============== ===============
There were no sales of investments in debt and equity securities in 1999, 1998 or 1997. Debt and equity securities having a carrying value of $4,362,575 and $6,941,888 at December 31, 1999 and 1998, 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. In connection with the adoption of SFAS 133, the Company elected to reclassify an equity investment from held-to-maturity to trading. The Company recorded a $197,546 gain on marking the asset to market during the second quarter of 1999, which is treated as a cumulative effect of change in accounting principle. In the fourth quarter of 1999 the Company obtained a purchase agreement for the for the equity investment which resulted in a $202,454 gain in the fair value. This gain was recognized as noninterest income. The asset was subsequently sold on February 2, 2000 for $910,500. NOTE 6--LOANS A summary of loans by category at December 31, 1999 and 1998 is as follows:
1999 1998 --------------- -------------- Commercial and industrial $ 99,646,173 $ 81,346,004 Loans secured by real estate 212,304,020 179,959,303 Other 73,195,370 12,609,494 --------------- -------------- 385,145,563 273,914,801 Less unearned loan fees 43,804 97,279 --------------- -------------- $ 385,101,759 $ 273,817,522 =============== ==============
The breakdown of loans secured by real estate at December 31, 1999 and 1998 is as follows:
1999 1998 --------------- -------------- Business and personal loans $ 68,065,594 $ 65,011,812 Income-producing properties 67,443,642 55,283,273 Owner-occupied properties 21,946,035 10,628,492 Real estate development properties 54,848,749 49,035,726 --------------- -------------- $ 212,304,020 $ 179,959,303 =============== ==============
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. 47 50 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Following is a summary of activity for the year ended December 31, 1999 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, January 1, 1999 $ 7,633,721 New loans 24,047,408 Payments and other reductions (3,716,500) --------------- Balance, December 31, 1999 $ 27,964,629 ===============
A summary of activity in the allowance for loan losses for the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997 ----------------- --------------- --------------- Balance at beginning of year $ 3,200,000 $ 2,510,000 $ 1,765,000 Provisions charged to operations 1,021,256 710,899 775,064 Loans charged off (19,243) (48,854) (161,799) Recoveries of loans previously charged off 32,987 27,955 131,735 ----------------- --------------- --------------- Balance at end of year $ 4,235,000 $ 3,200,000 $ 2,510,000 ================= =============== ===============
A summary of impaired loans, which include nonaccrual loans, at December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997 ------------- ------------ ------------- Nonaccrual loans $ 293,750 $ 2,000 $ 50,000 Impaired loans continuing to accrue interest 770,455 1,084,658 916,803 ------------- ------------ ------------- Total impaired loans $ 1,064,205 $ 1,086,658 $ 966,803 ============= ============ ============= Allowance for losses on specific impaired loans $ 245,095 $ 157,870 $ 191,804 Impaired loans with no related allowance for loan losses -- -- -- Average balance of impaired loans during the year $ 1,034,744 $ 915,260 $ 563,943 ============= ============ =============
If interest on nonaccrual loans had been accrued, such income would have been $6,953, $31 and $1,537 for the years ended December 31, 1999, 1998 and 1997, respectively. The amount recognized as interest income on nonaccrual loans was $10,621, $138 and $4,864 for the years ended December 31, 1999, 1998 and 1997, respectively. The amount recognized as interest income on impaired loans continuing to accrue interest was $125,097, $126,355 and $94,801 for the years ended December 31, 1998, 1997 and 1996, respectively. 48 51 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 7--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS A summary of office equipment and leasehold improvements at December 31, 1999 and 1998 is as follows:
1999 1998 ----------------- ---------------- Data processing equipment $ 1,325,003 $ 903,851 Furniture, fixtures and equipment 2,439,009 2,299,995 Leasehold improvements 1,825,613 1,633,585 Automobile 29,023 29,023 ----------------- ---------------- 5,618,648 4,866,454 Less accumulated depreciation and amortization 2,390,392 1,803,331 ----------------- ---------------- Office equipment and leasehold improvements, net $ 3,228,256 $ 3,063,123 ================= ================
Depreciation and amortization of office equipment and leasehold improvements included in occupancy expense amounted to $592,101 in 1999, $488,790 in 1998 and $311,132 in 1997. All of the Company's banking facilities are leased under agreements that expire in various years through 2016. The Company's aggregate rent expense totaled $814,538, $749,086 and $436,524 in 1999, 1998 and 1997, respectively, and sublease rental income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and 1997, respectively. The Company leases its Clayton facility from a partnership in which a director and an officer have an ownership interest. The future aggregate minimum rental commitments required under the leases are as follows:
Year Amount ---- ---------- 2000 $1,034,379 2001 1,043,145 2002 1,053,740 2003 1,019,589 2004 955,437 2005 and thereafter 3,784,092
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 no additional future capital commitments. The Company had a total commitment of $1,005,000. The Company had made contributions of $502,500 and was released from any future capital commitments with the restructuring of the Merchant Banking Business. This investment, which is accounted for using the equity method of accounting, had a carrying value of $546,710 and $424,484 at December 31, 1999 and 1998, respectively. NOTE 9--FEDERAL HOME LOAN BANK ADVANCES During 1998, the Bank maintained a $2 million line of credit from the Federal Home Loan Bank of Des Moines. The Bank chose not to renew the line of credit at the maturity date in February 1999. As a member of the Federal Home Loan Bank, 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 130% of the outstanding balance. 49 52 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table summarizes the type, term and rate of the Company's Federal Home Loan Bank advances at December 31, 1999:
Outstanding Type of Advance Balance Issue Date Term Rate - --------------- ---------------- ---------------- -------------- ------------- Long term non-amortized advance $3,000,000 10/05/98 3 years 4.68% Long term non-amortized advance 3,000,000 10/05/98 5 years 4.72 Mortgage matched advance 481,864 02/15/99 15 years 5.62 Mortgage matched advance 194,470 04/22/99 15 years 6.15 Mortgage matched advance 244,052 05/14/99 15 years 6.32 ---------- Total Federal Home Loan Bank Advances $6,920,386 05/14/99 15 years 6.32% ==========
NOTE 10--MATURITY OF CERTIFICATES OF DEPOSIT Following is a summary of certificates of deposit maturities at December 31, 1999:
$100,000 Maturity Period and Over Other Total --------------- -------------- ------------- ------------- Less than 1 year $ 49,509,046 $ 73,784,584 $ 123,293,630 Greater than 1 year and less than 2 years 6,507,132 8,770,941 15,278,073 Greater than 2 years and less than 3 years 100,000 912,932 1,012,932 Greater than 3 years and less than 4 years 205,000 1,212,280 1,417,280 Greater than 4 years and less than 5 years -- 78,399 78,399 Over 5 years -- 26,321 26,321 -------------- ------------- ------------- $ 56,321,178 $ 84,785,457 $ 141,106,635 ============== ============= =============
NOTE 11--NOTE PAYABLE In March 1999, the Company obtained a $2,500,000 unsecured bank line of credit. In July 1999, the Company increased the line to $5,000,000. The line of credit matures on March 31, 2000 and is an interest only note, accruing interest at a variable rate of Prime minus 0.50%. The Company used a portion of the proceeds from the Preferred Securities offering to pay off the $5,000,000 outstanding balance on the note. On October 22, 1999 the Company reduced the line of credit to $2,000,000 and paid off the remaining balance on October 22, 1999. For the year ended December 31, 1999, the average balance and maximum month-end balance of the note payable were $1,029,167 and $5,000,000, respectively. The Company had no outstanding principal balance on the loan as of December 31, 1999. As an extra safety liquidity precaution to shareholders and customers, the Company obtained a secured line of credit from the Federal Reserve Bank of St. Louis under a Y2K program. As of December 31, 1999, $109,567,935 was available under this line. The Company did not draw on the line for any reason as it did not experience any unusual liquidity demands with the rollover to the Year 2000. NOTE 12--INCOME TAXES The components of income tax expense (benefit) for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ----------------- ----------------- ----------------- Current: Federal $ 2,347,084 $ 1,821,571 $ 1,407,463 State and local 389,987 289,415 217,479 Deferred (492,667) (260,711) (308,352) ----------------- ----------------- ----------------- $ 2,244,404 $ 1,850,275 $ 1,316,590 ================= ================= =================
50 53 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate of 34% in 1999, 1998 and 1997, to income before income taxes and the amounts reflected in the consolidated statements of income is as follows:
1999 1998 1997 ----------------- ----------------- ----------------- Income tax expense at statutory rate $ 2,020,653 $ 1,652,757 $ 1,203,306 Increase (reduction) in income taxes resulting from: Tax-exempt income (75,868) (55,510) (31,828) State and local income tax expense 257,391 191,014 143,536 Other, net 42,228 62,014 1,576 ----------------- ----------------- ----------------- Total tax expense $ 2,244,404 $ 1,850,275 $ 1,316,590 ================= ================= =================
A net deferred income tax asset of $1,567,339 and $1,033,086 is included in prepaid expenses and other assets in the consolidated balance sheets at December 31, 1999 and 1998, 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, 1999 and 1998 is as follows:
1999 1998 ---------------- --------------- Deferred tax assets: Allowance for loan losses $ 1,480,735 $ 1,098,172 Unrealized losses on securities available for sale 36,116 -- Deferred compensation 134,192 -- Other -- 8,297 ---------------- --------------- Total deferred tax assets 1,651,043 1,106,469 ---------------- --------------- Deferred tax liabilities: Deferred loan fees 775 1,709 Office equipment and leasehold improvements 81,557 66,204 Unrealized gains on securities available for sale -- 5,470 Other 1,372 -- ---------------- --------------- Total deferred tax liabilities 83,704 73,383 ---------------- --------------- Net deferred tax asset $ 1,567,339 $ 1,033,086 ================ ===============
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, 1999, 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, 1999, that the Bank meets all 51 54 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements capital adequacy requirements to which it is subject. As of December 31, 1999, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 1999: Total Capital (to risk weighted assets) Enterbank Holdings, Inc. $ 48,068,793 11.82% $ 32,538,625 8.00% $ 40,673,282 10.00% Enterprise Bank 41,215,654 10.22 32,253,615 8.00 40,317,018 10.00 Tier 1 Capital (to risk weighted assets) Enterbank Holdings, Inc. $ 43,833,793 10.78% $ 16,269,313 4.00% $ 24,403,969 6.00% Enterprise Bank 36,980,654 9.17 16,126,807 4.00 24,190,211 6.00 Tier 1 Capital (to average assets) Enterbank Holdings, Inc. $ 43,833,793 10.74% $ 12,248,031 3.00% $ 20,413,385 5.00% Enterprise Bank 36,980,654 9.09 12,201,701 3.00 20,336,168 5.00 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
NOTE 14--GUARANTEED PREFERRED BENEFICIAL INTEREST IN EBH-SUBORDINATED DEBENTURES On October 25, 1999, EBH Capital Trust I ("EBH Trust"), a newly-formed Delaware business trust subsidiary of Enterbank Holdings, issued 1,375,000 shares of 9.40% Cumulative Trust Preferred Securities ("Preferred Securities") at $8 per share in an unwritten public offering. The debentures are the sole asset of EBH Trust. In connection with the issuance of the Preferred Securities, Enterbank Holdings made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by Enterbank Holdings of the obligations of EBH Trust under the Preferred Securities. Enterbank Holdings' proceeds from the issuance of the Subordinated Debentures to EBH Trust, net of underwriting fees and offering expenses, were $10.28 million. The Trust Preferred Securities are classified as debt for reporting purposes a capital for regulatory reporting purposes. NOTE 15--SHAREHOLDERS' EQUITY On February 14, 1997, the Company completed a stock offering of 1,354,836 shares of common stock registered under the Securities Act of 1933 on Form S-1. These shares were offered to the public at $5.17 per share. The offering allowed for the sale of a minimum of 580,644 shares or $3,000,000, and a maximum of 1,354,836 shares 52 55 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements or $7,000,000 in common stock. The maximum number of shares were sold at $5.17 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 392,820 shares of common stock exempt from registration under the Securities Act of 1933 pursuant to Regulation D thereunder. These shares were offered a $5.58 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 minimum of 179,103 shares, or $1,000,000, and a maximum of 394,029 shares, or $2,200,000, in common stock. The Company sold 392,820 shares at $5.58 per share. On September 29, 1999 the Company completed a 3 for 1 stock split in the form of a stock dividend. All share and per share data have been restated to reflect this stock split. NOTE 16--COMPENSATION PLANS STOCK OPTIONS PLANS At December 31, 1999, the Company had four 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 432,000 options. As of December 31, 1999, Plan I had 30,000 options outstanding and no options available for future grant. Plan II was adopted on April 25, 1990 with 225,000 options. Plan II had 214,200 options outstanding and no options available for grant. Plan III was adopted on June 19, 1996 with 600,000 options. Plan III has 556,800 options outstanding and 41,400 options available for future grants. Plan IV was adopted on April 28, 1999 with 600,000 options Plan IV has no options outstanding and 600,000 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 105,000 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, 1999, the Nonqualified Plan had 84,000 options outstanding and 21,000 options available for future grants. 53 56 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Following is a summary of the various stock option plan transactions:
Number Price of shares per share Total --------- -------------- ------------ December 31, 1996 639,000 $ 1.67 - 3.08 $ 1,251,500 Granted 606,000 5.33 - 5.58 3,233,500 Exercised 160,500 1.67 267,500 Forfeited 25,500 5.33 136,000 --------- -------------- ------------ December 31, 1997 1,059,000 $ 1.67 -5.58 $ 4,081,500 Granted 86,400 8.33-10.67 863,425 Exercised 220,275 1.67-5.33 385,525 Forfeited 36,000 3.08-5.33 186,600 --------- -------------- ------------ December 31, 1998 889,125 $ 1.67 -10.67 $ 4,372,800 Granted 33,600 10.33-15.17 386,280 Exercised 28,125 1.67-5.33 69,674 Forfeited 9,600 5.33 51,200 --------- -------------- ------------ December 31, 1999 885,000 $ 1.67-15.17 $ 4,638,204 ========= ============== ============
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:
1999 1998 1997 ---------- ----------- ------------ Net income As reported $ 3,820 $ 3,011 $ 2,222 Pro forma 3,527 2,762 2,025 Earnings per share: Basic: As reported $ 0.54 $ 0.43 $ 0.35 Pro forma 0.49 0.39 0.32 Diluted: As reported $ 0.50 $ 0.40 $ 0.33 Pro forma 0.46 0.37 0.30
The fair value of each option granted in 1999 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions; a risk-free interest rate of 4.72%, 5.18%, 5.79% and 6.11% for January, April, July and October, respectively; a dividend yield of 0.67%; vesting period for 5 years; expected lives of 10 years; and volatility of 24.13%. The weighted average fair value of the options granted in 1999 was $4.93. 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 $4.56. On April 1, 1999, the Company adopted a Stock Appreciation Rights ("SAR") Plan. This Plan replaces the previous form of cash compensation for directors of the Company and its subsidiaries and awards/vests based upon attendance and unit performance. Under the plan, the Company has the option to pay vested SARs either in the form of cash or Enterbank Common Stock. As of December 31, 1999 there were 88,800 SARs outstanding. 54 57 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 $170,152 for 1999, $153,621 for 1998, and $78,948 for 1997. NOTE 17--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 18--DISCLOSURES ABOUT FINANCIAL INSTRUMENTS The Bank issues financial instruments with off-balance-sheet risk in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company's extent of involvement and potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its balance sheets. The contractual amount of off-balance-sheet financial instruments as of December 31, 1999 and 1998 is as follows:
1999 1998 ------------- ------------ Commitments to extend credit $ 221,296,117 $ 164,012,297 Standby letters of credit 12,002,773 10,368,944 ============= ============
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, 1999, approximately $12,363,487 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. 55 58 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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, 1999 and 1998:
1999 1998 -------------------------------- -------------------------------- Carrying Estimated Carrying Estimated Amount fair value Amount fair value Balance sheet assets: Cash and due from banks $ 14,798,216 $ 14,798,216 $ 29,701,018 $ 29,701,017 Federal funds sold 54,825,000 54,825,000 14,250,000 14,250,000 Interest-bearing deposits 469 469 5,035 5,035 Investments in securities 25,397,378 25,394,423 46,290,936 46,297,050 Loans held for sale 1,438,335 1,438,335 6,272,124 6,362,197 Loans, net 380,866,759 384,490,862 270,617,522 270,920,794 Accrued interest receivable 2,473,781 2,473,781 1,648,775 1,648,775 ================ =============== ================ =============== Balance sheet liabilities: Deposits $ 435,797,830 $ 436,129,197 $ 339,180,170 $ 339,696,164 FHLB advances 6,920,386 6,925,250 6,000,000 6,004,397 Guaranteed preferred beneficial interests in EBH subordinated debentures 11,000,000 11,000,000 -- -- Accrued interest payable 962,205 962,205 608,056 608,056 ================ =============== ================ ===============
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. 56 59 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements GUARANTEED PREFERRED BENEFICIAL INTERESTS IN EBH SUBORDINATED DEBENTURES Fair value of guaranteed preferred beneficial interests in EBH subordinated debentures is assumed to equal carrying amount since the offering was completed in the fourth quarter of 1999. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms which are competitive in the markets in which it operates; however, no premium or discount is offered thereon and accordingly, the Company has not assigned a value to such instruments for purposes of this disclosure. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 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 19-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 1999 include Enterbank Holdings, Enterprise Bank and Enterprise Merchant Banc. Enterbank Holdings includes general corporate expenses not allocated to the operating segments as well as assets and income items related to EBH Trust. 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. Enterprise Financial Advisors, a division of Enterprise Bank, offers financial planning and trust services. The Merchant Banc segment offers merchant banking and venture capital services. Following are the financial results for the Company's operating segments. 57 60 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
Enterbank Enterprise Bank Enterprise Holdings Financial Advisors For the year ended December 31, 1999 Interest income $ -- $ 32,136,909 $ -- Interest expense 265,265 14,086,864 -- Net interest margin (265,265) 18,050,045 -- Provision for loan losses -- 1,021,256 -- Gross income prior to direct expenses 199,859 1,618,766 789,236 Direct expenses -- -- 140,572 Noninterest income 199,859 1,618,766 648,664 Noninterest expense 873,176 10,937,845 1,107,373 Income (loss) before income tax expense (benefit) (938,582) 7,709,710 (458,709) Income tax expense (benefit) (268,458) 2,870,422 (192,911) -------- --------- -------- Income (loss) before cumulative effect of a change in accounting principle (670,124) 4,839,288 (265,798) Cumulative effect on prior years of a change in asset classification 121,491 -- -- ----------- ------------ ---------- Net income (loss) $ (548,633) $ 4,839,288 $ (265,798) =========== ============ ========== Total Assets $17,541,430 $484,731,647 $ 47,622 ----------- ------------ ---------- For the year ended December 31, 1998 Interest income $ -- $ 25,414,269 -- Interest expense -- 11,869,335 -- Net interest margin -- 13,544,934 -- Provision for loan losses 710,899 -- Gross income prior to direct expenses 13,670 1,636,215 6,983 Direct expenses -- -- 717 Noninterest income 13,670 1,636,215 6,266 Noninterest expense 8,337,970 208,419 Income (loss) before income tax expense (benefit) (901,876) 6,132,280 (202,153) Income tax expense (benefit) 2,301,744 (75,000) ----------- ------------ ---------- Income (loss) before cumulative effect of a change in accounting principle (587,402) 3,830,536 (127,153) Cumulative effect on prior years of a change in asset classification -- -- -- Net income (loss) 3,830,536 (127,153) =========== ============ ========== Total Assets $ 1,465,870 $374,052,914 $ 2,057 ----------- ------------ ---------- For the year ended December 31, 1997 Interest income $ -- $ 18,759,029 $ -- Interest expense 8,580,451 -- Net interest margin (2,888) 10,178,578 -- Provision for loan losses 775,064 -- Gross income prior to direct expenses 13,441 300,241 -- Direct expenses -- -- -- Noninterest income 13,441 300,241 -- Noninterest expense 5,417,758 -- Income (loss) before income tax expense (benefit) (732,018) 4,285,997 Income tax expense (benefit) 1,605,229 -- ----------- ------------ ---------- Income (loss) before cumulative effect of a change in accounting principle (449,124) 2,680,768 -- Cumulative effect on prior years of a change in asset classification -- -- -- ----------- ------------ ---------- Net income (loss) (449,124) 2,680,768 -- =========== ============ ========== Total Assets $ 2,605,055 $290,505,483 $ -- ----------- ------------ ---------- Merchant Banc Eliminations Consolidated For the year ended December 31, 1999 Interest income $ 10 $ (10) $ 32,136,909 Interest expense -- (10) 14,352,119 Net interest margin 10 -- 17,784,790 Provision for loan losses -- -- 1,021,256 Gross income prior to direct expenses 98,447 -- 2,706,308 Direct expenses -- -- 140,572 Noninterest income 98,447 -- 2,565,736 Noninterest expense 467,778 -- 13,386,172 Income (loss) before income tax expense (benefit) (369,321) -- 5,943,098 Income tax expense (benefit) (164,649) -- 2,244,404 Income (loss) before cumulative effect of a ------------- ------------- -------------- change in accounting principle (204,672) -- 3,698,694 Cumulative effect on prior years of a change in asset classification -- -- 121,491 ------------- ------------- -------------- Net income (loss) $ (204,672) $ -- $ 3,820,185 ============= ============= ============== Total Assets $ 979,970 $ (15,299,225) $ 488,001,444 ------------- ------------- -------------- For the year ended December 31, 1998 Interest income $ 4 $ (4) $ 25,414,269 Interest expense -- (4) 11,869,331 Net interest margin 4 -- 13,544,938 Provision for loan losses -- -- 710,899 Gross income prior to direct expenses 422,561 -- 2,079,429 Direct expenses -- -- 717 Noninterest income 422,561 -- 2,078,712 Noninterest expense 589,767 -- 10,051,702 Income (loss) before income tax expense (benefit) (167,202) -- 4,861,049 Income tax expense (benefit) (61,995) -- 1,850,275 ------------- ------------- -------------- Income (loss) before cumulative effect of a change in accounting principle (105,207) -- 3,010,774 Cumulative effect on prior years of a change in asset classification -- -- -- Net income (loss) (105,207) -- 3,010,774 ============= ============= ============== Total Assets $ 425,291 $ (642,214) $ 375,303,918 ------------- ------------- -------------- For the year ended December 31, 1997 Interest income $ 1,109 $ (1,109) $ 18,759,029 Interest expense -- (1,109) 8,582,230 Net interest margin 1,109 -- 10,176,799 Provision for loan losses -- -- 775,064 Gross income prior to direct expenses 162,293 -- 475,975 Direct expenses -- -- -- Noninterest income 162,293 -- 475,975 Noninterest expense 178,247 -- 6,338,576 Income (loss) before income tax expense (benefit) (14,845) -- 3,539,134 Income tax expense (benefit) (5,745) -- 1,316,590 ------------- ------------- -------------- Income (loss) before cumulative effect of a change in accounting principle (9,100) -- 2,222,544 Cumulative effect on prior years of a change in asset classification -- -- -- ------------- ------------- -------------- Net income (loss) (9,100) -- 2,222,544 ============= ============= ============== Total Assets $ 134,799 $($25,392,992) $ 291,364,856 ------------- ------------- --------------
58 61 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As demonstrated in the table, Enterprise Bank experienced asset growth of $113 million during 1999 and $83.5 million during 1998. The bank is also providing a majority of the income for the Company. The Merchant Banc had increased activity in 1999 and 1998 with the opening of the Kansas office. Enterbank Holdings has some assets in the form of small investments and the $11 million in Trust Preferred Securities. Enterbank Holdings also has noninterest expenses related to items for the consolidated entity. NOTE 20--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Balance Sheets
December 31, -------------------------------------- Assets 1999 1998 ------ ---------------- ---------------- Cash $ 3,886,277 $ 437,727 Investment in Enterprise Bank 36,910,546 27,619,778 Investment in Enterprise Merchant Banc 1,221,542 403,089 Investment in Enterprise Fund, L.P. 546,710 380,129 Other assets 1,768,235 648,014 ---------------- --------------- Total assets $ 44,333,310 $ 29,488,737 ================ =============== Liabilities and Shareholders' Equity Accounts payable and other liabilities $ 569,625 $ 248,608 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 $ -- Shareholders' equity 32,763,685 29,240,129 ----------------- ---------------- Total liabilities and shareholders' equity $ 44,333,310 $ 29,488,737 ================= ================ Condensed Statements of Income December 31, -------------------------------------- 1999 1998 1997 --------- --------- --------- Income: Gain on trading asset $ 202,454 $ -- $ -- Other income 5,168 13,670 13,441 --------- --------- --------- Total income 207,622 13,670 13,441 --------- --------- --------- Expenses: Loss on investment in Enterprise Fund, L.P. 7,763 1,969 4,391 Interest expense-Guaranteed preferred debenture expense 192,468 -- -- Interest expense-notes payable 78,650 -- -- Other expenses 873,176 913,577 741,068 --------- --------- --------- Total expenses 1,152,057 915,546 745,459 --------- --------- --------- Loss before tax benefit and equity in undistributed earnings of subsidiaries (944,435) (901,876) (732,018) Income tax benefit 268,458 314,474 282,894 --------- --------- --------- Loss before equity in undistributed earnings of subsidiaries (675,977) (587,402) (449,124) --------- --------- --------- Equity in undistributed earnings of subsidiaries 4,374,671 3,598,176 2,671,668 Cumulative effect on prior years of a change in asset classification 121,491 -- -- --------- --------- --------- Net income $3,820,185 $3,010,774 $ 2,222,544 ========= ========= =========
59 62 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Condensed Statements of Cash Flow
December 31, ------------------------------------------------ 1999 1998 1997 -------------- ------------ -------------- Cash flows from operating activities: Net Income $ 3,820,185 $ 3,010,774 $ 2,222,544 Adjustments to reconcile net income to net cash used in operating activities: Undistributed net income of subsidiaries (4,374,671) (3,598,176) (2,761,668) Other, net (967,061) 123,160 (271,854) -------------- ------------ -------------- Net cash used in operating activities (1,521,547) (464,242) ( 810,978) Cash flows from investing activities: Capital contributions to subsidiaries (5,814,000) (900,000) (6,150,000) Investment in Enterprise Fund L.P. -- (180,000) (90,000) -------------- ------------ -------------- Net cash used in investing activities (5,814,000) (1,080,000) (6,240,000) Cash flows from financing activities: Proceeds from purchased funds and other short-term borrowings $ 5,000,000 -- -- Repayments of purchased funds and other short-term borrowings (5,000,000) -- -- Proceeds from issuance of guaranteed preferred subordinated debentures 11,000,000 -- -- Payment of dividends (285,577) (235,053) (195,085) Proceeds from issuance of common stock 69,674 385,525 9,289,614 (Decrease) increase in notes payable -- -- (300,000) ------------- ------------ -------------- Net cash provided by financing activities 10,784,097 150,472 8,794,529 Net increase(decrease) in cash and cash equivalents 3,448,550 (1,393,770) 1,743,551 Cash and cash equivalents, beginning of year 437,727 1,831,497 87,946 ------------- ------------ -------------- Cash and cash equivalents, end of year $ 3,886,277 $ 437,727 $ 1,831,497 =============== ============ ===============
60 63 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 16th of February, 2000. 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 Report on Form 10-K has been signed by the following persons in the capacities and on the 16th day of February 2000. SIGNATURES TITLE ---------- ----- /s/ Fred H. Eller - --------------------------- Fred H. Eller Chief Executive Officer and Director /s/ Ronald E. Henges* - --------------------------- Ronald E. Henges Chairman of the Board of Directors /s/ Kevin C. Eichner - --------------------------- Kevin C. Eichner Vice Chairman of the Board of Directors /s/ Paul R. Cahn - --------------------------- Paul R. Cahn Director /s/ Birch M. Mullins* - --------------------------- Birch M. Mullins Director /s/ Robert E. Saur* - --------------------------- Robert E. Saur Director /s/ James A. Williams* - --------------------------- James A. Williams Director /s/ Henry D. Warshaw - --------------------------- Henry D. Warshaw Director /s/ James L. Wilhite - --------------------------- James L. Wilhite Director /s/ Ted C. Wetterau* - --------------------------- Ted C. Wetterau Director /s/ Randall D. Humphreys* - --------------------------- Randall D. Humphreys Director /s/ Paul L. Vogel - --------------------------- Paul L. Vogel Director /s/ William B. Moskoff - --------------------------- William B. Moskoff Director * 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 and filed as Exhibit 24.1 hereto. 61 64 /s/ James C. Wagner - -------------------- James C. Wagner Chief Financial Officer, Treasurer and Vice President /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 62 65 EXHIBIT INDEX ------------- Exhibit No. Exhibit --- ------- 3.1 Certificate of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-1 dated December 19, 1996 (File No. 333-14737)). 3.2 Amendment to the Certificates of Incorporation of the Registrant (incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 dated July 1, 1999 (File No. 333-82082)). 3.3 Amendment to the Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1999). 3.4(1) Bylaws of the Registrant, as amended. 3.5(1) Amendment to the Bylaws of the Registrant. 4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by reference to Exhibit 4.3 of 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 to Exhibit 44.4 of 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 to Exhibit 4.5 of 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 on Form 14-A). 4.5 Enterbank Holdings Stock Appreciation Rights (SAR) Plan and Agreement (incorporated herein by reference to Exhibit 4.5 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1999). 10.2 Customer Referral Agreement by and among Enterbank Holdings, Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc. (incorporated herein by reference to Exhibit 10 of 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. (incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the period ended December 31, 1998). 10.4(1) Agreement and Plan of Merger date January 5, 2000 between Enterbank Holdings, Inc. and Commercial Guaranty Bancshares, Inc. 11.1(1) Statement regarding computation of per share earnings. - -------- (1) Filed herewith. 63 66 21.1(1) Subsidiaries of the Registrant. 23.1(1) Consent of KPMG, LLP. 24.1(1) Power of Attorney. 27.1(1) Financial Data Schedule. (EDGAR only) - -------- (1) Filed herewith 64 EX-3.4 2 BYLAWS OF THE REGISTRANT 1 EXHIBIT 3.4 BYLAWS OF ENTERBANK HOLDINGS, INC. (A Delaware Corporation) As used in these Bylaws, unless the context otherwise requires, the term: 1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 1.3 "Board" means the Board of Directors of the Corporation. 1.4 "Bylaws" means the initial bylaws of the Corporation, as amended from time to time. 1.5 "Certificate of Incorporation" means the initial certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.6 "Corporation" means Enterbank Holdings, Inc. 1.7 "Directors" means directors of the Corporation. 1.8 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 1.9 "Office of the Corporation" means the executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 1.10 "President" means the President of the Corporation. 1.11 "Secretary" means the Secretary of the Corporation. 1.12 "Stockholders" means stockholders of the Corporation. 2 1.13 "Total number of directors" means the total number of directors determined in accordance with Section 141(b) of the General Corporation Law and Section 3.2 of the Bylaws. 1.14 "Treasurer" means the Treasurer of the Corporation. 1.15 "Vice President" means a Vice President of the Corporation. 1.16 "Whole Board" means the total number of directors of the Corporation. ARTICLE 2 STOCKHOLDERS 2.1 Time and Place. All meetings of the stockholders for the election of Directors or for any other purpose shall be held at such time and place, within or without the State of Missouri, as shall be designated by the Board of Directors. In the absence of any such designation by the Board of Directors, each such meeting shall be held at the principal office of the Corporation. 2.2 Annual Meetings. An annual meeting of stockholders shall be held for the purpose of electing Directors and transacting such other business as may properly be brought before the meeting. The date of the annual meeting shall be determined by the Board of Directors. 2.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting of stockholders for the election of directors and the transaction of other business is not held within the month specified in Section 2.2, the Board shall call a meeting of stockholders for the election of directors and the transaction of other business as soon thereafter as convenient. 2.4 Other Special Meetings. A special meeting of stockholders (other than a special meeting of the election of directors), unless otherwise prescribed by statute, may be called at any time by the President, by a majority of the Board or upon written request of the holders of at least fifty percent (50%) of all of the issued and outstanding shares entitled to vote, provided they 2 3 shall make written application to the Secretary stating the time, place, and purpose or purposes, and the Secretary shall thereupon call the meeting and issue notice as herein provided. At any special meeting of stockholders, only such business may be transacted as is related to the purpose or purposes of such meeting set forth in the notice thereof given pursuant to Section 2.6 of the Bylaws or in any waiver of notice thereof given pursuant to Section 2.7 of the Bylaws. 2.5 Fixing Record Date. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no such record date is fixed: 2.5.1 The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; 2.5.2 The record date for determining stockholders entitled to express consent to corporation action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; 3 4 2.5.3 The record date for determining stockholders for any purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be at the close of business on the day on which the Board adopts the resolution relating thereto. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 2.5, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date for the adjourned meeting. 2.6 Notice of Meetings of Stockholders. Except as otherwise provided in Sections 2.5 and 2.7 of the Bylaws, whenever under the General Corporation Law or the Certificate of Incorporation or the Bylaws, stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to notice of or to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, the adjournment is for more than thirty days, or if after 4 5 the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.7 Waivers of Notice. Whenever notice is required to be given to any stockholder under any provision of the General Corporation Law or the Certificate of Incorporation or the Bylaws, a written waiver thereof, signed by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. 2.8 List of Stockholders. The Secretary shall prepare and make, or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 5 6 2.9 Quorum of Stockholders; Adjournment. The holders of a majority of the shares of stock entitled to vote at any meeting of stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of any business at such meeting. When a quorum is once present to organize a meeting of stockholders, it is not broken by the subsequent withdrawal of any stockholders. The holders of a majority of the shares of stock present in person or represented by proxy at any meeting of stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. 2.10 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, every stockholder of record shall be entitled at every meeting of stockholders to one vote for each share of capital stock standing in his name on the record of stockholders determined in accordance with Section 2.5 of the Bylaws. If the Certificate of Incorporation provides for more or less than one vote for any share, on any matter, every reference in the Bylaws or the General Corporation Law to a majority of other proportion of stock shall refer to such majority or other proportion of the votes of such stock. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any shares of capital stock may be voted and the persons, if any, entitled to vote such shares; but the Corporation shall be protected in treating the persons in whose names shares of capital stock stand on the record of stockholders as owners thereof for all purposes. At any meeting of stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law or by the Certificate of Incorporation or by the Bylaws, shall be decided by a majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. All elections of directors shall be by 6 7 written ballot unless otherwise provided in the Certificate of Incorporation. In all elections for directors, each stockholder shall have as many votes as shall equal the number of voting shares held by such stockholder in the Corporation, multiplied by the number of directors to be elected, and such stockholder may cast all his votes, either in person or by proxy, for one candidate or distribute then among two or more candidates. In voting on any other question on which a vote by ballot is required by law or is demanded by any stockholder entitled to vote, the voting shall be by ballot. Each ballot shall be signed by the stockholder voting or by his proxy, and shall state the number of shares voted. On all other questions, the voting may be by viva voce. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. 2.11 Denial of Preemptive Rights. No shareholder of the Corporation shall have any preemptive right to subscribe for or to purchase, or to have offered to him for subscription or purchase, any additional securities of the Corporation. 2.12 Selection and Duties of Inspectors at Meetings of Stockholders. The Board, in advance of any meeting of stockholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at such meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall 7 8 take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspector or inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting or any stockholder entitled to vote thereat, the inspector or inspectors shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. Any report or certificate made by the inspector or inspectors shall be prima facie evidence of the facts stated and of the vote as certified by him or them. 2.13 Organization. At every meeting of stockholders, the President, or in the absence of the President, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. The Secretary, or in his absence one of the Assistant Secretaries, shall act as secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 8 9 2.14 Order of Business. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting, but the order of business to be followed at any meeting at which a quorum is present may be changed by a majority of the votes cast at such meeting by the holders of shares of capital stock present in person or represented by proxy and entitled to vote at the meeting. 2.15 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE 3 DIRECTORS 3.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or the Bylaws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation. In addition to the powers expressly conferred 9 10 by the Bylaws, the Board may exercise all powers and perform all acts which are not required, by the Bylaws or the Certificate of Incorporation or by law, to be exercised and performed by the stockholders. 3.2 Number; Qualification; Term of Office. The Board shall initially consist of four members. Thereafter, the number of directors and the classes of directors shall be determined from time to time by the Board of Directors of the Corporation. Directors need not be stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. 3.3 Election. Directors shall, except as otherwise required by law or by the Certificate of Incorporation, be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. 3.4 Newly Created Directorships and Vacancies. Unless otherwise provided in the Certificate of Incorporation, newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board for any other reason, including the removal of directors without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, or may be elected by a plurality of the votes cast by the holders of shares of capital stock entitled to vote in the election at a special meeting of stockholders called for that purpose. A director elected to fill a vacancy shall be elected to hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.5 Resignations. Any director may resign at any time by written notice to the Corporation. Such resignation shall take effect at the time therein specified, and, unless 10 11 otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. 3.6 Removal of Directors. Subject to the provisions of Section 141(k) of the General Corporation Law, any or all of the directors may be removed with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 3.7 Compensation. Each director, in consideration of his service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him in connection with the performance of his duties. Each director who shall serve as a member of any committee of directors in consideration of his serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable expenses incurred by him in the performance of his duties. Nothing contained in this section shall preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 3.8 Place and Time of Meetings of the Board. Meetings of the Board, regular or special, may be held at any place within or without the State of Delaware. The times and places for holding meetings of the board may be fixed from time to time by resolution of the Board or (unless contrary to resolution of the Board) in the notice of the meeting. 3.9 Annual Meetings. On the day when and at the place where the annual meeting of stockholders for the election of directors is held, and as soon as practicable thereafter, the Board 11 12 may hold its annual meeting, without notice of such meeting, for the purposes of organization, the election of officers and the transaction of other business. The annual meeting of the Board may be held at any other time and place specified in a notice given as provided in Section 3.11 of the Bylaws for special meetings of the Board or in a waiver of notice thereof. 3.10 Regular Meetings. Regular meetings of the Board may be held at such times and places as may be fixed from time to time by the Board. Unless otherwise required by the Board, regular meetings of the Board may be held without notice. If any day fixed for a regular meeting of the Board shall be a Saturday or Sunday or a legal holiday at the place where such meeting is to be held, then such meeting shall be held at the same hour at the same place on the first business day thereafter which is not a Saturday, Sunday or legal holiday. 3.11 Special Meetings. Special meetings of the Board shall be held whenever called by the President or the Secretary or by a majority of the directors. Notice of such special meeting of the Board shall, if mailed, be addressed to each director at the address designated by him for the purpose or, if none is designated, at his last known address at least three days before the date on which the meeting is to be held; or such notice shall be sent to each director at such address by telegraph, cable or wireless, or be delivered to him personally, not later than the day before the date on which such meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes of the meeting, except to the extent required by law. If mailed, each notice shall be deemed given when deposited, with postage thereon prepaid, in a post office or official depository under the exclusive care and custody of the United States post office department. Such mailing shall be by first class mail. 12 13 3.12 Adjourned Meetings. A majority of the directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Notice of any adjourned meeting of the Board need not be given to any director whether or not present at the time of the adjournment. Any business may be transacted at any adjourned meeting that might have been transacted at the meeting as originally called. 3.13 Waiver of Notice. Whenever notice is required to be given to any director or member of a committee of directors under any provision of the General Corporation Law or of the Certificate of Incorporation or Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice. 3.14 Organization. At each meeting of the Board, the President of the Corporation, or in the absence of the President, a chairman chosen by a majority of the directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all 13 14 Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 3.15 Quorum of Directors. The lowest number of directors that constitutes more than one half (1/2) of the elected Board of Directors shall constitute a quorum, and the affirmative vote of not less than such number shall be required in order to constitute the act of the Board of Directors. 3.16 Action by the Board. All corporate action taken by the Board or any committee thereof shall be taken at a meeting of the Board, or of such committee, as the case may be, except that any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.16 shall constitute presence in person at such meeting. Except as otherwise provided by the Certificate of Incorporation or by law, the vote of a majority of the directors present (including those who participate by means of conference telephone or similar communications equipment) at the time of the vote, if a quorum is present at such time, shall be the act of the Board. 14 15 ARTICLE 4 COMMITTEES OF THE BOARD The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution designating it expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. 15 16 ARTICLE 5 OFFICERS 5.1 Officers. The Board shall elect a President, a Secretary and a Treasurer, and may elect or appoint a Chief Executive Officer, one or more Vice Presidents and such other officers as it may determine. The Board may designate one or more Vice Presidents as Executive Vice Presidents, and may use descriptive words or phrases to designate the standing, seniority or area of special competence of the Vice Presidents elected or appointed by it. Each officer shall hold his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner provided in Section 5.2 of the Bylaws. Any two or more offices may be held by the same person. The Board may require any officer to give a bond or other security for the faithful performance of his duties, in such amount and with such sureties as the Board may determine. All officers as between themselves and the Corporation shall have such authority and perform such duties in the management of the Corporation as may be provided in the Bylaws or as the Board may from time to time determine. 5.2 Removal of Officers. Any officer elected or appointed by the Board may be removed by the Board with or without cause. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 5.3 Resignations. Any officer may resign at any time by so notifying the Board, the President or the Secretary in writing. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the 16 17 acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contract rights of the Corporation, if any. 5.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in the Bylaws for the regular election or appointment to such office. 5.5 Compensation. Salaries or other compensation of the officers may be fixed from time to time by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a director. 5.6 Chief Executive Officer. The Chief Executive Officer of the Company shall exercise general supervision, direction, management and control over all the business and affairs of the Company, subject at all times to the control of the Board of Directors. Subject to the provisions of Article 2, the Chief Executive Officer shall act as chairman of each meeting of the shareholders. The Chief Executive Officer shall also act as chairman of each meeting of the Board of Directors when he is present, and in general shall perform all duties incident to the Office of Chief Executive Office and such other duties as from time to time may be assigned to him by the Board. 5.7 President. If there is no Chief Executive Officer elected or appointed, then the President shall assume the duties of the Chief Executive Officer as set forth above and as stated herein. If the Chief Executive Officer is elected but is unable to act, then the President shall become Acting Chairman of the Board and in that capacity perform all of the duties of the Chief Executive Officer, unless some other officer is designated by the Board of Directors to perform those duties. The President shall convene meetings of the stockholders pursuant to Article 2. He 17 18 may, with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of the capital stock of the Corporation and, in general, he shall perform all duties incident to the office of President and such other duties as from time to time may be prescribed by the Board of Directors or by the Chief Executive Officer. 5.8 Vice Presidents. At the request of the President, or in his absence, at the request of the Board, the Vice President shall (in such order as may be designated by the Board or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the President and so acting shall have all the powers of and be subject to all restrictions upon the President. Any Vice President may also, with the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, sign certificates for shares of capital stock of the Corporation; may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board, except in cases where the signing and execution thereof shall be expressly delegated by the Board or by the Bylaws to some other officer or agent of the Corporation, or shall be required by law otherwise to be signed or executed; and shall perform such other duties as from time to time may be assigned to him by the Board or by the President. 5.9 Secretary. The Secretary, if present, shall act as secretary of all meetings of the stockholders and of the Board, and shall keep the minutes thereof in the proper book or books to be provided for that purpose; he shall see that all notices required to be given by the Corporation are duly given and served; he may, with the President or a Vice President, sign certificates for shares of capital stock of the Corporation; he shall be custodian of the seal of the Corporation and may seal with the seal of the Corporation, or a facsimile thereof, all certificates for shares of 18 19 the capital stock of the Corporation and all documents the execution of which on behalf of the Corporation under its corporate seal is authorized in accordance with the provisions of the Bylaws; he shall have charge of the stock ledger and also of the other books, records and papers of the Corporation relating to its organization and management as a Corporation, and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall, in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or by the President. 5.10 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with these Bylaws; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositaries of the Corporation signed in such manner as shall be determined in accordance with any provisions of the Bylaws, and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books to be kept by him or under his direction full and adequate account of all moneys received or paid by him for the account of the Corporation; have the right to require, from time to time, reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the President or the Board, whenever the President or the Board, respectively, shall require him so to do, an account of the financial condition of the Corporation and of all his transactions as Treasurer; exhibit at all reasonable times his books of account and other records to any of the 19 20 directors upon application at the office of the Corporation where such books and records are kept; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or by the President; and he may sign with the President or a Vice President certificates for shares of capital stock of the Corporation. 5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers, if any, shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or by the President. Assistant Secretaries and Assistant Treasurers may, with the President or a Vice President, sign certificates for shares of capital stock of the Corporation. ARTICLE 6 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 6.1 Execution of Contracts. The Board may authorize any officer, employee or agent, in the name and on behalf of the Corporation, to enter into any contract or execute and satisfy any instrument, and any such authority may be general or confined to specific instances or otherwise limited. 6.2 Loans. The President or any other officer, employee or agent authorized by the Bylaws or by the Board may effect loans and advances at any time for the Corporation from any bank, trust company or other institutions or from any firm, corporation or individual and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the 20 21 Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances or otherwise limited. 6.3 Checks, Drafts, Etc.. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all notes or other evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 6.4 Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation in such banks, trust companies or other depositaries as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board. ARTICLE 7 STOCK AND DIVIDENDS 7.1 Certificates Representing Shares. The shares of capital stock of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registrar other than the Corporation itself or its employee. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the 21 22 Board, be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 7.2 Transfer of Shares. Transfers of shares of capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof or by his duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares of capital stock properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name shares of capital stock shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares of capital stock shall be valid as against the Corporation, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any shares of capital stock of the Corporation shall immediately notify the Corporation of any loss, destruction, theft or mutilation of the certificate representing such shares, and the Corporation may issue a 22 23 new certificate to replace the certificate alleged to have been lost, destroyed, stolen or mutilated. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed, stolen or mutilated certificate, or his legal representatives, to make proof satisfactory to the Board of such loss, destruction, theft or mutilation and to advertise such fact in such manner as the Board may require, and to give the Corporation and its transfer agents and registrars, or such of them as the Board may require, a bond in such form, in such sums and with such surety or sureties as the Board may direct, to indemnify the Corporation and its transfer agents and registrars against any claim that may be made against any of them on account of the continued existence of any such certificate so alleged to have been lost, destroyed, stolen or mutilated and against any expense in connection with such claim. 7.5 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Bylaws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing shares of its capital stock. 7.6 Restriction on Transfer of Stock. A written restriction on the transfer or registration of transfer of capital stock of the Corporation, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate representing such capital stock, may be enforced against the holder of the restricted capital stock or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing such capital stock, a restriction, even though permitted by Section 202 of the General Corporation Law, shall be ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer or registration of 23 24 transfer of capital stock of the Corporation may be imposed either by the Certificate of Incorporation or by an agreement among any number of stockholders or among such stockholders and the Corporation. No restriction so imposed shall be binding with respect to capital stock issued prior to the adoption of the restriction unless the holders of such capital stock are parties to an agreement or voted in favor of the restriction. 7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate of Incorporation and of law, the Board: 7.7.1 May declare and pay dividends or make other distributions on the outstanding shares of capital stock in such amounts and at such time or times as, in its discretion, the condition of the affairs of the Corporation shall render advisable; 7.7.2 May use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of capital stock of the Corporation, or warrants therefore, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness in accordance with law; 7.7.3 May set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. 24 25 ARTICLE 8 INDEMNIFICATION 8.1 Indemnification of Officers and Directors. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or any officer of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled apart from the foregoing provisions. The foregoing provisions of this Section 8.1 shall be deemed to be a contract between the Corporation and each director and officer who serves in such capacity at any time while this Article 8 and the relevant provisions of the General Corporation Law and other applicable law, if any, are in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 8.2 Indemnification of Other Persons. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the 25 26 request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the extent and in the manner set forth in and permitted by the General Corporation Law, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled apart from the foregoing provisions. 8.3 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of Sections 8.1 and 8.2 of the Bylaws or under Section 145 of the General Corporation Law or any other provision of law. ARTICLE 9 BOOKS AND RECORDS 9.1 Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the stockholders, the Board and any committee of the Board. The Corporation shall keep at the office designated in the Certificate of Incorporation or at the office of the transfer agent or registrar of the Corporation, a 26 27 record containing the names and addresses of all stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. 9.2 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micro-photographs, or any other information storage device, provided that the records so kept be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept under the request of any person entitled to inspect the same. 9.3 Inspection of Books and Records. Except as otherwise provided by law, the Board shall determine from time to time whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the inspection of the stockholders. ARTICLE 10 SEAL The Board may adopt a corporate seal which shall be in the form of a circle and shall bear the name of the Corporation and the word "Delaware." ARTICLE 11 FISCAL YEAR The fiscal year of the Corporation shall be for such period of twelve (12) months as the Board shall determine. 27 28 ARTICLE 12 VOTING OF SHARES HELD Unless otherwise provided by resolution of the Board, or the President may, from time to time, appoint one or more attorneys or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of stock or other securities of such other corporation, or to consent in writing to any action by any such other corporation, or to consent in writing to any action by any such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers or other instruments as he may deem necessary or proper in the premises; or the President may himself attend any meeting of the holders of the stock or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation. ARTICLE 13 AMENDMENTS The Bylaws may be altered, changed, added to or repealed, amended, or new Bylaws may be adopted, as set forth in the Articles of Incorporation. 28 EX-3.5 3 AMENDMENT TO THE BYLAWS OF THE REGISTRANT 1 EXHIBIT 3.5 WHEREAS, it has come to the attention of the Board of Directors of the Corporation that there is an ambiguity in Section 3.2 of the Corporation's Bylaws; WHEREAS, the Board of Directors of the Corporation hereby finds, declares and determines that it is advisable to clarify the intent of Section 3.2 of the Corporation's Bylaws and to take such additional actions in connection with the foregoing as may be necessary or advisable. NOW, THEREFORE, BE IT RESOLVED that Section 3.2 of the Corporation's Bylaws be and hereby is amended to read in its entirety as follows: "3.2 Number; Qualification; Term of Office. The Board shall initially consist of four members. Thereafter, the number of directors and the classes of directors shall be determined from time to time by the Board of Directors of the Corporation. Directors need not be stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal." FURTHER RESOLVED, that the Board of Directors hereby confirms that the current number of Members of the Board of Directors is thirteen and that the undersigned are the duly elected and acting members of the Board of Directors. EX-10.4 4 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 10.4 AGREEMENT AND PLAN OF MERGER BETWEEN ENTERBANK HOLDINGS, INC. AND COMMERCIAL GUARANTY BANCSHARES, INC. DATED JANUARY 5, 2000 2 TABLE OF CONTENTS
Page ARTICLE I - THE MERGER............................................................................................1 1.1 Effective Time of the Merger....................................................................1 1.2 Closing.........................................................................................1 1.3 Effects of the Merger...........................................................................2 1.4 Alternative Structure...........................................................................2 1.5 Absence of Control..............................................................................3 ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...................................................................3 2.1 Effect on Capital Stock of the Constituent Corporations.........................................3 (a) Conversion of CGB Common Stock.........................................................3 (b) Enterbank Capital Stock................................................................3 2.2 No Further Ownership Rights in CGB Common Stock.................................................4 2.3 Fractional Shares...............................................................................4 2.4 Surrender of Shares of CGB Common Stock.........................................................4 2.5 Adjustments.....................................................................................5 2.6 Options.........................................................................................6 2.7 Dissenters' Rights..............................................................................6 ARTICLE III - REPRESENTATIONS AND WARRANTIES......................................................................7 3.1 Representations and Warranties of CGB...........................................................7 (a) Organization, Standing and Power.......................................................7 (b) Capital Structure; Ownership of CGB Common Stock.......................................9 (c) Authority; No Violation...............................................................10 (d) Financial Statements..................................................................11 (e) CGB Information Supplied..............................................................12 (f) Compliance with Applicable Laws.......................................................12 (g) Litigation............................................................................13 (h) Taxes.................................................................................13 (i) Certain Agreements....................................................................14 (j) Benefit Plans.........................................................................15 (k) Subsidiaries..........................................................................17 (l) Agreements with Bank or Other Regulators..............................................17 (m) Absence of Certain Changes or Events..................................................18 (n) Undisclosed Liabilities...............................................................18 (o) Governmental Reports..................................................................18 (p) Environmental Liability...............................................................19 (q) Properties............................................................................21 (r) Transactions with Affiliates..........................................................21
i 3 (s) Brokers or Finders....................................................................22 (t) Intellectual Property.................................................................22 (u) Pooling of Interests..................................................................22 (v) Opinion of Financial Advisor..........................................................22 (w) Community Reinvestment Act Compliance.................................................22 (x) Year 2000 Readiness...................................................................22 (y) Insurance.............................................................................23 (z) Loans and Other Assets................................................................23 (aa) Restrictions on Investments...........................................................24 (bb) No Brokered Deposits..................................................................24 (cc) Derivatives Contracts; Structured Notes; Etc..........................................24 (dd) Labor Matters.........................................................................25 3.2 Representations and Warranties of Enterbank....................................................25 (a) Organization, Standing and Power......................................................25 (b) Capital Structure; Ownership of Enterbank Common Stock................................26 (c) Authority; No Violation...............................................................27 (d) Financial Statements..................................................................28 (e) Enterbank SEC Documents...............................................................28 (f) Enterbank Information Supplied........................................................29 (g) Compliance with Applicable Laws.......................................................29 (h) Litigation............................................................................30 (i) Taxes.................................................................................30 (j) Certain Agreements....................................................................31 (k) Benefit Plans.........................................................................32 (l) Subsidiaries..........................................................................34 (m) Agreements with Bank or Other Regulators..............................................34 (n) Absence of Certain Changes or Events..................................................34 (o) Undisclosed Liabilities...............................................................34 (p) Governmental Reports..................................................................35 (q) Environmental Liability...............................................................35 (r) Properties............................................................................37 (s) Transactions with Affiliates..........................................................37 (t) No Broker or Finder...................................................................38 (u) Intellectual Property.................................................................38 (v) Pooling of Interests..................................................................38 (w) Community Reinvestment Act Compliance.................................................38 (x) Year 2000 Readiness...................................................................38 (y) Insurance.............................................................................38 (z) Loans and Other Assets................................................................39 (aa) Derivatives Contracts; Structured Notes; Etc..........................................40 (bb) Labor Matters.........................................................................40 (cc) Status of Enterbank Common Stock to be Issued.........................................41
ii 4 ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS...........................................................41 4.1 Covenants of CGB...............................................................................41 4.2 Covenants of Enterbank.........................................................................44 ARTICLE V - ADDITIONAL AGREEMENTS................................................................................46 5.1 Regulatory Matters.............................................................................46 5.2 Access to Information..........................................................................47 5.3 Shareholders' Meetings.........................................................................48 5.4 No Solicitations...............................................................................49 5.5 Legal Conditions...............................................................................50 5.6 Employee Benefit Plans.........................................................................51 5.7 Additional Agreements..........................................................................52 5.8 Fees and Expenses..............................................................................52 5.9 Cooperation....................................................................................53 5.10 Affiliates.....................................................................................53 5.11 Advice of Changes..............................................................................53 5.12 Subsequent Interim and Annual Financial Statements; Certain Reports............................53 5.13 Dissenters' Rights.............................................................................54 5.14 Retention of FCB Officers and Directors........................................................54 5.15 Indemnification; Directors' and Officers' Insurance............................................54 5.16 Conforming Entries.............................................................................55 ARTICLE VI - CONDITIONS PRECEDENT................................................................................56 6.1 Conditions to Each Party's Obligation..........................................................56 (a) Shareholder Approvals.................................................................56 (b) Other Approvals.......................................................................56 (c) No Injunctions or Restraints..........................................................56 (d) S-4...................................................................................56 (e) Pooling...............................................................................56 (f) Burdensome Condition..................................................................57 (g) Dissenters' Rights....................................................................57 (h) Average Enterbank Closing Price.......................................................57 6.2 Conditions to Obligations of Enterbank.........................................................58 (a) Representations and Warranties........................................................58 (b) Performance of Obligations............................................................58 (c) Corporate Action......................................................................58 (d) Tax Opinion...........................................................................58 (e) Material Adverse Effect...............................................................58 (f) Closing Documents.....................................................................59 (g) Fairness Opinion......................................................................59 6.3 Conditions to Obligations of CGB...............................................................59 (a) Representations and Warranties........................................................59 (b) Performance of Obligations............................................................59
iii 5 (c) Corporate Action......................................................................59 (d) Tax Opinion...........................................................................59 (e) Material Adverse Effect...............................................................60 (f) Closing Documents.....................................................................60 (g) Additions to Enterbank Board of Directors.............................................60 (h) Fairness Opinion......................................................................60 ARTICLE VII - TERMINATION AND AMENDMENT..........................................................................60 7.1 Termination....................................................................................60 7.2 Effect of Termination..........................................................................63 7.3 Amendment......................................................................................63 7.4 Extension; Waiver..............................................................................63 ARTICLE VIII - GENERAL PROVISIONS................................................................................63 8.1 Survival of Representations, Warranties and Covenants..........................................63 8.2 Notices........................................................................................64 8.3 Interpretation.................................................................................65 8.4 Counterparts...................................................................................65 8.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership............................65 8.6 Governing Law..................................................................................65 8.7 Severability...................................................................................66 8.8 Assignment.....................................................................................66 8.9 Publicity......................................................................................66 8.10 Attorneys' Fees................................................................................66 EXHIBITS Exhibit A................................................................................................1 Exhibit B-1.............................................................................................53 Exhibit B-2.............................................................................................53 SCHEDULES CGB Disclosure Schedule......................................................................................9 Section 3.1(b)(iii)......................................................................................9 Section 3.1(c)(ii)......................................................................................10 Section 3.1(d)..........................................................................................12 Section 3.1(g)..........................................................................................13 Section 3.1(h)..........................................................................................13
iv 6 Section 3.1(i)................................................14 Section 3.1(j)................................................43 Section 3.1(j)(i).............................................15 Section 3.1(j)(ii)............................................16 Section 3.1(j)(iii)...........................................16 Section 3.1(j)(iv)............................................17 Section 3.1(j)(v).............................................17 Section 3.1(k)................................................11 Section 3.1(l)................................................17 Section 3.1(m)................................................18 Section 3.1(n)................................................18 Section 3.1(o)................................................18 Section 3.1(p)................................................19 Section 3.1(p)(vii)...........................................20 Section 3.1(q)................................................21 Section 3.1(r)................................................21 Section 3.1(t)................................................22 Section 3.1(u)................................................22 Section 3.1(aa)...............................................24 Section 3.1(aa)(ii)...........................................24 Section 3.1(bb)...............................................24 Section 3.1(cc)...............................................24 Section 4.1(d)................................................42 Section 4.1(q)................................................44 Section 4.1(r)................................................44 Enterbank Disclosure Schedule.....................................26 Section 3.2(b)(ii)............................................26 Section 3.2(b)(iii)...........................................26 Schedule 3.2(b)(iv)...........................................26 Section 3.2(c)(ii)............................................27 Section 3.2(h)................................................30 Section 3.2(i)................................................30 Section 3.2(j)................................................31 Section 3.2(k)................................................32 Section 3.2(k)(ii)............................................32 Section 3.2(k)(iv)............................................33 Section 3.2(k)(v).............................................33 Section 3.2(l)................................................34 Section 3.2(m)................................................34 Section 3.2(n)................................................34 Section 3.2(o)................................................34 Section 3.2(p)................................................35 v 7 Section 3.2(q)................................................35 Section 3.2(q)(vii)...........................................37 Section 3.2(r)................................................37 Section 3.2(s)................................................37 Section 3.2(u)................................................38 Section 3.2(v)................................................38 Section 3.2(z)(ii)............................................40 Section 3.2(aa)...............................................40 Schedule 5.6(d)........................................................52 vi 8 DEFINITIONS Page Acquisition Sub..........................................................2 Action..................................................................66 Actual Expenses.........................................................52 Affiliate .......................................................9 Agreement................................................................1 Agreement of Merger......................................................1 Average Enterbank Closing Price.........................................56 Bank Regulators.........................................................13 Benefit Plans...........................................................16 BHC Act..................................................................7 BIF......................................................................7 Burdensome Condition....................................................57 Business................................................................20 Business Day.............................................................1 CGB......................................................................1 CGB Benefit Plans.......................................................16 CGB Certificates.........................................................4 CGB Consolidated Financial Statements...................................11 CGB Designees............................................................2 CGB Disclosure Schedule..................................................9 CGB Dissenting Shares....................................................6 CGB Intellectual Property...............................................22 CGB Interim Financial Statements........................................12 CGB Option...............................................................6 CGB Permits.............................................................12 CGB Preferred Stock......................................................9 CGB Shareholder Approval................................................10 CGB Shareholders' Meeting...............................................12 CGB Stock Option Plans...................................................6 CGB Termination Fee.....................................................50 Closing..................................................................1 Closing Date.............................................................1 Code.....................................................................1 Confidentiality Agreement...............................................48 Consents................................................................56 Constituent Corporations.................................................2 CRA.....................................................................22 date hereof..............................................................1 DGCL.....................................................................1 vii 9 Derivatives Contract...............................................24 Determination Date.................................................57 DPC Shares.........................................................10 Effective Time......................................................1 Enterbank...........................................................1 Enterbank Benefit Plans............................................32 Enterbank Common Stock..............................................3 Enterbank Consolidated Financial Statements........................28 Enterbank Disclosure Schedule......................................26 Enterbank Dissenting Shares.........................................7 Enterbank Interim Financial Statements.............................28 Enterbank Intellectual Property....................................38 Enterbank Instrument................................................5 Enterbank Permits..................................................29 Enterbank SEC Reports..............................................28 Enterbank Shareholder Approval.....................................27 Enterbank Shareholders' Meeting....................................29 Enterbank Termination Fee..........................................50 Enterprise..........................................................4 Environmental Law..................................................20 ERISA..............................................................15 Exchange Act.......................................................28 Exchange Agent......................................................4 Exchange Ratio......................................................3 FCB.................................................................7 FDIC................................................................7 Federal Reserve....................................................11 GAAP...............................................................12 Governmental Entity................................................11 Hazardous Substances...............................................20 Indemnified Party..................................................54 Injunction.........................................................56 KGCC................................................................3 knowledge...........................................................9 Litigation.........................................................13 material............................................................8 material adverse effect.............................................8 Merger..............................................................1 Moneta..............................................................6 OCC................................................................11 OREO...............................................................23 PBGC...............................................................16 person..............................................................9 viii 10 Proxy Statement.......................................................11 Real Property.........................................................21 Reportable Quantity...................................................21 Representatives.......................................................49 Requisite Regulatory Approvals........................................56 S-4...................................................................12 SARs...................................................................6 SEC...................................................................11 SEC Fees..............................................................52 Securities Act........................................................22 SFAS No. 5.............................................................8 Significant Subsidiary................................................49 Subsidiary..........................................................3, 8 Superior Proposal.....................................................50 Surviving Corporation...............................................2, 3 Takeover Proposal.....................................................49 Tax return............................................................14 taxable...............................................................14 taxes.............................................................13, 14 to the best knowledge of...............................................9 Transaction Agreements.................................................8 Trust Account Shares..................................................10 Violation.............................................................11 ix 11 THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of January 5, 2000 (the "date hereof"), between ENTERBANK HOLDINGS, INC., a Delaware corporation ("Enterbank") and COMMERCIAL GUARANTY BANCSHARES, INC., a Kansas corporation ("CGB"). WHEREAS, the Board of Directors of Enterbank has approved this Agreement, declared it advisable and deems it advisable and in the best interests of the shareholders of Enterbank to consummate the transactions provided for herein in which, inter alia, CGB would merge with and into Enterbank pursuant to an Agreement of Merger substantially in the form attached hereto as Exhibit A (the "Merger"); WHEREAS, the Board of Directors of CGB has approved this Agreement and declared it advisable and deems it advisable and in the best interests of the shareholders of CGB to consummate the Merger; WHEREAS, it is the intention of the parties that the Merger qualify as a tax-free reorganization pursuant to section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that the Merger shall be accounted for as a "pooling of interests"; and WHEREAS, the Boards of Directors of Enterbank and CGB have each determined that the Merger and the other transactions contemplated by this Agreement are consistent with, and will contribute to the furtherance of, their respective business strategies and goals. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the terms and conditions of this Agreement, the Merger shall become effective upon the occurrence of the filing of an agreement of merger in substantially the form of Exhibit A hereto (the "Agreement of Merger") and officers' certificates prescribed by Section 252 of the Delaware General Corporation Law ("DGCL") with the Secretary of State of the State of Delaware, or at such time thereafter as is provided by mutual agreement in the Agreement of Merger (the "Effective Time"). 1.2 CLOSING. The closing of the Merger (the "Closing") will take place at 10:00 a.m., St. Louis time, on the first Friday which is at least ten Business Days after receipt of all Requisite Regulatory Approvals and the expiration of all requisite waiting periods (subject to the satisfaction of the condition set forth in Section 6.1(a)), but in no event shall such date be later than July 31, 2000, unless otherwise agreed in writing by the parties hereto or as provided in Section 7.1(c) (the "Closing Date"). The Closing shall be held at the offices of Armstrong Teasdale LLP, One Metropolitan Square, St. Louis, Missouri 63102 or at such other location as is agreed to in writing by the parties hereto. As used in this Agreement, "Business Day" shall mean any day that is not a 12 Saturday, Sunday or other day on which banks are required or authorized by law to be closed in Missouri. 1.3 EFFECTS OF THE MERGER. (a) At the Effective Time (i) CGB shall be merged with and into Enterbank and the separate corporate existence of CGB shall cease, (ii) the Certificate of Incorporation of Enterbank as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, (iii) the By-laws of Enterbank as in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation, (iv) the directors of Enterbank at the Effective Time shall be the directors of the Surviving Corporation (except that the Board of Directors of Enterbank shall take all necessary action to appoint four other representatives of CGB (collectively, the "CGB Designees"), who shall be existing directors of CGB, to serve on the Surviving Corporation's board of directors as of and after the Effective Time, such CGB Designees to serve as directors until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be; provided that the Board of Directors of Enterbank or the nomination committee thereof shall nominate and recommend the election of each of the CGB Designees for reelection as directors of Enterbank at the conclusion of their respective terms as necessary in order that each such CGB Designee shall serve as an Enterbank director for at least three years after the Effective Time; provided further, however, that in the event any such CGB Designee resigns, is removed (other than by a vote of the shareholders of Enterbank) or otherwise terminates service, the remaining CGB Designees may select a person as his or her replacement and Enterbank shall nominate for election such replacement so selected to serve as a director of Enterbank for at least the remainder of the term of the CGB Designee being replaced (as such term may be required to be extended as provided in the second proviso above)), and (v) the officers of Enterbank immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. (b) As used in this Agreement, "Constituent Corporations" shall mean each of Enterbank and CGB, and "Surviving Corporation" shall mean Enterbank, at and after the Effective Time, as the surviving corporation in the Merger. (c) At and after the Effective Time, the Merger will have the effects set forth in the DGCL. 1.4 ALTERNATIVE STRUCTURE. Notwithstanding anything contained in this Agreement to the contrary, upon receipt of CGB's prior written consent (which consent shall not be unreasonably withheld), Enterbank may specify, for any reasonable business, tax or regulatory purpose, that, before the Merger, Enterbank and CGB shall enter into transactions other than those described herein in order to effect the purposes of this Agreement, or may form an acquisition subsidiary (an "Acquisition Sub") to be merged with CGB, and the parties hereto shall take all action necessary and appropriate to effect, or cause to be effected, such transactions; provided, however, that no such 2 13 specification may (a) materially and adversely affect the timing of the consummation of the transactions contemplated herein, or (b) adversely affect the economic benefits, the form of consideration or the tax effect of the Merger to the holders of CGB Common Stock. If Enterprise forms an Acquisition Sub, the Acquisition Sub will be a "Subsidiary" of Enterbank for all purposes under this Agreement (including Section 3.2), will be a "Constituent Corporation" and, depending on the structure of the Merger, either Acquisition Sub or CGB will be the "Surviving Corporation." 1.5 ABSENCE OF CONTROL. Subject to any specific provisions of this Agreement, it is the intent of the parties hereto that neither Enterbank nor CGB by reason of this Agreement shall be deemed (until consummation of the transactions contemplated hereby) to control, directly or indirectly, the other party and shall not exercise, or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of such other party. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 2.1 EFFECT ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of CGB or Enterbank capital stock: (a) CONVERSION OF CGB COMMON STOCK. Subject to Sections 2.3, 2.5 and 7.1(h), each of the shares of CGB Common Stock issued and outstanding immediately prior to the Effective Time (other than CGB Dissenting Shares perfected in accordance with K.S.A. 17-6712 of the Kansas General Corporation Code (the "KGCC")) shall be converted into the right to receive 2.1429 shares (the "Exchange Ratio") of fully paid and nonassessable shares of Common Stock, $.01 par value per share (the "Enterbank Common Stock"), of Enterbank. All such shares of CGB Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously representing any such shares shall thereafter represent the right to receive (i) a certificate representing the number of whole shares of Enterbank Common Stock into which such CGB Common Stock has been converted and, if applicable, (ii) cash in lieu of fractional shares as provided in Section 2.3 hereof. Certificates previously representing shares of CGB Common Stock shall be exchanged for certificates representing whole shares of Enterbank Common Stock issued in consideration therefor (and, if applicable, cash in lieu of fractional shares as provided in Section 2.3 hereof) upon the surrender of such certificates. (b) ENTERBANK CAPITAL STOCK. At and after the Effective Time, each share of Enterbank Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of capital stock of Enterbank and shall not be affected by the Merger. 3 14 2.2 NO FURTHER OWNERSHIP RIGHTS IN CGB COMMON STOCK. All shares of Enterbank Common Stock issued upon conversion of shares of CGB Common Stock in accordance with the terms hereof shall be deemed to represent all rights pertaining to such shares of CGB Common Stock, and, after the Effective Time, there shall be no further registration of transfers on the stock transfer books of CGB of the shares of CGB Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates formerly representing shares of CGB Common Stock are presented to Enterbank for any reason, they shall be canceled and, if applicable, exchanged as provided in this Article II. 2.3 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no fractional shares of Enterbank Common Stock shall be issued to holders of shares of CGB Common Stock. In lieu thereof, each such holder entitled to a fraction of a share of Enterbank Common Stock (after taking into account all shares of CGB Common Stock held at the Effective Time by such holder) shall receive, at the time of surrender of the certificates representing such holder's CGB Common Stock, an amount in cash equal to the Average Enterbank Closing Price (as hereinafter defined), multiplied by the fraction of a share of Enterbank Common Stock to which such holder would otherwise be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of a fractional share. 2.4 SURRENDER OF SHARES OF CGB COMMON STOCK. (a) Prior to the Effective Time, Enterbank shall appoint Enterprise Bank ("Enterprise") or its successor, or any other bank or trust company (having capital of at least $10 million) mutually acceptable to CGB and Enterbank, as exchange agent (the "Exchange Agent") for the purpose of exchanging certificates representing the Enterbank Common Stock which are to be issued pursuant to Section 2.1, and at and after the Effective Time, Enterbank shall issue and deliver to the Exchange Agent certificates representing the shares of Enterbank Common Stock, as shall be required to be delivered to holders of shares of CGB Common Stock pursuant to Section 2.1 hereof. As soon as practicable after the Effective Time, each holder of shares of CGB Common Stock converted pursuant to Section 2.1, upon surrender to the Exchange Agent of one or more CGB share certificates (the "CGB Certificates") for cancellation, will be entitled to receive a certificate representing the number of shares of Enterbank Common Stock determined in accordance with Section 2.1 and a payment in cash with respect to fractional shares, if any, determined in accordance with Section 2.3. (b) No dividends or other distributions of any kind which are declared payable to shareholders of record of the shares of Enterbank Common Stock after the Effective Time will be paid to persons entitled to receive such certificates for shares of Enterbank Common Stock until such persons surrender their CGB Certificates. Upon surrender of such CGB Certificate, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the shares of Enterbank Common Stock as to which the record date and payment date occurred on or after the Effective Time and on or before the date of surrender. 4 15 (c) If any certificate for shares of Enterbank Common Stock is to be issued in a name other than that in which the CGB Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such shares of Enterbank Common Stock in a name other than the registered holder of the CGB Certificate surrendered, or such persons shall establish to the satisfaction of Enterbank and the Exchange Agent that such costs, taxes or other expenses have been paid or are not applicable. (d) All dividends or distributions, and any cash to be paid in lieu of fractional shares pursuant to Section 2.3, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered CGB Certificates representing shares of CGB Common Stock and unclaimed at the end of one year from the Effective Time, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Enterbank, and after such time any holder of a CGB Certificate who has not surrendered such CGB Certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Enterbank for payment or delivery of such dividends or distributions or cash, as the case may be. (e) Neither Enterbank nor the Surviving Corporation shall be liable to any holder of CGB Common Stock for such shares (or dividends or distributions thereon) or cash payable in lieu of fractional shares pursuant to Section 2.3 delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 2.5 ADJUSTMENTS. In the event Enterbank changes (or establishes a record date for changing) the number of shares of Enterbank Common Stock issued and outstanding prior to the Effective Time as a result of an issuance of shares of Enterbank Common Stock, or a recapitalization, reclassification, split-up, combination, exchange, readjustment, reorganization, merger, consolidation, distribution, stock split, stock or other dividend, or similar transaction with respect to the outstanding Enterbank Common Stock and the record date therefor, if applicable, shall be prior to the Effective Time, the Exchange Ratio shall be proportionately adjusted with the result that the holders of CGB Common Stock shall receive the same economic benefit set forth in Section 2.1. Further, in the event Enterbank, prior to the Effective Time, grants, issues, delivers, sells or otherwise distributes any warrant, option, security, right or other instrument convertible into or exchangeable for any shares of Enterbank Common Stock (collectively, an "Enterbank Instrument"), then (i) the Exchange Ratio shall be proportionately adjusted in the manner prescribed above as if the shares of Enterbank Common Stock issuable pursuant to such Enterbank Instrument were outstanding prior to the Effective Time or, (ii) in the sole discretion of Enterbank, Enterbank shall provide, at or prior to the Effective Time, for the holders of the CGB Common Stock whose shares are to be converted into shares of Enterbank Common Stock pursuant to the Merger proportionately equivalent Enterbank Instruments upon consummation of the Merger; provided, however, that no adjustment hereunder shall be made for the grant or exercise of options under: (x) the Enterbank Incentive Stock Option Plan I, II, III or IV; (y) the Enterbank Holdings, Inc. Non-Qualified Incentive Stock Option Plan; or (z) options granted to employees of Moneta Group Investment Advisors, Inc. 5 16 ("Moneta") pursuant to the Agreement among Enterbank, Enterprise Bank and Moneta made by the Board of Directors of Enterbank in its sole discretion; and no adjustments shall be made hereunder for the grant in accordance with past practice of stock appreciation rights ("SARs") to members or advisory members of the Board of Directors of Enterbank or of any of its Subsidiaries who have not heretofore received grants of SARs or for shares of Enterbank Common Stock issued to members of the Boards of Directors of Enterbank or any its subsidiaries upon vesting of SARs granted prior to the date hereof. 2.6 OPTIONS. At the Effective Time, each option granted by CGB to purchase shares of CGB Common Stock (each, an "CGB Option") which is outstanding and unexercised immediately prior thereto shall cease to represent a right to acquire shares of CGB Common Stock and shall be converted automatically into an option to purchase shares of Enterbank Common Stock in an amount and at an exercise price determined as provided below (and otherwise subject to the terms of the stock option plans of CGB (the "CGB Stock Option Plans") and the agreements evidencing grants thereunder: (a) the number of shares of Enterbank Common Stock to be subject to the new option shall be equal to the product of the number of shares of CGB Common Stock subject to the original option and the Exchange Ratio, provided that any fractional shares of Enterbank Common Stock resulting from such multiplication shall be rounded down to the nearest share; and (b) the exercise price per share of Enterbank Common Stock under the new option shall be equal to the exercise price per share of CGB Common Stock under the original option divided by the Exchange Ratio, provided that such exercise price shall be rounded up to the nearest cent. In the case of any options which are "incentive stock options" (as defined in section 422 of the Code), the exercise price, the number of shares purchasable pursuant to such options and the terms and conditions of exercise of such options shall be determined in order to comply with section 424(a) of the Code. The duration and other terms of the new option shall be the same as the original option except that all references to CGB shall be deemed to be references to Enterbank. 2.7 DISSENTERS' RIGHTS. (a) Notwithstanding anything in this Agreement to the contrary, shares of CGB Common Stock which are issued and outstanding immediately prior to the Effective Time and which are held by shareholders that have not voted such shares in favor of the Merger and have delivered a written demand for the valuation of such shares in the manner provided in the laws of the State of Kansas (such shares, the "CGB Dissenting Shares") shall not be converted into or represent the right to receive Enterbank Common Stock as provided in Section 2.1 and the holders thereof shall only be entitled to such rights as are granted by K.S.A. 17-6712 of the KGCC. Each holder of CGB Dissenting Shares that becomes entitled to payment for such shares pursuant to K.S.A. 17-6712 of the KGCC shall receive payment therefor from the Surviving Corporation in accordance with the KGCC; provided, however, that (i) if any such holder of CGB Dissenting Shares shall have failed to establish that such holder is entitled to dissenters' rights as provided in K.S.A. 17-6712 of the KGCC, or (ii) if any such holder of CGB Dissenting Shares shall have effectively withdrawn the demand for valuation of such shares or lost the right to valuation and payment of such shares under K.S.A. 17-6712 of the KGCC, or (iii) if neither the Surviving Corporation nor such holder of CGB 6 17 Dissenting Shares shall have filed a petition demanding a determination of the value of all CGB Dissenting Shares within the time provided in K.S.A. 17-6712 of the KGCC, such holder's or holders' (as the case may be) shares of CGB Common Stock shall thereupon be deemed to have been converted, as of the Effective Time, into and represent the right to receive from the Surviving Corporation the shares of Enterbank Common Stock as provided in Section 2.1 hereof. (b) Notwithstanding anything in this Agreement to the contrary, if Enterbank is the Surviving Corporation, holders of shares of Enterbank Common Stock which are issued and outstanding immediately prior to the Effective Time that have not voted such shares in favor of the Merger and have delivered a written demand for the valuation of such shares in the manner provided in the laws of the State of Delaware (such shares, the "Enterbank Dissenting Shares") shall be entitled to such rights as are granted by Section 262 of the DGCL. In such event, each holder of Enterbank Dissenting Shares that becomes entitled to payment for such shares pursuant to Section 262 of the DGCL shall receive payment therefor from the Surviving Corporation in accordance with Section 262 of the DGCL; provided, however, that (i) if any such holder of Enterbank Dissenting Shares shall have failed to establish that such holder is entitled to dissenters' rights as provided in Section 262 of the DGCL, or (ii) if any such holder of Enterbank Dissenting Shares shall have effectively withdrawn the demand for valuation of such shares or lost the right to valuation and payment of such shares under Section 262 of the DGCL, or (iii) if neither the Surviving Corporation nor such holder of Enterbank Dissenting Shares shall have filed a petition demanding a determination of the value of all Enterbank Dissenting Shares within the time provided in Section 262 of the DGCL, each share of Enterbank Common Stock held by such holder or holders (as the case may be) immediately prior to the Effective Time shall remain an issued and outstanding share of capital stock of Enterbank held by such holder or holders (as the case may be) and shall not be affected by the Merger. If the Constituent Corporations in the Merger are CGB and an Acquisition Sub, holders of Enterbank Common Stock will not be entitled to the rights provided by Section 260 of the DGCL. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES OF CGB. CGB hereby represents and warrants to Enterbank as follows: (a) ORGANIZATION, STANDING AND POWER. CGB is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). First Commercial Bank, N.A. ("FCB") is a wholly owned Subsidiary of CGB and is a national banking association organized under the laws of the United States. The deposit accounts of FCB are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid when due. CGB and each of its Subsidiaries is a bank or corporation duly organized, 7 18 validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure so to qualify would not, either individually or in the aggregate, have a material adverse effect on CGB. The Articles of Incorporation or Association and By-laws of each of CGB, and each Subsidiary of CGB, copies of which were previously made available to Enterbank, are true, complete and correct. The minute books of CGB and its Subsidiaries which have been made available to Enterbank contain a complete (except for certain portions thereof relating to the Merger and the transactions contemplated hereby) and accurate record of all meetings of the respective Boards of Directors (and committees thereof) and shareholders. As used in this Agreement, (i) the term "Subsidiary" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, (x) of which such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interests in such partnership), or (y) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries, (ii) any reference to any event, change or effect being "material" with respect to any entity means an event, change or effect which is material in relation to the condition (financial or otherwise), properties, assets, liabilities, businesses, results of operations or prospects of such entity and its Subsidiaries taken as a whole, (iii) the term "material adverse effect" means, with respect to any entity, a material adverse effect (whether or not required to be accrued or disclosed under Statement of Financial Accounting Standards No. 5 ("SFAS No. 5")) (A) on the condition (financial or otherwise), properties, assets, liabilities, businesses, results of operations or prospects of such entity and its Subsidiaries taken as a whole (but does not include any such effect resulting from or attributable to any action or omission by CGB or Enterbank or any Subsidiary of either of them taken with the prior written consent of the other parties hereto, in contemplation of the transactions contemplated hereby), or (B) on the ability of such entity to perform its obligations under the Transaction Agreements (as defined below) on a timely basis, (iv) the term "Transaction Agreements" shall mean this Agreement and the Agreement of Merger, 8 19 (v) the term "knowledge" or "to the best knowledge of" a party hereto means the actual knowledge of a director or executive officer of a party after reasonable inquiry under all the circumstances, (vi) the term "Affiliate" means, as to any person, a person which controls, is controlled by or is under common control with such person, and (vii) the term "person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (b) CAPITAL STRUCTURE; OWNERSHIP OF CGB COMMON STOCK. (i) The authorized capital stock of CGB consists of 2,000,000 shares of CGB Common Stock, par value $1.00 per share and 50,000 shares of preferred stock, par value $100 per share (the "CGB Preferred Stock"), of which (A) as of December 27, 1999, 836,854 shares of CGB Common Stock were outstanding (none having been issued thereafter except from the exercise of CGB Options) and (B) as of December 27, 1999, no shares of CGB Preferred Stock were outstanding and none have been issued thereafter. All outstanding shares of CGB Common Stock have been duly authorized and validly issued and are fully paid and non-assessable and not subject to preemptive rights. (ii) The authorized capital stock of FCB consists of 1,000,000 shares of FCB Common Stock, $60 par value per share, of which 66,900 shares are outstanding. All outstanding shares of FCB Common Stock have been duly authorized and validly issued and are fully paid and non-assessable (except to the extent provided in the National Bank Act) and not subject to preemptive rights. (iii) Except for this Agreement and except as set forth in Section 3.1(b)(iii) of the disclosure schedule of CGB delivered to Enterbank on the date hereof (the "CGB Disclosure Schedule"), (A) there are no options, warrants, calls, rights, commitments or agreements of any character to which CGB or any of its Subsidiaries or Affiliates (as defined herein) is a party or by which any of the foregoing are bound obligating CGB or any of its Subsidiaries, including FCB, or Affiliates to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of CGB or any of its Subsidiaries or obligating CGB or any of its Subsidiaries or Affiliates to grant, extend or enter into any such option, warrant, call, right, commitment or agreement, (B) there are no outstanding contractual obligations of CGB or any of its Subsidiaries or Affiliates to repurchase, redeem or otherwise acquire any shares of capital stock of CGB or any of its Subsidiaries and (C) there are no outstanding securities of any kind convertible into or exchangeable for the capital stock of CGB or any of its Subsidiaries (or any interest therein). Except as set forth in Section 3.1(b)(iii) of the CGB Disclosure Schedule, there is no agreement of any kind to which CGB or FCB is a party and, to the knowledge of CGB (without inquiry), no other agreement of any kind, in each case that gives any person any right to participate in the equity, value or income of, or to vote 9 20 (x) in the election of directors or officers of, or (y) otherwise with respect to the affairs of, CGB or any of its Subsidiaries. (iv) Neither CGB nor any of its Subsidiaries or, to the best knowledge of CGB, its Affiliates, beneficially owns, directly or indirectly, any shares of capital stock of Enterbank, securities of Enterbank convertible into, or exchangeable for, such shares, or options, warrants or other rights to acquire such shares (regardless of whether such securities, options, warrants or other rights are then exercisable or convertible), nor is CGB or any of such Subsidiaries or Affiliates a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of capital stock of Enterbank or any such other securities, options, warrants or other rights. (v) No shares of CGB Common Stock are held directly or indirectly by CGB or its Subsidiaries in trust accounts, managed accounts and the like or otherwise held in a fiduciary or nominee capacity (any such shares, and shares of Enterbank Common Stock which are similarly held, whether held directly or indirectly by CGB or Enterbank or any of their respective Subsidiaries, as the case may be, being referred to herein as "Trust Account Shares") and no shares of CGB Common Stock are held by CGB or its Subsidiaries in respect of a debt previously contracted (any such shares and shares of Enterbank Common Stock which are similarly held, whether held directly or indirectly by CGB or Enterbank or any of their respective Subsidiaries, as the case may be, being referred to herein as "DPC Shares"). (c) AUTHORITY; NO VIOLATION. (i) CGB has all requisite corporate power and authority to enter into this Agreement and the other Transaction Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of CGB, other than the approval of this Agreement and the Agreement of Merger by the holders of a majority of the outstanding shares of CGB Common Stock (the "CGB Shareholder Approval"). The CGB Shareholder Approval is the only vote of any class or series of CGB capital stock necessary to approve this Agreement and the other Transaction Agreements and the consummation of the transactions contemplated hereby and thereby. This Agreement and the other Transaction Agreements have been duly executed and delivered by CGB, and (assuming due authorization, execution and delivery by Enterbank) constitute the valid and binding obligations of CGB, enforceable against CGB in accordance with their terms, subject, as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (ii) Except as set forth in Section 3.1(c)(ii) of the CGB Disclosure Schedule, the execution and delivery by CGB of this Agreement and the other Transaction Agreements does not or will not when delivered, and the consummation of the transactions contemplated hereby and thereby will not, conflict with, or result in any violation of, or constitute 10 21 a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or the creation of a lien, pledge, security interest, charge or other encumbrance on any assets (any such conflict, violation, default, right of termination, cancellation or acceleration, loss or creation, a "Violation") pursuant to, (x) any provision of the Articles of Incorporation or Association or By-laws or comparable organizational documents of CGB or any Subsidiary of CGB, or (y) subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below, any loan or credit agreement, note, mortgage, indenture, lease, CGB Benefit Plan (as defined in Section 3.1(k)) or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to CGB or any Subsidiary of CGB or its properties or assets, which Violation, in the case of clause (y), individually or in the aggregate, would have a material adverse effect on CGB. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity"), is required by or with respect to CGB or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the other Transaction Agreements or the consummation by CGB of the transactions contemplated hereby or thereby, which, if not made or obtained, would have a material adverse effect on CGB or on the ability of CGB to perform its obligations hereunder or thereunder on a timely basis, or on Enterbank's ability to own, possess or exercise the rights of an owner with respect to the business and assets of CGB and its Subsidiaries, except for (A) the filing of applications and notices with the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the BHC Act and approval of same, (B) the filing by Enterbank with the Securities and Exchange Commission (the "SEC") of a joint proxy statement (the "Proxy Statement") in definitive form relating to the meetings of the shareholders of CGB and Enterbank to be held to approve and adopt this Agreement and the transactions contemplated hereby, (C) such applications, filings, authorizations, orders and approvals as may be required by the Office of the Comptroller of the Currency ("OCC") and the Kansas Department of Banking and (D) the filing with the Secretaries of States of Delaware and Kansas of the Agreement of Merger. (d) FINANCIAL STATEMENTS. CGB has previously delivered to Enterbank copies of (a) the consolidated statements of financial condition of CGB and its Subsidiaries, as of December 31, for the fiscal years 1997 and 1998, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for the fiscal years 1996 through 1998, inclusive, in each case accompanied by the report of Deloitte & Touche LLP (of KPMG LLP with respect to 1996), independent auditors with respect to CGB (the consolidated financial statements of CGB and its Subsidiaries referred to in this clause being hereinafter sometimes referred to as the "CGB Consolidated Financial Statements") and (b) the unaudited condensed consolidated statement of financial position of CGB and its Subsidiaries as of September 30, 1999 and the unaudited condensed consolidated statements of operations of CGB and its Subsidiaries for the nine-month periods ended September 30, 1998 and 1999 (the unaudited 11 22 condensed consolidated financial statements of CGB and its Subsidiaries referred to in this clause being sometimes hereinafter referred to as the "CGB Interim Financial Statements"). Each of the financial statements referred to in this Section 3.1(d) (including the related notes, where applicable) fairly present, and the financial statements referred to in Section 5.12 hereof will fairly present (subject, in the cases of the CGB Interim Financial Statements, to normal recurring and year-end audit adjustments, none of which are expected to be material in nature or amount and the fact that the CGB Interim Financial Statements do not contain footnotes), the results of the consolidated operations and changes in shareholders' equity and consolidated financial condition of CGB and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth. Each of such statements (including the related notes, where applicable) complies, and the financial statements referred to in Section 5.12 hereof will comply, in all material respects, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and each of such statements (including the related notes, where applicable) has been, and the financial statements referred to in Section 5.12 will be, prepared, in all material respects, in accordance with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except in each case as indicated in such statements or in the notes thereto or, in the case of the CGB Interim Financial Statements (subject to normal recurring and year-end audit adjustments), as permitted by Form 10-Q. The books and records of CGB and its Subsidiaries have been, and are being, maintained where required in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and, where such books and records purport to reflect any transactions, the transactions so reflected are actual transactions. (e) CGB INFORMATION SUPPLIED. None of the information supplied or to be supplied by CGB for inclusion or incorporation by reference in the Proxy Statement relating to the meeting of the shareholders of CGB (the "CGB Shareholders' Meeting") at which the CGB Shareholder Approval will be sought or for inclusion in a registration statement on Form S-4 (the "S-4") will, at the date of mailing to shareholders of CGB and at the time of the CGB Shareholders' Meeting, (i) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) at the time and in the light of the circumstances under which it is made, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the CGB Shareholders' Meeting which has become false or misleading. (f) COMPLIANCE WITH APPLICABLE LAWS. CGB and its Subsidiaries hold, and at all relevant times have held, all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are material to the operation of the businesses of CGB and its Subsidiaries, taken as a whole (the "CGB Permits"). CGB and its Subsidiaries are in compliance and have complied with the terms of the CGB Permits, except where the failure so to comply, individually or in the aggregate, would not have a material adverse effect on CGB. The businesses of CGB and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation 12 23 of any Governmental Entity, except for possible violations which, individually or in the aggregate, do not, and, insofar as reasonably can be foreseen, in the future will not, have a material adverse effect on CGB. Except for routine examinations by Federal or state Governmental Entities charged with the supervision or regulation of banks or bank holding companies or engaged in the insurance of bank deposits ("Bank Regulators"), no investigation by any Governmental Entity with respect to CGB or any of its Subsidiaries is pending or threatened, and no proceedings by any Bank Regulator are pending or threatened which seek to revoke or materially limit any of the CGB Permits. CGB and its Subsidiaries do not offer or sell insurance and/or securities products, including but not limited to annuity products, for their own account or the account of others. (g) LITIGATION. Except as set forth in Section 3.1(g) of the CGB Disclosure Schedule, to the best knowledge of CGB, there is no suit, action, proceeding, arbitration or investigation ("Litigation") pending to which CGB or any Subsidiary of CGB is a party or by which any of such persons or their respective assets may be bound or, to the best knowledge of CGB, threatened against or affecting CGB or any Subsidiary of CGB, or challenging the validity or propriety of the transactions contemplated hereby which, if adversely determined, would, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on CGB or on the ability of CGB to perform its obligations under this Agreement in a timely manner, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against CGB or any Subsidiary of CGB. (h) TAXES. CGB and each of its Subsidiaries have timely filed all tax returns required to be filed by any of them and all such tax returns were, when filed, correct and complete in all material respects. CGB and each of its Subsidiaries have timely paid (or CGB has paid on their behalf), or have set up an adequate reserve for the payment of, all taxes required to be paid (whether or not shown as due on such returns), and the most recent financial statements that have been delivered to Enterbank reflect an adequate reserve (other than reserves for deferred taxes established to reflect differences between tax and book basis of assets and liabilities) for all taxes accrued but not yet due and owing, by CGB and its Subsidiaries accrued through the date of such financial statements. CGB and its Subsidiaries file tax returns in all jurisdictions where required to file tax returns. No material deficiencies for any taxes have been asserted or assessed against CGB or any of its Subsidiaries that are not adequately reserved for (other than reserves for deferred taxes established to reflect differences between tax and book basis of assets and liabilities). Except as set forth in Section 3.1(h) of the CGB Disclosure Schedule: (i) there are no liens with respect to taxes upon any of the assets or properties of CGB and its Subsidiaries, other than with respect to taxes not yet due and payable, (ii) no material issue relating to taxes of CGB and its Subsidiaries has been raised in writing by any taxing authority in any audit or examination which can result in a proposed adjustment or assessment by a governmental authority in a taxable period (or portion thereof) ending on or before the Closing Date nor, to the best knowledge of CGB, does any basis exist for the raising of any such issue, (iii) CGB and its Subsidiaries have duly and timely withheld from all payments (including employee salaries, wages and other compensation) and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods for which the statute of limitations has not expired under all applicable laws and regulations, (iv) as of the Closing Date, 13 24 none of CGB nor any of its Subsidiaries shall be a party to, be bound by or have any obligation under, any tax sharing agreement or similar contract or arrangement or any agreement that obligates any of them to make any payment computed by reference to the taxes, taxable income or taxable losses of any other person, (v) except as set forth on Section 3.1(h) of the CGB Disclosure Schedule, there is no contract or agreement, plan or arrangement by CGB or any of its Subsidiaries covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by CGB or any of its Subsidiaries by reason of section 280G of the Code, (vi) CGB and its Subsidiaries have collected all material sales and use taxes required to be collected, and have remitted, or will remit on a timely basis, such amounts to the appropriate governmental authorities, or have been furnished properly completed exemption certificates and have maintained all such records and supporting documents in all material respects in the manner required by all applicable sales and use tax statutes and regulations for all periods for which the statute of limitations has not expired, (vii) neither CGB nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii) of the Code, and (viii) none of CGB nor any of its Subsidiaries (A) has been a member of an affiliated group (other than the group to which they are currently members) filing a consolidated federal income tax return or (B) has any liability for the taxes of any person (other than the members of such current group) under Treasury Regulation section 1.1502-6(a) (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. For the purpose of this Agreement, the term "tax" (including, with correlative meaning, the terms "taxes" and "taxable") shall include, except where the context otherwise requires, all Federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise, occupancy, custom, duty, capital stock, ad valorem, value added, estimated, stamp, alternative, environmental, any taxes imposed under Subchapter H of Chapter I of Subtitle A of the Code, and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts. As used in this Agreement, the term "Tax return" shall mean any return, declaration, report, claim for refund or information return or statement relating to taxes, including any schedule or attachment thereto, and including any amendment thereof. None of CGB nor any of its Subsidiaries has filed a consent to the application of section 341(f) of the Code. (i) CERTAIN AGREEMENTS. Section 3.1(i) of the CGB Disclosure Schedule sets forth a listing of all of the following contracts and other agreements, oral or written (which are currently in force or which may in the future be operative in any respect) to which CGB or any of its Subsidiaries is a party or by or to which CGB or any of its Subsidiaries or any of their respective assets or properties are bound or subject: (i) consulting agreements not terminable on six months or less notice involving the payment of more than $25,000 per annum, or union, guild or collective bargaining agreements covering any employees in the United States, (ii) agreements with any officer or other key employee of CGB or any of its Subsidiaries (x) providing any term of employment or (y) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving CGB of the nature contemplated by this Agreement, (iii) any agreement or plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this 14 25 Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (iv) contracts and other agreements for the sale or lease (other than where CGB or any of its Subsidiaries is a lessor) of any assets or properties (other than in the ordinary course of business) or for the grant to any person (other than to CGB or any of its Subsidiaries) of any preferential rights to purchase any assets or properties, (v) contracts and other agreements relating to the acquisition by CGB or any of its Subsidiaries of any operating business or entity or any interest therein, (vi) contracts or other agreements under which CGB or any of its Subsidiaries agrees to indemnify any party, other than in the ordinary course of business, consistent with past practice, or to share a tax liability of any party, (vii) contracts and other agreements containing covenants restricting CGB or any of its Subsidiaries from competing in any line of business or with any person in any geographical area or requiring CGB or any of its Subsidiaries to engage in any line of business, (viii) contracts or other agreements (other than contracts in the ordinary course of their banking business) relating to the borrowing of money by CGB or any of its Subsidiaries, or the direct or indirect guaranty by CGB or any of its Subsidiaries of any obligation for, or an agreement by CGB or any of its Subsidiaries to service, the repayment of borrowed money, or any other contingent obligations of CGB or any of its Subsidiaries in respect of indebtedness of any other person, and (ix) any other material contract or other agreement whether or not made in the ordinary course of business, including any contract which would be required to be filed pursuant to Item 601(b)(10) of Regulation S-K of the SEC. There have been delivered or made available to Enterbank true and complete copies of all of the contracts and other agreements set forth in Section 3.1(i) of the CGB Disclosure Schedule and in any other Section of the CGB Disclosure Schedule. Except as set forth in Section 3.1(i) of the CGB Disclosure Schedule, each such contract and other agreement is in full force and effect and constitutes a legal, valid and binding obligation of CGB or its Subsidiaries, as the case may be, and to the best knowledge of CGB, each other party thereto, enforceable in accordance with its terms subject, as to enforceability, to bankruptcy, insolvency, and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. Neither CGB nor any Subsidiary of CGB has received any notice, whether written or oral, of termination or intention to terminate from any other party to such contract or agreement. None of CGB or any of its Subsidiaries or (to the best knowledge of CGB) any other party to any such contract or agreement is in violation or breach of or default under any such contract or agreement (or with or without notice or lapse of time or both, would be in violation or breach of or default under any such contract or agreement), which violation, breach or default has had or would have, individually or in the aggregate, a material adverse effect on CGB. (j) BENEFIT PLANS. (i) Section 3.1(j)(i) of the CGB Disclosure Schedule contains a true and complete list of each "employee benefit plan" (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including, without limitation, multiemployer plans (within the meaning of ERISA section 3(37)), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation, employee stock ownership, retirement, profit sharing and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not 15 26 subject to ERISA, and whether formal or informal, oral or written (all the foregoing being herein called "Benefit Plans"), that are sponsored or are being maintained or contributed to, or required to be contributed to, by CGB or any of its Subsidiaries (the "CGB Benefit Plans"). No CGB Benefit Plan is a multiemployer plan or is subject to a collective bargaining agreement. (ii) With respect to each CGB Benefit Plan, CGB has delivered to Enterbank a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable, (A) any related trust agreement or other funding instrument; (B) the most recent determination letter; (C) any summary plan description and other written communications (or a description of any oral communications) by CGB or any of its Subsidiaries to any of their respective employees concerning the extent of the benefits provided under any CGB Benefit Plan; and (D) except as described in Section 3.1(j)(ii) of the CGB Disclosure Schedule, for the two most recent years (I) the Form 5500 and attached schedules; (II) audited financial statements; and (III) actuarial valuation reports. (iii) Except as set forth in Section 3.1(j)(iii) of the CGB Disclosure Schedule, (A) each CGB Benefit Plan has been established and administered in accordance with its terms, and in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations; (B) each CGB Benefit Plan which is intended to be qualified within the meaning of Code section 401(a) is so qualified and has received a favorable determination letter as to its qualification and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification; (C) with respect to any CGB Benefit Plan, no audits, actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or threatened, and no facts or circumstances exist which could give rise to any such audits, actions, suits or claims; (D) neither CGB nor any other party has engaged in a prohibited transaction which could subject CGB or any of its Subsidiaries, or the Surviving Corporation, to any taxes, penalties or other liabilities under Code section 4975 or ERISA sections 409 or 502(i); (E) no event has occurred and no condition exists that could subject CGB or any of its Subsidiaries, or the Surviving Corporation, either directly or by reason of any such entity's affiliation with any member of any such entity's Controlled Group (defined as any organization which is a member of a controlled group of organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine, liability or penalty imposed by ERISA, the Code or other applicable laws, rules and regulations; (F) all insurance and Pension Benefit Guaranty Corporation ("PBGC") premiums required to be paid with respect to CGB Benefit Plans through the Closing Date have been or will be paid prior thereto and adequate reserves will have been provided for on CGB's consolidated statement of financial condition as of the month end immediately prior to the Closing Date for any premiums (or portions thereof) attributable to service on or prior to the Closing Date; (G) all contributions required to be made prior to the Closing Date under the terms of each CGB Benefit Plan, the Code, ERISA or other applicable laws, rules and regulations have been or will be timely made and adequate reserves will have been provided for on CGB's consolidated statement of financial condition as of the month end immediately prior to the Closing Date for all benefits attributable to service on or prior to the Closing Date; (H) no CGB Benefit Plan has incurred any "accumulated funding deficiency" as such term is defined in ERISA section 302 and (including, but not limited to the voting of any securities 16 27 held pursuant to an CGB Benefit Plan) Code section 412 (whether or not waived); (I) the consummation of this Agreement will not result in a nonexempt prohibited transaction or a breach of fiduciary duty under ERISA; and (J) no CGB Benefit Plan provides health coverage beyond the termination of employment except as provided under Code section 4980B. (iv) Except as set forth in Section 3.1(j)(iv) of the CGB Disclosure Schedule, with respect to each of the CGB Benefit Plans which is subject to Title IV of ERISA, as of the Closing Date, the assets of each such Plan shall be at least equal in value to the present value of the accrued benefits (vested and unvested) of the participants in such Plan on a termination and projected basis, based on the actuarial methods and assumptions indicated in the most recent actuarial valuation reports. (v) Except as set forth on Section 3.1(j)(v) of the CGB Disclosure Schedule, no CGB Benefit Plan exists which provides for an increase in benefits on or after the Closing Date or could result in the payment to any employee of CGB or any of its Subsidiaries of any money or other property or rights or accelerate or provide any other rights or benefits to any such employee as a result of the transactions contemplated by this Agreement. The aggregate amount of payments due from CGB under all such contracts and the amount due under each such contract, at the Effective Time, are as set forth in the schedule included in Section 3.1(j)(v) of the CGB Disclosure Schedule. Except as set forth in Section 3.1(j)(v) of the CGB Disclosure Schedule, none of such payments will constitute an "excess parachute" payment within the meaning of Code section 280G. (k) SUBSIDIARIES. Section 3.1(k) of the CGB Disclosure Schedule lists all the Subsidiaries of CGB. CGB owns, directly or indirectly, beneficially and of record 100% of the issued and outstanding voting securities of each such Subsidiary. All of the shares of capital stock of each of the Subsidiaries held by CGB or by another of its Subsidiaries are fully paid and nonassessable and are owned by CGB or one of its Subsidiaries free and clear of any lien, claim or other encumbrance. Neither CGB nor any of its Subsidiaries owns any shares of capital stock or other equity securities of any person (other than, in the case of CGB, the capital stock of its Subsidiaries and, in the case of such Subsidiaries, shares or equity securities acquired in satisfaction of debts previously contracted in good faith in the ordinary course of their banking business). (l) AGREEMENTS WITH BANK OR OTHER REGULATORS. Except as set forth in Section 3.1(l) of the CGB Disclosure Schedule, neither CGB nor any Subsidiary of CGB is a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of, any Bank Regulator which restricts materially the conduct by CGB or its Subsidiaries of their businesses, or in any manner relates to their capital adequacy, credit policies, community reinvestment, loan underwriting or documentation or management, nor has CGB or any such Subsidiary been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of 17 28 understanding, extraordinary supervisory letter, commitment letter or similar submission, or any such board resolutions. (m) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section 3.1(m) of the CGB Disclosure Schedule, since September 30, 1999, (i) there has not been any change, or any event involving a prospective change, in the business, financial condition or results of operations or prospects of CGB or any of its Subsidiaries which has had, or would be reasonably likely to have, a material adverse effect on CGB, and (ii) CGB and each of its Subsidiaries have conducted their respective businesses in the ordinary course consistent with their past practices and neither CGB nor any of its Subsidiaries has taken any action or entered into any transaction, and no event has occurred, that would have required Enterbank's consent pursuant to Section 4.1 of this Agreement if such action had been taken, transaction entered into or event had occurred, in each case, after the date of this Agreement, nor has CGB or any of its Subsidiaries entered into any agreement, plan or arrangement to do any of the foregoing. (n) UNDISCLOSED LIABILITIES. Except as set forth in Section 3.1(n) of the CGB Disclosure Schedule, and except (i) for those liabilities or obligations that are fully reflected or reserved against in the condensed consolidated statement of financial condition at September 30, 1999 of CGB referred to in Section 3.1(d) or (ii) for liabilities or obligations incurred in the ordinary course of business consistent with past practice since September 30, 1999 and which are not material to CGB and its Subsidiaries taken as a whole, none of CGB or any of its Subsidiaries has incurred any liability or obligation of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or to become due) that, either alone or when combined with all similar liabilities or obligations, has had, or would have, a material adverse effect on CGB. No agreement pursuant to which any loans or other assets have been or will be sold by CGB or any Subsidiary entitle the buyer of such loans or other assets, unless there is material breach of a representation or covenant by CGB or its Subsidiaries not relating to the payment or other performance by an obligor of such loan or other asset of its obligations thereunder, to cause CGB or its Subsidiaries to repurchase such loan or other asset or the buyer to pursue any other form of recourse against CGB or its Subsidiaries. (o) GOVERNMENTAL REPORTS. CGB and each of its Subsidiaries have timely filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 1995 with any Governmental Entity and have paid all fees and assessments due and payable in connection therewith. Except as set forth in Section 3.1(o) of the CGB Disclosure Schedule and except for normal examinations conducted by a Governmental Entity in the regular course of business of CGB and its Subsidiaries, no Governmental Entity has initiated any proceeding or, to the best knowledge of CGB, investigation into the business or operations of CGB or any of its Subsidiaries since January 1, 1995. Except as set forth in Section 3.1(o) of the CGB Disclosure Schedule, there is no material unresolved violation, criticism or exception by any Governmental Entity with respect to any report or statement relating to any examinations of CGB or any of its Subsidiaries. 18 29 (p) ENVIRONMENTAL LIABILITY. (i) Except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, to the best knowledge of CGB, there are no pending or threatened claims, actions or proceedings against CGB or FCB relating to: (A) any asserted liability of CGB or any of its Affiliates or any current or prior owner, operator, occupier or user of any Real Property (as defined herein) under any Environmental Law (as defined herein), including without limitation, the terms and conditions of any permit, license, authority, settlement or other obligation arising under any Environmental Law; (B) any handling, storage, use or disposal of Hazardous Substances (as defined herein) on, under or within any Real Property or any transportation or removal of Hazardous Substances to or from any Real Property; (C) any actual or threatened discharge, release or emission of Hazardous Substances from, on, under or within any Real Property into the air, water, surface water, groundwater, land surface or subsurface strata; or (D) any actual or asserted claims for personal injuries, illness or damage to real or personal property related to or arising out of exposure to Hazardous Substances discharged, released or emitted from, on, under, within or into, or transported from or to, any Real Property. (ii) Except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, to the best knowledge of CGB, no Hazardous Substances are present on, under or within any Real Property (except those Hazardous Substances used in the normal course of operating or maintaining the business of CGB or any Subsidiary of CGB) and, except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, the presence of these Hazardous Substances does not violate any Environmental Law. Except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, to the best knowledge of CGB, there are no storage tanks underground or otherwise present on any Real Property and all such tanks set forth in Section 3.1(p) of the CGB Disclosure Schedule comply in all material respects with applicable law, all permits in respect thereof are in full force and effect and there have been no releases or discharges of Hazardous Substances from such tanks to the environment. (iii) To the best knowledge of CGB, except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, no Hazardous Substances have been, or have been threatened to be, discharged, released or emitted in a Reportable Quantity (as defined herein) into the air, water, surface water, groundwater, land surface or subsurface strata or transported to or from the Real Property except in accordance with Environmental Laws (in particular, but without limitation, in accordance with any permits issued pursuant thereto). To the best knowledge of CGB, all notifications, remediation, removal or other response actions of any kind whatsoever, in respect of 19 30 such discharges, releases and emissions which are required by Environmental Laws, and by applicable agreements with third parties, have been made within the time limits prescribed by such Environmental Laws and such third party agreements. Copies of all such notifications or documents relating to any remediation, removal or response action have previously been provided to Enterbank. (iv) To the best knowledge of CGB, except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, CGB and its Affiliates are in compliance, in all material respects, with all Environmental Laws related to the ownership, operation, use and occupation of the Real Property. (v) To the best knowledge of CGB, except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, no part of any Real Property is listed on CERCLIS or the National Priorities List created pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, as a site containing Hazardous Substances. (vi) CGB has provided Enterbank with copies of all material notices posted by it under any Environmental Law with respect to the Real Property at which the business of CGB or its Subsidiaries is conducted. (vii) All properties held by CGB or its Subsidiaries under leases are held by them under valid, binding and enforceable leases, with such exceptions as are not material and do not interfere with the conduct of the business of CGB, and CGB enjoys quiet and peaceful possession of such leased property. CGB and its Subsidiaries are not in default in any material respect under any material lease, agreement or obligation regarding their properties to which they are a party or by which they are bound. (viii) Except as set forth in Section 3.1(p) of the CGB Disclosure Schedule, all of CGB's and its Subsidiaries' rights and obligations under the leases referred to in Section 3.1(p)(vii) above do not require the consent of any other party to the transactions contemplated by this Agreement. (ix) For purposes of this Section 3.1(p) and Section 3.2(p) only, the following terms shall have the indicated meaning: "Business" means the business conducted at any Real Property (as defined below). "Environmental Law" means any and all applicable federal, state and local laws (whether under common law, statute, rule, regulation or otherwise), requirements under permits issued with respect thereto, and other orders, decrees, judgments, directives or other requirements of any governmental authority relating to the environment, or to any Hazardous Substances. "Hazardous Substances" means any chemical, compound, material, mixture, living organism or substance that is now defined or listed in, or otherwise classified or regulated in any way pursuant 20 31 to, any Environmental Laws as a "hazardous waste," "hazardous substance," "hazardous material," "extremely hazardous waste," "infectious waste," "toxic substance," or "toxic pollutants," such materials, including without limitation, oil, waste oil, petroleum, waste petroleum, polychlorinated biphenyls ("PCBs"), asbestos, radon, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). "Real Property" means all interests in real property of CGB or its Subsidiaries (with respect to Section 3.1) or Enterbank or its Subsidiaries (with respect to Section 3.2), including without limitation, interests in fee, leasehold, interest as mortgagee or secured party, or option or contract to purchase or acquire. "Reportable Quantity" means the quantity set forth in 40 C.F.R. Part 302 as it is in effect on the effective date of this Agreement for the particular Hazardous Substances set forth therein. With respect to Hazardous Substances not listed in that part, if any, "reportable quantity" means that quantity which, if released, would be required to be reported to a Governmental Entity pursuant to applicable Environmental Law. "Reportable Quantity" shall be determined based on a single release or series of related releases or threatened releases. (q) PROPERTIES. Except as set forth in Section 3.1(q) of the CGB Disclosure Schedule, CGB or its Subsidiaries (i) has good and marketable title to all Real Property owned in fee, and good title to all other properties and assets reflected in the CGB Consolidated Financial Statements as being owned by CGB or its Subsidiaries or acquired after the date thereof which are material to the business of CGB on a consolidated basis (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all claims, liens, charges, security interests or encumbrances of any nature whatsoever except (A) statutory liens securing payments not yet delinquent, (B) liens on assets of FCB securing deposits incurred in the ordinary course of its banking business and (C) such imperfections or irregularities of title, claims, liens, charges, security interests or encumbrances as do not materially affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties and (ii) is the lessee of all leasehold estates reflected in the CGB Consolidated Financial Statements or acquired after the date thereof which are material to its business on a consolidated basis (except for leases that have expired by their terms since the date thereof) and is in possession of the properties purported to be leased thereunder, and each such lease is valid without material default thereunder by the lessee or, to the best knowledge of CGB, the lessor. Except as set forth in Section 3.1(q) of the CGB Disclosure Schedule, all real properties owned by CGB or its Subsidiaries are owned in accordance in all material respects with all requirements of applicable rules, regulations and policies of the Bank Regulators. (r) TRANSACTIONS WITH AFFILIATES. Except as set forth in Section 3.1(r) of the CGB Disclosure Schedule and except for those arrangements, contracts, agreements or transactions which were entered into in the ordinary course of business, since December 31, 1998, neither CGB nor FCB has extended credit, committed to extend credit or transferred any asset to or assumed or guaranteed any liability of or entered into any other transactions with the employees or directors of 21 32 CGB or FCB, or any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the Securities Act of 1933 (the "Securities Act"). Any such transactions, including those in the ordinary course of business, have been on terms no less favorable than those which would prevail in an arm's-length transaction with an independent third party. (s) BROKERS OR FINDERS. No agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement. (t) INTELLECTUAL PROPERTY. Except as set forth in Section 3.1(t) of the CGB Disclosure Schedule, CGB and its Subsidiaries own or have a valid license to use all trademarks, service marks and trade names (including any registrations or applications for registration of any of the foregoing) (collectively, the "CGB Intellectual Property") necessary to carry on their business substantially as currently conducted, except for such CGB Intellectual Property the failure of which to own or validly license, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on CGB. Neither CGB nor any such Subsidiary has received any notice of infringement of or conflict with, and, to the best knowledge of CGB, there are no infringements of or conflicts with, the rights of others with respect to the use of any CGB Intellectual Property that, individually or in the aggregate, in either such case, would reasonably be expected to have a material adverse effect on CGB. (u) POOLING OF INTERESTS. Except as set forth in Section 3.1(u) of the CGB Disclosure Schedule, as of the date of this Agreement, CGB has no reason (in respect to matters pertaining to CGB existing as of the date hereof or expected to exist as of the Closing Date) to believe that CGB will not qualify for pooling of interests treatment for accounting purposes under GAAP as presently in effect. (v) OPINION OF FINANCIAL ADVISOR. CGB has received the written opinion of Fister & Associates, Inc. dated the date hereof, to the effect that, as of such date, subject to the limitations and conditions contained therein, the consideration to be received by the holders of CGB Common Stock pursuant to the Merger is fair to such holders from a financial point of view. (w) COMMUNITY REINVESTMENT ACT COMPLIANCE. FCB is in substantial compliance with the applicable provisions of the Community Reinvestment Act of 1977 and the regulations promulgated thereunder (collectively, the "CRA") and has received a CRA rating of "satisfactory" from the OCC in its most recent examination, and neither CGB nor FCB has any knowledge of the existence of any fact or circumstance or set of facts or circumstances which could be reasonably expected to result in FCB failing to be in substantial compliance with such provisions or having its current rating lowered. (x) YEAR 2000 READINESS. There have been no material adverse effects on either CGB or its Subsidiaries as a result of the date change for any date on or after January 1, 2000, including leap year calculations, and that, to the extent applicable to normal operating specifications, 22 33 CGB's and its Subsidiaries' computer systems and equipment have in all material respects accurately accepted, stored, retrieved, calculated, compared and otherwise processed dates of January 1, 2000 and later. (y) INSURANCE. CGB has previously delivered to Enterbank a list identifying all insurance policies maintained on behalf of CGB and its Subsidiaries (other than mortgage, title and other similar policies for the benefit of CGB or its Subsidiaries as mortgagees under residential mortgage loans). All of the material insurance policies and bonds maintained by or for the benefit of CGB and its Subsidiaries are in full force and effect, to the best knowledge of CGB, CGB and its Subsidiaries are not in default thereunder, and all material claims thereunder have been filed in due and timely fashion, and neither CGB nor any of its Subsidiaries has received notice that any of such material claims have been or will be denied. The insurance policies and bonds maintained by CGB and its Subsidiaries are written by reputable insurers and are in such amounts, cover such risks and have such other terms as is customary for banks and bank holding companies comparable in size and operations to CGB and its Subsidiaries. Since December 31, 1998, there has not been any damage to, destruction of, or loss of any assets of CGB and its Subsidiaries (whether or not covered by insurance) that could have a material adverse effect on CGB. Neither CGB nor any of its Subsidiaries has received any notice of a premium increase or cancellation with respect to any of its insurance policies or bonds, and within the last three years, neither CGB nor any of its Subsidiaries has been refused any insurance coverage sought or applied for, and CGB has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon terms and conditions as favorable as those presently in effect, other than possible increases in premiums or unavailability in coverage that have not resulted from an extraordinary loss experience of CGB or any CGB Subsidiary. (z) LOANS AND OTHER ASSETS. (i) CGB has disclosed to Enterbank prior to the date hereof the amounts of all loans, leases, other extensions of credit, commitments or other interest-bearing assets presently owned by CGB or any of its Subsidiaries that have been classified by any Bank Regulator, CGB's independent auditors, or the management of CGB or any Subsidiary of CGB as "Other Loans Especially Mentioned," "Substandard," "Doubtful," or "Loss", or classified using categories with similar import, and will have disclosed promptly to Enterbank prior to the Closing Date all such items which will be so classified hereafter and prior to the Closing Date. All such assets or portions thereof classified "Loss", or which are subsequently so classified, have been (or will be) charged off on a timely basis in full, collected or otherwise placed in a bankable condition. CGB regularly reviews and appropriately classifies its and its Subsidiaries' loans and other assets in accordance in all material respects with all applicable legal and regulatory requirements and GAAP. CGB has disclosed to Enterbank the amounts and identities of all other real estate owned ("OREO") that has been classified as such as of the date hereof by CGB's independent auditors, management of CGB or any Bank Regulator and will have promptly disclosed to Enterbank prior to the Closing Date all such assets which will be so classified hereafter and prior to the Closing Date. As of the date hereof and the Closing Date, the recorded values of all OREO on the books of CGB and its Subsidiaries 23 34 accurately reflect and will reflect the net realizable values of each OREO parcel thereof in compliance with GAAP. CGB and its Subsidiaries have recorded on a timely basis all expenses associated with or incidental to its OREO, including but not limited to taxes, maintenance and repairs as required by GAAP. (ii) All loans, leases, other extensions of credit, commitments or other interest-bearing assets and investments of CGB and its Subsidiaries are legal, valid and binding obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes known to CGB (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), except as previously disclosed to Enterbank in Section 3.1(aa)(ii) of the CGB Disclosure Schedule or reserved for in the consolidated statement of financial condition of CGB as of December 31, 1998 referred to in Section 3.1(d) in accordance with GAAP, and were duly authorized under and made in compliance with applicable federal and state laws and regulations. CGB and its Subsidiaries do not have any extensions or letters of credit, investments, guarantees, indemnification agreements or commitments for the same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of CGB and its Subsidiaries. (aa) RESTRICTIONS ON INVESTMENTS. Except for pledges to secure public and trust deposits and repurchase agreements in the ordinary course of business and except as described in Section 3.1(aa) of the CGB Disclosure Schedule, none of the investments reflected in the condensed consolidated statement of financial condition of CGB as of September 30, 1999 referred to in Section 3.1(d), and none of the investments made by CGB and its Subsidiaries since September 30, 1999, is subject to any restriction, whether contractual or statutory, which materially impairs the ability of CGB or its Subsidiaries freely to dispose of such investment at any time. (bb) NO BROKERED DEPOSITS. Except as described in Section 3.1(bb) of the CGB Disclosure Schedule, as of the date hereof, neither CGB nor any of its Subsidiaries now has any "brokered deposits" as such deposits are defined by applicable regulations of the OCC as of the date hereof. (cc) DERIVATIVES CONTRACTS; STRUCTURED NOTES; ETC. Except as set forth in Section 3.1(cc) of the CGB Disclosure Schedule, neither CGB nor any Subsidiary is a party to or has agreed to enter into an exchange traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is not included on the balance sheet and is a derivatives contract (including various combinations thereof) (each, a "Derivatives Contract") or owns securities that (1) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (2) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes, except for those Derivatives Contracts and other instruments legally purchased or entered into in the 24 35 ordinary course of their banking business, consistent with safe and sound banking practices and regulatory guidance, and with counterparties reasonably believed by CGB to be financially responsible. All of such Derivatives Contracts or other instruments are legal, valid and binding obligations of CGB or one of its Subsidiaries and, to the best knowledge of CGB, each of the other counterparties thereto, enforceable in accordance with their terms (except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally), and are in full force and effect. CGB and each of its Subsidiaries and, to the best knowledge of CGB, each of the other counterparties thereto, have duly performed in all material respects all of their material obligations thereunder to the extent that such obligations to perform have accrued; and there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder which would have or would reasonably be expected to have a material adverse effect on CGB. (dd) LABOR MATTERS. Neither CGB nor any of its Subsidiaries is a party to, or is bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is it or any of its Subsidiaries the subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it or such Subsidiary to bargain with any labor organization as to wages and conditions of employment, nor is there any strike or other labor dispute involving it or any of its Subsidiaries pending or, to the best of its knowledge, threatened, nor is it aware of any activity involving it or any of its Subsidiaries' employees seeking to certify a collective bargaining unit or engaging in any other organization activity. 3.2 REPRESENTATIONS AND WARRANTIES OF ENTERBANK. Enterbank represents and warrants to CGB as follows: (a) ORGANIZATION, STANDING AND POWER. Enterbank is a bank holding company registered under the BHC Act. The deposit accounts of Enterbank's bank Subsidiaries are insured by the BIF of the FDIC to the fullest extent permitted by law, and all premiums and assessments required in connection therewith have been paid when due. Enterbank and each of its Subsidiaries is a bank or corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure so to qualify would not, either individually or in the aggregate, have a material adverse effect on Enterbank. The Certificate or Articles of Incorporation or Association and By-laws of each of Enterbank, and each Subsidiary of Enterbank, copies of which were previously made available to CGB, are true, complete and correct. The minute books of Enterbank and its Subsidiaries which have been made available to CGB contain a complete (except for certain portions thereof relating to the Merger and the transactions contemplated hereby) and accurate record of all meetings of the respective Boards of Directors (and committees thereof) and shareholders. 25 36 (b) CAPITAL STRUCTURE; OWNERSHIP OF ENTERBANK COMMON STOCK. (i) The authorized capital stock of Enterbank consists of 20,000,000 shares of Enterbank Common Stock, par value $.01 per share, of which as of December 27, 1999, 7,143,636 shares of Enterbank Common Stock were outstanding (none having been issued thereafter except from the exercise of Enterbank Options). All outstanding shares of Enterbank Common Stock have been duly authorized and validly issued and are fully paid and non-assessable and not subject to preemptive rights. At the Effective Time, the Enterbank Common Stock to be issued hereunder will be, when issued in accordance with the terms hereof, duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights. (ii) Except for this Agreement and except as set forth in Section 3.2(b)(ii) of the disclosure schedule of Enterbank delivered to CGB on the date hereof (the "Enterbank Disclosure Schedule"), (A) there are no options, warrants, calls, rights, commitments or agreements of any character to which Enterbank or any of its Subsidiaries or Affiliates is a party or by which any of the foregoing are bound obligating Enterbank or any of its Subsidiaries or Affiliates to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Enterbank or any of its Subsidiaries or obligating Enterbank or any of its Subsidiaries or Affiliates to grant, extend or enter into any such option, warrant, call, right, commitment or agreement, (B) there are no outstanding contractual obligations of Enterbank or any of its Subsidiaries or Affiliates to repurchase, redeem or otherwise acquire any shares of capital stock of Enterbank or any of its Subsidiaries and (C) there are no outstanding securities of any kind convertible into or exchangeable for the capital stock of Enterbank or any of its Subsidiaries (or any interest therein). Except as set forth in Section 3.2(b)(ii) of the Enterbank Disclosure Schedule, there is no agreement of any kind to which Enterbank is a party and, to the knowledge of Enterbank (without inquiry), no other agreement of any kind, in each case that gives any person any right to participate in the equity, value or income of, or to vote (x) in the election of directors or officers of, or (y) otherwise with respect to the affairs of, Enterbank or any of its Subsidiaries. (iii) Neither Enterbank nor any of its Subsidiaries or, to the best knowledge of Enterbank, its Affiliates, beneficially owns, directly or indirectly, any shares of capital stock of CGB, securities of CGB convertible into, or exchangeable for, such shares, or options, warrants or other rights to acquire such shares (regardless of whether such securities, options, warrants or other rights are then exercisable or convertible), nor, except as set forth in Section 3.2(b)(iii) of the Enterbank Disclosure Schedule, is Enterbank or any of such Subsidiaries or Affiliates a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of capital stock of CGB or any such other securities, options, warrants or other rights. (iv) Except as set forth in Section 3.2(b)(iv) of the Disclosure Schedule, no shares of Enterbank Common Stock held directly or indirectly by Enterbank are Trust Account Shares or DPC Shares. 26 37 (c) AUTHORITY; NO VIOLATION. (i) Enterbank has all requisite corporate power and authority to enter into this Agreement and the other Transaction Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Enterbank, other than the approval of this Agreement and the Agreement of Merger by the holders of a majority of the outstanding shares of Enterbank Common Stock (the "Enterbank Shareholder Approval"). The Enterbank Shareholder Approval is the only vote of any class or series of Enterbank capital stock necessary to approve this Agreement and the other Transaction Agreements and the consummation of the transactions contemplated hereby and thereby. This Agreement and the other Transaction Agreements have been duly executed and delivered by Enterbank and (assuming due authorization, execution and delivery by CGB) constitute the valid and binding obligation of Enterbank enforceable against Enterbank in accordance with their terms, subject, as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (ii) Except as set forth in Section 3.2(c)(ii) of the Enterbank Disclosure Schedule, the execution and delivery by Enterbank of this Agreement and the other Transaction Agreements does not or will not when delivered, and the consummation of the transactions contemplated hereby and thereby will not, result in any Violation pursuant to, (x) any provision of the Certificate or Articles of Incorporation or Association or By-laws or comparable organizational documents of Enterbank or any Subsidiary of Enterbank, or (y) subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below, any loan or credit agreement, note, mortgage, indenture, lease, Enterbank Benefit Plan (as defined in Section 3.2(k)(i)) or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Enterbank or any Subsidiary of Enterbank or its properties or assets, which Violation, in the case of clause (y), individually or in the aggregate, would have a material adverse effect on Enterbank. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Enterbank or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the other Transaction Agreements or the consummation by Enterbank of the transactions contemplated hereby or thereby, which, if not made or obtained, would have a material adverse effect on Enterbank or on the ability of Enterbank to perform its obligations hereunder or thereunder on a timely basis, or on Enterbank's ability to own, possess or exercise the rights of an owner with respect to the business and assets of CGB and its Subsidiaries, except for (A) the filing of applications and notices with the Federal Reserve under the BHC Act and approval of same, (B) the filing by Enterbank with the SEC of the Proxy Statement in definitive form relating to the meetings of the shareholders of CGB and Enterbank to be held to approve and adopt this Agreement and the transactions contemplated hereby, (C) the filing by Enterbank with the SEC of the S-4 with respect to the Enterbank Common Stock 27 38 issuable pursuant hereto, (D) compliance with applicable state blue sky laws, and (E) the filing with the Secretaries of State of the States of Delaware and Kansas of the Agreement of Merger. (d) FINANCIAL STATEMENTS. Enterbank has previously delivered to CGB copies of (a) the consolidated statements of financial condition of Enterbank and its Subsidiaries, as of December 31, for the fiscal years 1996, 1997 and 1998, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the fiscal years 1996 through 1998, inclusive, as reported in Enterbank's Annual Reports on Form 10-K for the relevant fiscal years filed with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"), in each case accompanied by the report of KPMG LLP, independent auditors with respect to Enterbank (the consolidated financial statements of Enterbank and its Subsidiaries referred to in this sentence being hereinafter sometimes referred to as the "Enterbank Consolidated Financial Statements") and (b) the condensed consolidated balance sheet of Enterbank and its Subsidiaries as of September 30, 1999 and the condensed consolidated statements of income, comprehensive income and cash flows for the nine months ended September 30, 1998 and 1999, inclusive, as reported in Enterbank's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed with the SEC under the Exchange Act (the condensed consolidated financial statements of Enterbank and its Subsidiaries referred to in this clause being sometimes hereinafter referred to as the "Enterbank Interim Financial Statements"). Each of the financial statements referred to in this Section (including the related notes, where applicable) fairly present, and the consolidated financial statements referred to in Section 5.12 hereof will fairly present (subject in the cases of the unaudited statements, to normal recurring and year-end audit adjustments, none of which are expected to be material in nature or amount), the results of the consolidated operations and changes in shareholders' equity and consolidated financial condition of Enterbank and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth. Each of such statements (including the related notes, where applicable) complies, and the financial statements referred to in Section 5.12 hereof will comply, in all material respects, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and each of such statements (including the related notes, where applicable) has been, and the financial statements referred to in Section 5.12 will be, prepared, in all material respects, in accordance with GAAP consistently applied during the periods involved, except in each case as indicated in such statements or in the notes thereto or, in the case of the unaudited statements (subject to normal recurring and year-end audit adjustments), as permitted by Form 10-Q. The books and records of Enterbank and its Subsidiaries have been, and are being, maintained where required in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and, where such books and records purport to reflect any transactions, the transactions so reflected are actual transactions. (e) ENTERBANK SEC DOCUMENTS. Enterbank has made available to CGB a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Enterbank with the SEC pursuant to the Securities Act or the Exchange Act (other than reports filed pursuant to section 13(g) of the Exchange Act), since October 24, 1996 (as such documents have since the time of their filing been amended, the "Enterbank SEC Reports"), which are all the documents (other than preliminary material and reports required pursuant to section 13(g) 28 39 of the Exchange Act) that Enterbank was required to file with the SEC since such date. As of their respective dates of filing with the SEC, the Enterbank SEC Reports complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Enterbank SEC Reports, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Enterbank included in the Enterbank SEC Reports (including any related notes and schedules thereto) complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared, in all material respects, in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements (subject to normal recurring and year-end audit adjustments), as permitted by Form 10-Q of the SEC) and fairly present in all material respects the consolidated financial position of Enterbank and its consolidated Subsidiaries as at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of such companies for the periods then ended. (f) ENTERBANK INFORMATION SUPPLIED. None of the information supplied or to be supplied by Enterbank for inclusion or incorporation by reference in the Proxy Statement relating to the meeting of shareholders of Enterbank (the "Enterbank Shareholders' Meeting") at which the Enterbank Shareholder Approval will be sought or for inclusion in the S-4 will, at the date of mailing to shareholders of Enterbank and of CGB and at the time of the Enterbank Shareholders' Meeting, (i) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) at the time and in the light of the circumstances under which it is made, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the Enterbank Shareholders' Meeting which has become false or misleading. (g) COMPLIANCE WITH APPLICABLE LAWS. Enterbank and its Subsidiaries hold, and at all relevant times have held, all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are material to the operation of the businesses of Enterbank and its Subsidiaries, taken as a whole (the "Enterbank Permits"). Enterbank and its Subsidiaries are in compliance and have complied with the terms of the Enterbank Permits, except where the failure so to comply, individually or in the aggregate, would not have a material adverse effect on Enterbank. The businesses of Enterbank and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations which, individually or in the aggregate, do not, and, insofar as reasonably can be foreseen, in the future will not, have a material adverse effect on Enterbank. Except for routine examinations by Bank Regulators, no investigation by any Governmental Entity with respect to Enterbank or any of its Subsidiaries is pending or threatened, and no proceedings by any Bank Regulator are pending or 29 40 threatened which seek to revoke or materially limit any of the Enterbank Permits. Enterbank and its Subsidiaries do not offer or sell insurance and/or securities products, including but not limited to annuity products, for their own account or the account of others. (h) LITIGATION. Except as set forth in Section 3.2(h) of the Enterbank Disclosure Schedule, to the best knowledge of Enterbank, there is no Litigation pending to which Enterbank or any Subsidiary of Enterbank is a party or by which any of such persons or their respective assets may be bound or, to the best knowledge of Enterbank, threatened against or affecting Enterbank or any Subsidiary of Enterbank, or challenging the validity or propriety of the transactions contemplated hereby which, if adversely determined, would, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on Enterbank or on the ability of Enterbank to perform its obligations under this Agreement in a timely manner, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Enterbank or any Subsidiary of Enterbank. (i) TAXES. Enterbank and each of its Subsidiaries have timely filed all tax returns required to be filed by any of them and all such tax returns were, when filed, correct and complete in all material respects. Enterbank and each of its Subsidiaries have timely paid (or Enterbank has paid on their behalf), or have set up an adequate reserve for the payment of, all taxes required to be paid (whether or not shown as due on such returns), and the most recent financial statements that have been delivered to CGB reflect an adequate reserve (other than reserves for deferred taxes established to reflect differences between tax and book basis of assets and liabilities) for all taxes accrued but not yet due and owing, by Enterbank and its Subsidiaries accrued through the date of such financial statements. Enterbank and its Subsidiaries file tax returns in all jurisdictions where required to file tax returns. No material deficiencies for any taxes have been asserted or assessed against Enterbank or any of its Subsidiaries that are not adequately reserved for (other than reserves for deferred taxes established to reflect differences between tax and book basis of assets and liabilities). Except as set forth in Section 3.2(i) of the Enterbank Disclosure Schedule: (i) there are no liens with respect to taxes upon any of the assets or properties of Enterbank and its Subsidiaries, other than with respect to taxes not yet due and payable, (ii) no material issue relating to taxes of Enterbank and its Subsidiaries has been raised in writing by any taxing authority in any audit or examination which can result in a proposed adjustment or assessment by a governmental authority in a taxable period (or portion thereof) ending on or before the Closing Date nor, to the best knowledge of Enterbank, does any basis exist for the raising of any such issue, (iii) Enterbank and its Subsidiaries have duly and timely withheld from all payments (including employee salaries, wages and other compensation) and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods for which the statute of limitations has not expired under all applicable laws and regulations, (iv) as of the Closing Date, none of Enterbank nor any of its Subsidiaries shall be a party to, be bound by or have any obligation under, any tax sharing agreement or similar contract or arrangement or any agreement that obligates any of them to make any payment computed by reference to the taxes, taxable income or taxable losses of any other person, (v) except as set forth on Section 3.2(i) of the Enterbank Disclosure Schedule, there is no contract or agreement, plan or arrangement by Enterbank or any of its Subsidiaries covering any 30 41 person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by Enterbank or any of its Subsidiaries by reason of section 280G of the Code, (vi) Enterbank and its Subsidiaries have collected all material sales and use taxes required to be collected, and have remitted, or will remit on a timely basis, such amounts to the appropriate governmental authorities, or have been furnished properly completed exemption certificates and have maintained all such records and supporting documents in all material respects in the manner required by all applicable sales and use tax statutes and regulations for all periods for which the statute of limitations has not expired, (vii) neither Enterbank nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii) of the Code, and (viii) none of Enterbank nor any of its Subsidiaries (A) has been a member of an affiliated group (other than the group to which they are currently members) filing a consolidated federal income tax return or (B) has any liability for the taxes of any person (other than the members of such current group) under Treasury Regulation section 1.1502-6(a) (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. None of Enterbank nor any of its Subsidiaries has filed a consent to the application of section 341(f) of the Code. (j) CERTAIN AGREEMENTS. Section 3.2(j) of the Enterbank Disclosure Schedule sets forth a listing of all of the following contracts and other agreements, oral or written (which are currently in force or which may in the future be operative in any respect) to which Enterbank or any of its Subsidiaries is a party or by or to which Enterbank or any of its Subsidiaries or any of their respective assets or properties are bound or subject: (i) consulting agreements not terminable on six months or less notice involving the payment of more than $25,000 per annum, or union, guild or collective bargaining agreements covering any employees in the United States, (ii) agreements with any officer or other key employee of Enterbank or any of its Subsidiaries (x) providing any term of employment or (y) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Enterbank of the nature contemplated by this Agreement, (iii) any agreement or plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (iv) contracts and other agreements for the sale or lease (other than where Enterbank or any of its Subsidiaries is a lessor) of any assets or properties (other than in the ordinary course of business) or for the grant to any person (other than to Enterbank or any of its Subsidiaries) of any preferential rights to purchase any assets or properties, (v) contracts and other agreements relating to the acquisition by Enterbank or any of its Subsidiaries of any operating business or entity or any interest therein, (vi) contracts or other agreements under which Enterbank or any of its Subsidiaries agrees to indemnify any party, other than in the ordinary course of business, consistent with past practice, or to share a tax liability of any party, (vii) contracts and other agreements containing covenants restricting Enterbank or any of its Subsidiaries from competing in any line of business or with any person in any geographical area or requiring Enterbank or any of its Subsidiaries to engage in any line of business, (viii) contracts or other agreements (other than contracts in the ordinary course of their banking business) relating to the borrowing of money by Enterbank or any of its Subsidiaries, or the direct or indirect 31 42 guaranty by Enterbank or any of its Subsidiaries of any obligation for, or an agreement by Enterbank or any of its Subsidiaries to service, the repayment of borrowed money, or any other contingent obligations of Enterbank or any of its Subsidiaries in respect of indebtedness of any other person, and (ix) any other material contract or other agreement whether or not made in the ordinary course of business, including any contract required to be filed by Enterbank pursuant to Item 601(b)(10) of Regulation S-K of the SEC. There have been delivered or made available to CGB true and complete copies of all of the contracts and other agreements set forth in Section 3.2(j) of the Enterbank Disclosure Schedule and in any other Section of the Enterbank Disclosure Schedule. Except as set forth in Section 3.2(j) of the Enterbank Disclosure Schedule, each such contract and other agreement is in full force and effect and constitutes a legal, valid and binding obligation of Enterbank or its Subsidiaries, as the case may be, and to the best knowledge of Enterbank, each other party thereto, enforceable in accordance with its terms subject, as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. Neither Enterbank nor any Subsidiary of Enterbank has received any notice, whether written or oral, of termination or intention to terminate from any other party to such contract or agreement. None of Enterbank or any of its Subsidiaries or (to the best knowledge of Enterbank) any other party to any such contract or agreement is in violation or breach of or default under any such contract or agreement (or with or without notice or lapse of time or both, would be in violation or breach of or default under any such contract or agreement), which violation, breach or default has had or would have, individually or in the aggregate, a material adverse effect on Enterbank. (k) BENEFIT PLANS. (i) Section 3.2(k) of the Enterbank Disclosure Schedule contains a true and complete list of each Benefit Plan that is sponsored or is being maintained or contributed to, or required to be contributed to, by Enterbank or any of its Subsidiaries (the "Enterbank Benefit Plans"). No Enterbank Benefit Plan is a multiemployer plan or is subject to a collective bargaining agreement. (ii) With respect to each Enterbank Benefit Plan, Enterbank has delivered to CGB a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable, (A) any related trust agreement or other funding instrument; (B) the most recent determination letter; (C) any summary plan description and other written communications (or a description of any oral communications) by Enterbank or any of its Subsidiaries to any of their respective employees concerning the extent of the benefits provided under any Enterbank Benefit Plan; and (D) except as described in Section 3.2(k)(ii) of the Enterbank Disclosure Schedule, for the two most recent years (I) the Form 5500 and attached schedules; (II) audited financial statements; and (III) actuarial valuation reports. (iii) Except as set forth in Section 3.2(k) of the Enterbank Disclosure Schedule, (A) each Enterbank Benefit Plan has been established and administered in accordance with its terms, and in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable laws, rules and regulations; (B) each Enterbank Benefit Plan which is 32 43 intended to be qualified within the meaning of Code section 401(a) is so qualified and has received a favorable determination letter as to its qualification and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification; (C) with respect to any Enterbank Benefit Plan, no audits, actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or threatened, and no facts or circumstances exist which could give rise to any such audits, actions, suits or claims; (D) neither Enterbank nor any other party has engaged in a prohibited transaction which could subject Enterbank or any of its Subsidiaries, or the Surviving Corporation, to any taxes, penalties or other liabilities under Code section 4975 or ERISA sections 409 or 502(i); (E) no event has occurred and no condition exists that could subject Enterbank or any of its Subsidiaries, or the Surviving Corporation, either directly or by reason of any such entity's affiliation with any member of any such entity's Controlled Group (defined as any organization which is a member of a controlled group of organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine, liability or penalty imposed by ERISA, the Code or other applicable laws, rules and regulations; (F) all insurance and PBGC premiums required to be paid with respect to Enterbank Benefit Plans through the Closing Date have been or will be paid prior thereto and adequate reserves will have been provided for on Enterbank's consolidated statement of financial condition as of the month end immediately prior to the Closing Date for any premiums (or portions thereof) attributable to service on or prior to the Closing Date; (G) all contributions required to be made prior to the Closing Date under the terms of each Enterbank Benefit Plan, the Code, ERISA or other applicable laws, rules and regulations have been or will be timely made and adequate reserves will have been provided for on Enterbank's consolidated statement of financial condition as of the month end immediately prior to the Closing Date for all benefits attributable to service on or prior to the Closing Date; (H) no Enterbank Benefit Plan has incurred any "accumulated funding deficiency" as such term is defined in ERISA section 302 and (including, but not limited to the voting of any securities held pursuant to an Enterbank Benefit Plan) Code section 412 (whether or not waived); (I) the consummation of this Agreement will not result in a nonexempt prohibited transaction or a breach of fiduciary duty under ERISA; and (J) no Enterbank Benefit Plan provides health coverage beyond the termination of employment except as provided under Code section 4980B. (iv) Except as set forth in Section 3.2(k)(iv) of the Enterbank Disclosure Schedule, with respect to each of the Enterbank Benefit Plans which is subject to Title IV of ERISA, as of the Closing Date, the assets of each such Plan shall be at least equal in value to the present value of the accrued benefits (vested and unvested) of the participants in such Plan on a termination and projected basis, based on the actuarial methods and assumptions indicated in the most recent actuarial valuation reports. (v) Except as set forth on Section 3.2(k)(v) of the Enterbank Disclosure Schedule, no Enterbank Benefit Plan exists which provides for an increase in benefits on or after the Closing Date or could result in the payment to any employee of Enterbank or any of its Subsidiaries of any money or other property or rights or accelerate or provide any other rights or benefits to any such employee as a result of the transactions contemplated by this Agreement. The aggregate amount of payments due from Enterbank under all such contracts and the amount due under each 33 44 such contract, at the Effective Time, are as set forth in the schedule included in Section 3.2(k)(v) of the Enterbank Disclosure Schedule. Except as set forth in Section 3.2(k)(v) of the Enterbank Disclosure Schedule, none of such payments will constitute an "excess parachute" payment within the meaning of Code section 280G. (l) SUBSIDIARIES. Section 3.2(l) of the Enterbank Disclosure Schedule lists all the Subsidiaries of Enterbank. Enterbank owns, directly or indirectly, beneficially and of record 100% of the issued and outstanding voting securities of each such Subsidiary. All of the shares of capital stock of each of the Subsidiaries held by Enterbank or by another of its Subsidiaries are fully paid and nonassessable and are owned by Enterbank or one of its Subsidiaries free and clear of any lien, claim or other encumbrance. Neither Enterbank nor any of its Subsidiaries owns any shares of capital stock or other equity securities of any person (other than, in the case of Enterbank, the capital stock of its Subsidiaries and, in the case of such Subsidiaries, shares or equity securities acquired in satisfaction of debts previously contracted in good faith in the ordinary course of their banking business). (m) AGREEMENTS WITH BANK OR OTHER REGULATORS. Except as set forth in Section 3.2(m) of the Enterbank Disclosure Schedule, neither Enterbank nor any Subsidiary of Enterbank is a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of, any Bank Regulator which restricts materially the conduct by Enterbank or its Subsidiaries of their businesses, or in any manner relates to their capital adequacy, credit policies, community reinvestment, loan underwriting or documentation or management, nor has Enterbank or any such Subsidiary been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter or similar submission, or any such board resolutions. (n) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section 3.2(n) of the Enterbank Disclosure Schedule, since September 30, 1999, (i) there has not been any change, or any event involving a prospective change, in the business, financial condition or results of operations or prospects of Enterbank or any of its Subsidiaries which has had, or would be reasonably likely to have, a material adverse effect on Enterbank, and (ii) Enterbank and each of its Subsidiaries have conducted their respective businesses in the ordinary course consistent with their past practices and neither Enterbank nor any of its Subsidiaries has taken any action or entered into any transaction, and no event has occurred, that would have required CGB's consent pursuant to Section 4.2 of this Agreement if such action had been taken, transaction entered into or event had occurred, in each case, after the date of this Agreement, nor has Enterbank or any of its Subsidiaries entered into any agreement, plan or arrangement to do any of the foregoing. (o) UNDISCLOSED LIABILITIES. Except as set forth in Section 3.2(o) of the Enterbank Disclosure Schedule, and except (i) for those liabilities or obligations that are fully 34 45 reflected or reserved against in the consolidated statement of financial condition at September 30, 1999 of Enterbank referred to in Section 3.2(d) or (ii) for liabilities or obligations incurred in the ordinary course of business consistent with past practice since September 30, 1999 and which are not material to Enterbank and its Subsidiaries taken as a whole, none of Enterbank or any of its Subsidiaries has incurred any liability or obligation of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or to become due) that, either alone or when combined with all similar liabilities or obligations, has had, or would have, a material adverse effect on Enterbank. No agreement pursuant to which any loans or other assets have been or will be sold by Enterbank or any Subsidiary entitle the buyer of such loans or other assets, unless there is material breach of a representation or covenant by Enterbank or its Subsidiaries not relating to the payment or other performance by an obligor of such loan or other asset of its obligations thereunder, to cause Enterbank or its Subsidiaries to repurchase such loan or other asset or the buyer to pursue any other form of recourse against Enterbank or its Subsidiaries. (p) GOVERNMENTAL REPORTS. Enterbank and each of its Subsidiaries have timely filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 1995 with any Governmental Entity and have paid all fees and assessments due and payable in connection therewith. Except as set forth in Section 3.2(p) of the Enterbank Disclosure Schedule and except for normal examinations conducted by a Governmental Entity in the regular course of business of Enterbank and its Subsidiaries, no Governmental Entity has initiated any proceeding or, to the best knowledge of Enterbank, investigation into the business or operations of Enterbank or any of its Subsidiaries since January 1, 1995. Except as set forth in Section 3.2(p) of the Enterbank Disclosure Schedule, there is no material unresolved violation, criticism or exception by any Governmental Entity with respect to any report or statement relating to any examinations of Enterbank or any of its Subsidiaries. (q) ENVIRONMENTAL LIABILITY. (i) Except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, to the best knowledge of Enterbank, there are no pending or threatened claims, actions or proceedings against Enterbank relating to: (A) any asserted liability of Enterbank or any of its Affiliates or any current or prior owner, operator, occupier or user of any Real Property under any Environmental Law, including without limitation, the terms and conditions of any permit, license, authority, settlement or other obligation arising under any Environmental Law; (B) any handling, storage, use or disposal of Hazardous Substances on, under or within any Real Property or any transportation or removal of Hazardous Substances to or from any Real Property; 35 46 (C) any actual or threatened discharge, release or emission of Hazardous Substances from, on, under or within any Real Property into the air, water, surface water, groundwater, land surface or subsurface strata; or (D) any actual or asserted claims for personal injuries, illness or damage to real or personal property related to or arising out of exposure to Hazardous Substances discharged, released or emitted from, on, under, within or into, or transported from or to, any Real Property. (ii) Except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, to the best knowledge of Enterbank, no Hazardous Substances are present on, under or within any Real Property (except those Hazardous Substances used in the normal course of operating or maintaining the business of Enterbank or any Subsidiary of Enterbank) and, except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, the presence of these Hazardous Substances does not violate any Environmental Law. Except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, to the best knowledge of Enterbank, there are no storage tanks underground or otherwise present on any Real Property and all such tanks set forth in Section 3.2(q) of the Enterbank Disclosure Schedule comply in all material respects with applicable law, all permits in respect thereof are in full force and effect and there have been no releases or discharges of Hazardous Substances from such tanks to the environment. (iii) To the best knowledge of Enterbank, except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, no Hazardous Substances have been, or have been threatened to be, discharged, released or emitted in a Reportable Quantity into the air, water, surface water, groundwater, land surface or subsurface strata or transported to or from the Real Property except in accordance with Environmental Laws (in particular, but without limitation, in accordance with any permits issued pursuant thereto). To the best knowledge of Enterbank, all notifications, remediation, removal or other response actions of any kind whatsoever, in respect of such discharges, releases and emissions which are required by Environmental Laws, and by applicable agreements with third parties, have been made within the time limits prescribed by such Environmental Laws and such third party agreements. Copies of all such notifications or documents relating to any remediation, removal or response action have previously been provided to Enterbank. (iv) To the best knowledge of Enterbank, except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, Enterbank and its Affiliates are in compliance, in all material respects, with all Environmental Laws related to the ownership, operation, use and occupation of the Real Property. (v) To the best knowledge of Enterbank, except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, no part of any Real Property is listed on CERCLIS or the National Priorities List created pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, as a site containing Hazardous Substances. 36 47 (vi) Enterbank has provided CGB with copies of all material notices posted by it under any Environmental Law with respect to the Real Property at which the business of Enterbank or its Subsidiaries is conducted. (vii) All properties held by Enterbank or its Subsidiaries under leases are held by them under valid, binding and enforceable leases, with such exceptions as are not material and do not interfere with the conduct of the business of Enterbank, and Enterbank enjoys quiet and peaceful possession of such leased property. Enterbank and its Subsidiaries are not in default in any material respect under any material lease, agreement or obligation regarding their properties to which they are a party or by which they are bound. (viii) Except as set forth in Section 3.2(q) of the Enterbank Disclosure Schedule, all of Enterbank's and its Subsidiaries' rights and obligations under the leases referred to in Section 3.2(q)(vii) above do not require the consent of any other party to the transactions contemplated by this Agreement. (r) PROPERTIES. Except as set forth in Section 3.2(r) of the Enterbank Disclosure Schedule, Enterbank or its Subsidiaries (i) has good and marketable title to all Real Property owned in fee, and good title to all other properties and assets reflected in the Enterbank Consolidated Financial Statements as being owned by Enterbank or its Subsidiaries or acquired after the date thereof which are material to the business of Enterbank on a consolidated basis (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all claims, liens, charges, security interests or encumbrances of any nature whatsoever except (A) statutory liens securing payments not yet delinquent, (B) liens on assets of Enterprise securing deposits incurred in the ordinary course of its banking business and (C) such imperfections or irregularities of title, claims, liens, charges, security interests or encumbrances as do not materially affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties and (ii) is the lessee of all leasehold estates reflected in the Enterbank Consolidated Financial Statements or acquired after the date thereof which are material to its business on a consolidated basis (except for leases that have expired by their terms since the date thereof) and is in possession of the properties purported to be leased thereunder, and each such lease is valid without material default thereunder by the lessee or, to the best knowledge of Enterbank, the lessor. Except as set forth in Section 3.2(r) of the Enterbank Disclosure Schedule, all real properties owned by Enterbank or its Subsidiaries are owned in accordance in all material respects with all requirements of applicable rules, regulations and policies of the Bank Regulators. (s) TRANSACTIONS WITH AFFILIATES. Except as set forth in Section 3.2(s) of the Enterbank Disclosure Schedule and except for those arrangements, contracts, agreements or transactions which were entered into in the ordinary course of business, since September 30, 1999, Enterbank has not extended credit, committed to extend credit or transferred any asset to or assumed or guaranteed any liability of or entered into any other transactions with the employees or directors of Enterbank, or any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the Securities Act. Any such transactions, including those 37 48 in the ordinary course of business, have been on terms no less favorable than those which would prevail in an arm's-length transaction with an independent third party. (t) NO BROKER OR FINDER. No agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement (u) INTELLECTUAL PROPERTY. Except as set forth in Section 3.2(u) of the Enterbank Disclosure Schedule, Enterbank and its Subsidiaries own or have a valid license to use all trademarks, service marks and trade names (including any registrations or applications for registration of any of the foregoing) (collectively, the "Enterbank Intellectual Property") necessary to carry on their business substantially as currently conducted, except for such Enterbank Intellectual Property the failure of which to own or validly license, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Enterbank. Neither Enterbank nor any such Subsidiary has received any notice of infringement of or conflict with, and, to the best knowledge of Enterbank, there are no infringements of or conflicts with, the rights of others with respect to the use of any Enterbank Intellectual Property that, individually or in the aggregate, in either such case, would reasonably be expected to have a material adverse effect on Enterbank. (v) POOLING OF INTERESTS. Except as set forth in Section 3.2(v) of the Enterbank Disclosure Schedule, as of the date of this Agreement, Enterbank has no reason (in respect to matters pertaining to Enterbank existing as of the date hereof or expected to exist as of the Closing Date) to believe that Enterbank will not qualify for pooling of interests treatment for accounting purposes under GAAP as presently in effect. (w) COMMUNITY REINVESTMENT ACT COMPLIANCE. Enterprise is in substantial compliance with the applicable provisions of the CRA and has received a CRA rating of "satisfactory" from the OCC in its most recent examination, and Enterbank has no knowledge of the existence of any fact or circumstance or set of facts or circumstances which could be reasonably expected to result in Enterprise failing to be in substantial compliance with such provisions or having its current rating lowered. (x) YEAR 2000 READINESS. There have been no material adverse effects on either Enterbank or its Subsidiaries as a result of the date change for any date on or after January 1, 2000, including leap year calculations, and that, to the extent applicable to normal operating specifications, Enterbank's and its Subsidiaries' computer systems and equipment have in all material respects accurately accepted, stored, retrieved, calculated, compared and otherwise processed dates of January 1, 2000 and later. (y) INSURANCE. Enterbank has previously delivered to CGB a list identifying all insurance policies maintained on behalf of Enterbank and its Subsidiaries (other than mortgage, title and other similar policies for the benefit of Enterbank or its Subsidiaries as mortgagees under residential mortgage loans). All of the material insurance policies and bonds maintained by or for 38 49 the benefit of Enterbank and its Subsidiaries are in full force and effect, to the best knowledge of Enterbank, Enterbank and its Subsidiaries are not in default thereunder, and all material claims thereunder have been filed in due and timely fashion, and neither Enterbank nor any of its Subsidiaries has received notice that any of such material claims have been or will be denied. The insurance policies and bonds maintained by Enterbank and its Subsidiaries are written by reputable insurers and are in such amounts, cover such risks and have such other terms as is customary for banks and bank holding companies comparable in size and operations to Enterbank and its Subsidiaries. Since September 30, 1999, there has not been any damage to, destruction of, or loss of any assets of Enterbank and its Subsidiaries (whether or not covered by insurance) that could have a material adverse effect on Enterbank. Neither Enterbank nor any of its Subsidiaries has received any notice of a premium increase or cancellation with respect to any of its insurance policies or bonds, and within the last three years, neither Enterbank nor any of its Subsidiaries has been refused any insurance coverage sought or applied for, and Enterbank has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon terms and conditions as favorable as those presently in effect, other than possible increases in premiums or unavailability in coverage that have not resulted from an extraordinary loss experience of Enterbank or any Enterbank Subsidiary. (z) LOANS AND OTHER ASSETS. (i) Enterbank has disclosed to CGB prior to the date hereof the amounts of all loans, leases, other extensions of credit, commitments or other interest-bearing assets presently owned by Enterbank or any of its Subsidiaries that have been classified by any Bank Regulator, Enterbank's independent auditors, or the management of Enterbank or any Subsidiary of Enterbank as "Other Loans Especially Mentioned," "Substandard," "Doubtful," or "Loss", or classified using categories with similar import, and will have disclosed promptly to CGB prior to the Closing Date all such items which will be so classified hereafter and prior to the Closing Date. All such assets or portions thereof classified "Loss," or which are subsequently so classified, have been (or will be) charged off on a timely basis in full, collected or otherwise placed in a bankable condition. Enterbank regularly reviews and appropriately classifies its and its Subsidiaries' loans and other assets in accordance in all material respects with all applicable legal and regulatory requirements and GAAP. Enterbank has disclosed to CGB the amounts and identities of all OREO that has been classified as such as of the date hereof by Enterbank's independent auditors, management of Enterbank or any Bank Regulator and will have promptly disclosed to CGB prior to the Closing Date all such assets which will be so classified hereafter and prior to the Closing Date. As of the date hereof and the Closing Date, the recorded values of all OREO on the books of Enterbank and its Subsidiaries accurately reflect and will reflect the net realizable values of each OREO parcel thereof in compliance with GAAP. Enterbank and its Subsidiaries have recorded on a timely basis all expenses associated with or incidental to its OREO, including but not limited to taxes, maintenance and repairs as required by GAAP. (ii) All loans, leases, other extensions of credit, commitments or other interest-bearing assets and investments of Enterbank and its Subsidiaries are legal, valid and binding 39 50 obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes known to Enterbank (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), except as previously disclosed to CGB in Section 3.2(z)(ii) of the Enterbank Disclosure Schedule or reserved for in the consolidated statement of financial condition of Enterbank as of December 31, 1998 referred to in Section 3.2(d) in accordance with GAAP, and were duly authorized under and made in compliance with applicable federal and state laws and regulations. Enterbank and its Subsidiaries do not have any extensions or letters of credit, investments, guarantees, indemnification agreements or commitments for the same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of Enterbank and its Subsidiaries. (aa) DERIVATIVES CONTRACTS; STRUCTURED NOTES; ETC. Except as set forth in Section 3.2(aa) of the Enterbank Disclosure Schedule, neither Enterbank nor any Subsidiary is a party to or has agreed to enter into a Derivatives Contract or owns securities that (1) are referred to generically as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (2) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes, except for those Derivatives Contracts and other instruments legally purchased or entered into in the ordinary course of their banking business, consistent with safe and sound banking practices and regulatory guidance, and with counterparties reasonably believed by Enterbank to be financially responsible. All of such Derivatives Contracts or other instruments are legal, valid and binding obligations of Enterbank or one of its Subsidiaries and, to the best knowledge of Enterbank, each of the other counterparties thereto, enforceable in accordance with their terms (except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally), and are in full force and effect. Enterbank and each of its Subsidiaries and, to the best knowledge of Enterbank, each of the other counterparties thereto, have duly performed in all material respects all of their material obligations thereunder to the extent that such obligations to perform have accrued; and there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder which would have or would reasonably be expected to have a material adverse effect on Enterbank. (bb) LABOR MATTERS. Neither Enterbank nor any of its Subsidiaries is a party to, or is bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is it or any of its Subsidiaries the subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it or such Subsidiary to bargain with any labor organization as to wages and conditions of employment, nor is there any strike or other labor dispute involving it or any of its Subsidiaries pending or, to the best of its knowledge, threatened, nor is it aware of any activity involving it or any of its Subsidiaries' 40 51 employees seeking to certify a collective bargaining unit or engaging in any other organization activity. (cc) STATUS OF ENTERBANK COMMON STOCK TO BE ISSUED. The shares of Enterbank Common Stock into which the CGB Common Stock are to be exchanged or converted pursuant to this Agreement will be, when delivered as specified in this Agreement, validly authorized and issued, fully paid and nonassessable, and registered pursuant to an effective registration statement under the Securities Act. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1 COVENANTS OF CGB. During the period from the date of this Agreement and continuing until the Effective Time (except as expressly contemplated or permitted by this Agreement or to the extent that Enterbank shall otherwise consent in writing, which consent shall not be unreasonably withheld) CGB agrees that it will and will cause each of its Subsidiaries to carry on the business of CGB and each of its Subsidiaries in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use all reasonable efforts to preserve intact the present business organizations of CGB and each of its Subsidiaries, maintain the rights and franchises of, and preserve the relationships with customers, suppliers and others having business dealings with, CGB and each of its Subsidiaries to the end that their goodwill and ongoing businesses shall not be impaired in any material respect at the Effective Time. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, CGB shall not, and shall not permit any of its Subsidiaries to, without the prior consent of Enterbank in writing: (a) (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock, except for cash dividends in an amount per share not greater than, and consistent with the manner and frequency of, dividends paid by CGB in the past 12 months and dividends by a wholly owned Subsidiary of CGB to CGB, (ii) set any record or payment dates for the payment of any dividends or distribution on its capital stock except in the ordinary course of business consistent with past practice, (iii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock or (iv) repurchase, redeem or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any shares of its capital stock or the capital stock of any other Subsidiary of CGB or any securities convertible into or exercisable for any shares of such capital stock; (b) issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock of any class, any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares, or enter into any agreement with respect to 41 52 any of the foregoing, other than issuances of CGB Common Stock pursuant to the exercise of CGB Options; (c) except as required to perform its obligations under this Agreement, amend or propose to amend its Certificate or Articles of Incorporation or its By-laws or other organizational documents or that of any Subsidiary; (d) (i) enter into any new material line of business, (ii) change its lending, investment, liability management and other material banking policies in any respect which is material to CGB, except as required by law or by policies imposed by a Bank Regulator, or (iii) except as set forth in Section 4.1(d) of the CGB Disclosure Schedule, incur or commit to any capital expenditures or any obligations or liabilities in connection therewith other than capital expenditures and obligations or liabilities incurred or committed to in the ordinary course of business consistent with past practice but in no event for more than $25,000 as to any one such item or $75,000 as to all such items in the aggregate; (e) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other means, any business or any corporation, partnership, association or other business organization or division thereof; provided, however, that the foregoing shall not prohibit foreclosures and other debt-previously-contracted acquisitions in the ordinary course of business consistent with past practice; (f) sell, lease, encumber or otherwise dispose of, or agree to sell, lease, encumber or otherwise dispose of, any of its assets (including capital stock of Subsidiaries of CGB), which are material, individually or in the aggregate, to CGB, other than in the ordinary course of business consistent with past practice; (g) incur any long-term indebtedness for borrowed money or guarantee any such long-term indebtedness or issue or sell any long-term debt securities or warrants or rights to acquire any long-term debt securities of CGB or any of its Subsidiaries or guarantee any long-term debt securities of others other than (i) indebtedness of any Subsidiary of CGB to CGB or to another Subsidiary of CGB, (ii) deposits taken in the ordinary course of business consistent with past practice, or (iii) renewals or extensions of existing long-term indebtedness without any change in the material terms thereof; (h) intentionally take or fail to take any action that would, or reasonably might be expected to, result in any of the representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Closing set forth in Article VI (including without limitation the conditions set forth in Sections 6.1(f) and 6.3(d)) not being satisfied, or (unless such action is required by applicable law or sound banking practice) which would adversely affect the ability of Enterbank or CGB to obtain any of the Requisite Regulatory Approvals without imposition of a condition or restriction of the type referred to in Section 6.1(g); 42 53 (i) change the methods of accounting of CGB or any of its Subsidiaries, except as required by changes in GAAP as concurred in by such party's independent auditors; (j) (i) enter into, adopt, amend (except for technical amendments and such amendments as may be required by law) or terminate any CGB Benefit Plan or any other Benefit Plan or any agreement, arrangement, plan or policy between CGB or any of its Subsidiaries and one or more of its directors or officers, increase in any manner the compensation or fringe benefits of any director, officer or employee of CGB or any of its Subsidiaries without obtaining the prior written consent of Enterbank (which consent shall not be unreasonably withheld)) or pay or grant any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock options, stock appreciation rights, restricted stock, restricted stock units or performance units or shares or any similar awards) or enter into any contract, agreement, commitment or arrangement to do any of the foregoing, (ii) enter into or renew any contract, agreement, commitment or arrangement providing for the payment to any director, officer or employee of CGB or any of its Subsidiaries of compensation or benefits contingent, or the terms of which are materially altered, upon the occurrence of any of the transactions contemplated by this Agreement, or (iii) with respect to any CGB Benefit Plan which is a defined benefit or defined contribution pension plan, permit or cause (A) a consolidation or merger of any such CGB Benefit Plan, (B) a spin-off involving any such CGB Benefit Plan, (C) a transfer of assets and/or liabilities from or to any such CGB Benefit Plan, or (D) any similar transaction involving any such CGB Benefit Plan; (k) enter into any contract that would be required to be disclosed on Section 3.1(j) of the CGB Disclosure Schedule or renew or terminate any contract listed in Section 3.1(j) of the CGB Disclosure Schedule through any volitional conduct, other than renewals of contracts or leases for a term of one year or less without material adverse changes to the terms thereof; (l) commit to or renew any real estate secured or construction loan with a principal amount exceeding $1,500,000, or any commercial loan which is referred to the Loan Committee of the FCB Board of Directors for approval or with a principal amount exceeding $650,000; provided, however, that if any new loan commitment or loan renewal involves a loan to a borrower (or his associates (as defined in Rule 405 under the Securities Act) and Affiliates) who has (A) any other classified or criticized asset or (B) a renewal involving a classified or criticized asset, then the relevant loan amount subject to this subsection shall be $250,000; provided, further, however, that any such loan or renewal which is in excess of the applicable amount specified in this subsection shall not be made or committed to be made unless CGB shall have given Enterbank at least one Business Day's advance written notice of the proposal to make such loan commitment or renewal, which written notice shall provide Enterbank the same information provided to the relevant loan committee (or loan officer, if no committee approval is required) of CGB or the applicable CGB Subsidiary, and shall have furnished Enterbank with such other information as Enterbank may reasonably have requested; 43 54 (m) issue or agree to issue any letters of credit or otherwise guarantee the obligations of any other persons except in the ordinary course of business consistent with past practice; (n) engage or participate in any material transaction or incur or sustain any material obligation not in the ordinary course of business consistent with past practice; (o) settle any claim, action or proceeding involving money damages involving a payment in excess of $50,000 as to any such matter, or settle any other matter not involving money damages which is material to CGB; (p) except as required by GAAP or applicable law or regulation, change or make any tax elections, change any method of accounting with respect to taxes, file any amended tax return, or settle or compromise any federal, state, local or foreign material tax liability; (q) except as set forth in Section 4.1(q) of the CGB Disclosure Schedule, relocate or close any branch or loan production office; (r) except as described in Section 4.1(r) of the CGB Disclosure Schedule, enter into any securitization or similar transactions with respect to any loans, leases or other assets of CGB or any of its Subsidiaries; or (s) agree to, or make any commitment to, take any of the actions prohibited by this Section 4.1. 4.2 COVENANTS OF ENTERBANK. (a) During the period from the date of this Agreement and continuing until the Effective Time, Enterbank agrees as to itself and its Subsidiaries that (except as expressly contemplated or permitted by this Agreement or to the extent that CGB shall otherwise consent in writing, which consent shall not be unreasonably withheld), Enterbank will and will cause each of its Subsidiaries to carry on its respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use all reasonable efforts to preserve intact its present business organizations, maintain its rights and franchises and preserve its relationships with customers, suppliers and others having business dealings with them to the end that their goodwill and ongoing businesses shall not be impaired in any material respect at the Effective Time. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, Enterbank shall not, and shall not permit any of its Subsidiaries to, without the prior consent of CGB in writing: (i) except as required to perform its obligations under this Agreement, amend or propose to amend its Articles of Incorporation or its By-laws in a manner that would materially and adversely affect its ability to perform its obligations under this Agreement or 44 55 consummate the transactions contemplated hereunder, or otherwise materially and adversely affect the rights, powers and privileges of the shares of Enterbank Common Stock to be issued in the Merger; (ii) (A) declare or pay any dividends on or make other distributions in respect of any of its capital stock, except for cash dividends in an amount substantially equivalent to dividends paid in the year prior to the date hereof and dividends by a wholly owned Subsidiary of Enterbank to Enterbank, (B) set any record or payment dates for the payment of any dividends or distribution on its capital stock except in the ordinary course of business consistent with past practice, (C) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, shares of its capital stock or (D) repurchase, redeem or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any shares of its capital stock or the capital stock of any other Subsidiary of Enterbank or any securities convertible into or exercisable for any shares of such capital stock; (iii) change the methods of accounting of Enterbank or any of its Subsidiaries (including any changes in accounting with respect to taxes), except as required by changes in GAAP as concurred in by such party's independent auditors; (iv) intentionally take or fail to take any action that would, or reasonably might be expected to, result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Closing set forth in Article VI (including without limitation the conditions set forth in Sections 6.1(f) and 6.2(d)) not being satisfied, or (unless such action is required by applicable law or sound banking practice) which would adversely affect the ability of Enterbank or CGB to obtain any of the Requisite Regulatory Approvals without imposition of a condition or restriction of the type referred to in Section 6.1(g); or (v) agree to, or make any commitment to, take any of the actions prohibited by this Section 4.2(a). (b) Enterbank shall use all commercially reasonable efforts to publish as soon as practicable after the end of the quarter in which there are at least thirty (30) days of post-Merger combined operations, combined sales and net income figures as contemplated by and in accordance with the terms of SEC Accounting Release No. 135. (c) If during the period from the date of this Agreement and continuing until the Effective Time (i) Enterbank receives a Takeover Proposal (as defined in Section 5.4(a), however, references therein to CGB shall be deemed for purposes of this Section 4.2(c) to refer to Enterbank) and (ii) Enterbank's Board of Directors determines that it is advisable to pursue consummation of the Takeover Proposal, Enterbank shall immediately provide written notice to CGB of the Takeover Proposal, with such notice (x) indicating that Enterbank's Board of Directors intends to pursue consummation of the Takeover Proposal, (y) specifying the material terms and conditions of the 45 56 Takeover proposal and (z) identifying the Person making the Takeover Proposal. CGB shall provide written notice to Enterbank, no later than the tenth Business Day following CGB's receipt of Enterbank's written notice, signifying that CGB is (A) in favor of the Takeover Proposal, in which event this Agreement shall continue in full force and effect, subject to Enterbank's right to terminate this Agreement pursuant to the penultimate sentence of this Section 4.2(c), or (B) not in favor of the Takeover Proposal and elects to terminate this Agreement, in which event this Agreement shall be deemed terminated as of the date on CGB's notice to Enterbank. If CGB fails to provide written notice to Enterbank within the time period set out in the immediately preceding sentence, then CGB shall be deemed to be favorable to the Takeover Proposal as set out in this Section 4.2(c)(A). If CGB's notice to Enterbank signifies that CGB is favorable to the Takeover Proposal, Enterbank nevertheless may elect to terminate this Agreement after the fifth Business Day following CGB's receipt of a written notice advising CGB that the Board of Directors of Enterbank proposes to enter into an agreement with respect to the Takeover Proposal pursuant to Section 7.1(e)(ii). If either Enterbank elects to terminate this Agreement pursuant to the immediately preceding sentence or CGB elects to terminate this Agreement under Section 4.2(c)(B), and Enterbank proposes to enter into an agreement with respect to the Takeover Proposal pursuant to Section 7.1(e)(ii), Enterbank shall concurrently with entering into such agreement pay, or cause to be paid, to CGB the Enterbank Termination Fee in accordance with the provisions of Section 7.1(e)(ii). If the Takeover Proposal is not consummated, CGB indicated that it was in favor of the Takeover Proposal, and Enterbank has not terminated this Agreement in accordance with the provisions of this Section 4.2 and Section 7.1(e)(ii), this Agreement shall continue in existence between Enterbank and CGB, subject to the terms and conditions contained in this Agreement. ARTICLE V ADDITIONAL AGREEMENTS 5.1 REGULATORY MATTERS. (a) CGB and Enterbank shall promptly prepare and file with the SEC a Proxy Statement, and Enterbank shall promptly prepare and file with the SEC the S-4, in which the Proxy Statement will be included as a prospectus, and one or more registration statements or amendments to existing registration statements under the Securities Act for the purpose of registering the maximum number of shares of Enterbank Common Stock to which the option holders of CGB may be entitled pursuant to Section 2.6 at or after the Effective Time. Each of Enterbank and CGB shall use all reasonable efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing, and CGB and Enterbank shall thereafter promptly mail the Proxy Statement to their respective shareholders. (b) The parties hereto shall cooperate with each other and use their reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals 46 57 and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement and the other Transaction Agreements (including without limitation the Merger). Enterbank and CGB shall have the right to review in advance and to the extent practicable each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to CGB or Enterbank, as the case may be, and any of their respective Subsidiaries which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement (including without limitation the Merger) and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (c) Enterbank and CGB shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on behalf of Enterbank, CGB or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (d) Enterbank and CGB shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval (as defined in Section 6.1(b)) will not be obtained or that the receipt of any such approval will be materially delayed. 5.2 ACCESS TO INFORMATION. Upon reasonable notice, CGB and Enterbank shall (and shall cause each of their respective Subsidiaries to) afford to the other and their representatives and advisors access, during normal business hours during the period prior to the Closing Date, to all the properties, books, contracts, commitments and records of CGB (in the case of CGB) and of Enterbank (in the case of Enterbank) and, during such period, each of CGB and Enterbank shall (and shall cause each of their respective Subsidiaries to) make available to the other and their representatives and advisors (a) a copy of each report, schedule, registration statement and other document filed or received by CGB or Enterbank, as the case may be, during such period pursuant to the requirements of Federal securities laws or Federal or state banking laws (other than reports or documents which such party is not permitted to disclose under applicable law or reports or documents which are subject to an attorney-client privilege or which constitute attorney work product) and (b) all other information concerning the business, properties and personnel of CGB or of Enterbank, as the case may be, as such other party may reasonably request. Enterbank will hold any such information with respect to CGB and its Subsidiaries which is nonpublic in confidence to 47 58 the extent required by, and in accordance with, the provisions of the letter dated November 12, 1999, between CGB and Enterbank (the "Confidentiality Agreement"). CGB will hold all such information with respect to Enterbank and its Subsidiaries which is nonpublic in confidence and will otherwise deal with such information to the extent required by, and in accordance with, the provisions of the Confidentiality Agreement, deeming, for purpose of this sentence, such information to be subject to the provisions of the Confidentiality Agreement as if such provisions applied by their terms to such information of Enterbank and its Subsidiaries, as well as to such information of CGB and its Subsidiaries. No investigation by either Enterbank, on the one hand, or CGB, on the other hand, shall affect the representations and warranties of the other. 5.3 SHAREHOLDERS' MEETINGS. (a) CGB shall call a meeting of its shareholders for the purpose of voting upon the adoption of this Agreement. CGB will, through its Board of Directors, recommend to its shareholders adoption of this Agreement unless the Board of Directors of CGB determines in good faith, based upon the written advice of outside counsel, that making such recommendation, or failing to withdraw, modify or amend any previously made recommendation, would constitute a breach of fiduciary duty by CGB's Board of Directors under applicable law. In addition, nothing in this Section 5.3 or elsewhere in this Agreement shall prohibit accurate disclosure by CGB of information that is required to be disclosed in the Proxy Statement, or any other document required to be filed with the SEC (including without limitation a Solicitation/Recommendation Statement on Schedule 14D-9) or otherwise required to be disclosed by applicable law or regulation or the rules of any securities exchange or automated quotation system on which the securities of CGB may then be traded. (b) Enterbank shall call a meeting of its shareholders for the purpose of voting upon the adoption of this Agreement. Enterbank will, through its Board of Directors, recommend to its shareholders adoption of this Agreement unless the Board of Directors of Enterbank determines in good faith, based upon the written advice of outside counsel, that making such recommendation, or failing to withdraw, modify or amend any previously made recommendation, would constitute a breach of fiduciary duty by Enterbank's Board of Directors under applicable law. In addition, nothing in this Section 5.3 or elsewhere in this Agreement shall prohibit accurate disclosure by Enterbank of information that is required to be disclosed in the Proxy Statement, the S-4 or any other document required to be filed with the SEC (including without limitation a Solicitation/Recommendation Statement on Schedule 14D-9) or otherwise required to be disclosed by applicable law or regulation or the rules of any securities exchange or automated quotation system on which the securities of Enterbank may then be traded. (c) Each of CGB and Enterbank shall use all commercially reasonable efforts to cause such meetings of their respective shareholders to take place as soon as is reasonably practicable after the S-4 is declared effective by the SEC. CGB and Enterbank shall coordinate and cooperate with respect to the timing of said meetings and the date on which the CGB Shareholders' Meeting shall be held. 48 59 5.4 NO SOLICITATIONS. (a) From the date hereof until the earlier of the Effective Time or the termination of this Agreement, CGB agrees that neither it, nor any of its Subsidiaries, Affiliates or agents shall, nor shall it authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or agent (collectively, "Representatives") retained by it or any of its Subsidiaries, Affiliates or agents to, solicit, initiate or knowingly encourage the submission of, or enter into discussions or negotiations with or provide information to any person or group of persons (other than the respective parties to this Agreement) concerning, any Takeover Proposal (as defined below) or enter into any agreement with a third party relating to a Takeover Proposal or assist, participate in, facilitate or encourage any effort or attempt by any other person to do or seek to do any of the foregoing. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any director, officer or Affiliate of CGB or any of its Subsidiaries or any investment banker, attorney or other advisor or Representative of CGB or any of its Subsidiaries or Affiliates, whether or not such Person is purporting to act on behalf of CGB or any of its Subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.4(a) by CGB. As used in this Agreement, "Takeover Proposal" shall mean any inquiry, proposal or offer to acquire in any manner 20% or more of any class of equity securities of, or a merger, consolidation, business combination, sale, recapitalization, liquidation, dissolution or other disposition or similar transaction involving 20% or more of the assets of, CGB or any Significant Subsidiary of CGB, or any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of equity securities of CGB or any Significant Subsidiary of CGB (other than pursuant to the transactions contemplated by this Agreement). A "Significant Subsidiary" means any Subsidiary of a person that would constitute a Significant Subsidiary of such person within the meaning of Rule 1-02 of Regulation S-X of the SEC. (b) Except as set forth herein, neither the Board of Directors of CGB nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Enterbank, the approval or recommendation by the Board of Directors of CGB or any such committee of this Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any Takeover Proposal, or (iii) enter into any agreement with respect to any Takeover Proposal. Notwithstanding the foregoing, the Board of Directors of CGB, to the extent required by its fiduciary obligations, as determined in good faith by the Board of Directors of CGB based on the advice of independent counsel, may (subject to the following sentences) withdraw or modify its approval or recommendation of this Agreement or the Merger, approve or recommend any Superior Proposal (as defined herein), enter into an agreement with respect to such Superior Proposal or terminate this Agreement, in each case at any time after the fifth Business Day following Enterbank's receipt of a written notice advising Enterbank that the Board of Directors of CGB has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal (it being understood that any amendment to a Superior Proposal shall necessitate an additional five (5) Business Day period). In addition, if CGB proposes to enter into an agreement with respect to any Takeover Proposal, it shall concurrently with 49 60 entering into such agreement pay, or cause to be paid, to Enterbank the CGB Termination Fee in accordance with the provisions of Section 5.4(d). For purposes hereof, "Superior Proposal" shall mean any bona fide written Takeover Proposal by a third party on terms determined in good faith by the Board of Directors of CGB to be reasonably capable of being completed, taking into account all legal, financial, regulatory and other aspects of the proposal and the Person making the proposal and (based on the advice of a financial advisor of nationally recognized reputation), if consummated to be more favorable to the shareholders of CGB from a financial point of view than the Merger. (c) In addition to the obligation of CGB set forth in paragraph (b) above, CGB promptly shall advise Enterbank orally and in writing of any request for information or of any Takeover Proposal, or any inquiry with respect to or which could lead to any Takeover Proposal, the material terms and conditions of such request, Takeover Proposal or inquiry and the identity of the Person making any such request, Takeover Proposal or inquiry. CGB shall keep Enterbank fully informed of the status and details (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry. (d) If this Agreement is terminated by CGB pursuant to Section 5.4(b), CGB shall pay promptly, but in no event later than two Business Days after the occurrence of such termination, by wire transfer of immediately available Federal Funds to such account as Enterbank shall designate, One Million Dollars $1,000,000.00 (the "CGB Termination Fee") as liquidated damages to Enterbank for such breach minus any Actual Expenses that have been paid by CGB pursuant to the penultimate sentence of Section 5.8. If this Agreement is terminated by Enterbank pursuant to Section 4.2(c) and Section 7.1(e)(ii), Enterbank shall pay promptly, but in no event later than two Business Days after the occurrence of such termination, by wire transfer of immediately available Federal Funds to such account as CGB shall designate, One Million Dollars $1,000,000.00 (the "Enterbank Termination Fee") as liquidated damages to CGB for such breach minus any Actual Expenses that have been paid by Enterbank pursuant to the penultimate sentence of Section 5.8. 5.5 LEGAL CONDITIONS. (a) Each of CGB and Enterbank shall, and shall cause its respective Subsidiaries to, use all reasonable efforts (i) to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements which may be imposed on such party or its Subsidiaries with respect to the transactions contemplated by this Agreement and as promptly as practicable, (ii) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and or any other public or private third party which is required to be obtained or made by such party or any of its Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement. Each of CGB and Enterbank will promptly cooperate with and furnish information to the other in connection with any such burden suffered by, or requirement imposed upon, any of them or any of their Subsidiaries in connection with the foregoing. 50 61 (b) Each of CGB and Enterbank agrees to use all reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary and proper or advisable to consummate, as soon as practicable after the date of this Agreement, the transactions contemplated hereby, including, without limitation, using all reasonable best efforts to (i) lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, (ii) defend any Litigation seeking to enjoin, prevent or delay the consummation of the transactions contemplated hereby or seeking material damages, (iii) provide to counsel to the other party hereto representations and certifications as to such matters as such counsel may reasonably request in order to render the opinions referred to in Sections 6.2(d) and 6.3(c), and (iv) to obtain the letters of the independent accountants referred to in Section 6.1(f). 5.6 EMPLOYEE BENEFIT PLANS. (a) For purposes of all employee benefit plans of Enterbank or its Subsidiaries in which the employees of CGB who shall remain in the employment of Enterbank or its Subsidiaries after the Closing Date shall participate from and after such date (including all policies and employee fringe benefit programs, including vacation policies), and under which an employee's benefit depends, in whole or in part, on length of service, credit will be given to employees of CGB for vesting and eligibility purposes only for service previously credited with CGB or its Subsidiaries prior to the Effective Time to the extent that such crediting of service does not result in duplication of benefits; provided, however, that Enterbank shall determine each employee's length of service in a manner consistent with the customary practice with respect to the employees of the Enterbank Subsidiary by which they shall be employed. Enterbank shall also cause each employee benefit plan in which employees of CGB participate from and after the Effective Time to waive (i) any preexisting condition restriction which was waived under the terms of any analogous Benefit Plan immediately prior to the Effective Time or (ii) any waiting period limitation which would otherwise be applicable to an employee of CGB on or after the Effective Time to the extent such employee of CGB had satisfied any similar waiting period limitation under an analogous Benefit Plan prior to the Effective Time. (b) Notwithstanding the foregoing, except as otherwise expressly provided in this Agreement, Enterbank shall, and shall cause its Subsidiaries to, honor in accordance with their terms all Benefit Plans, each as amended to the date hereof and as otherwise amended prior to the Closing Date, and other contracts, arrangements, commitments or understandings described in the CGB Disclosure Schedule; provided, however, that this paragraph (b) shall be subject to the provisions of paragraph (d) hereof. (c) Except as otherwise provided herein, nothing in this Section 5.6 shall be interpreted as preventing Enterbank or its Subsidiaries after the Effective Time from amending, modifying or terminating any of the Plans, or other contracts, arrangements, commitments or understandings, in accordance with their terms and applicable law. 51 62 (d) CGB shall terminate all Benefit Plans that Enterbank requests CGB to terminate, which will not include the Benefit Plans described in Schedule 5.6(d), effective as of the Closing Date in accordance with all applicable requirements of law. Notwithstanding the preceding sentence, the CGB 401(k) Plan and the CGB Flexible Benefits Plan shall be frozen as of the Closing Date. As soon as practical after the Closing Date, the assets of the CGB 401(k) Plan and CGB Flexible Benefits Plan shall be merged with the Enterprise Bank Incentive Savings Plan and Enterprise Bank Section 125 Premium Conversion Plan, respectively. 5.7 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall take all such necessary action. Subject to the mutual intent of the parties that the Merger will be accounted for under the pooling of interests method, CGB shall take any and all actions necessary or appropriate to ensure that the Merger will be accounted for under the pooling of interests method, including without limitation, causing Deloitte & Touche LLP to issue the "poolability" letter required as a condition to close in Section 6.1(f). 5.8 FEES AND EXPENSES. Unless otherwise agreed by the parties in writing or as otherwise provided herein, each party hereto shall bear and pay all costs and expenses incurred by it incident to preparing, entering into and carrying out this Agreement and to consummating the Merger, including fees and expenses of its own financial advisors, accountants and counsel, all printing, filing, mailing and other incidental fees, costs and expenses related thereto associated with the S-4 and the Proxy Statement (collectively, the "SEC Fees"). Notwithstanding the foregoing provisions of this Section 5.8 and notwithstanding the payment of any Termination Fee pursuant to Section 5.4, if this Agreement is terminated by either party pursuant to Section 7.1(d) or (e) hereof because of a willful breach by the other party of any representation, warranty, covenant or agreement as set forth in Section 7.1(d) or (e), and provided that the terminating party shall not have been in breach (in any material respect) of any representation and warranty, covenant or agreement contained herein, then the breaching party shall bear and pay all the costs and expenses incurred by the non-breaching party, with respect to the fees and expenses of financial and other advisors, investment bankers, accountants, counsel, printers and persons involved in the transactions contemplated by this Agreement, including SEC Fees. Notwithstanding the foregoing provisions of this Section 5.8, if this Agreement is terminated pursuant to Sections 7.1(f)(i)(2) or 7.1(f)(i)(3), 7.1(f)(ii)(2) or 7.1(h)(1), then CGB shall pay promptly by wire transfer of immediately available funds to such account as Enterbank shall designate the amount of all costs and expenses incurred by Enterbank incident to preparing, entering into and carrying out this Agreement and to consummating the Merger, including without limitation, fees and expenses incurred by Enterbank for its accountants and counsel and all SEC Fees, and fees and expenses of Stifel, Nicolaus & Company, Incorporated which amount shall not exceed $250,000 (collectively, the "Actual Expenses"). Notwithstanding the foregoing provisions of this Section 5.8, if this Agreement is terminated pursuant to Section 7.1(h)(2) or 7.1(g)(iii), then Enterbank shall pay promptly by wire transfer of immediately available funds to such account as CGB shall designate the amount of all Actual Expenses incurred by CGB (including any and all fees and expenses of Fister & Associates, Inc.), which amount of Actual Expenses shall not exceed $250,000. Final settlement with respect to the payment of such fees and expenses by the 52 63 parties shall be made within thirty days of the termination of this Agreement. Except as otherwise expressly provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. 5.9 COOPERATION. During the period from the date of this Agreement to the Effective Time, each of CGB and Enterbank shall, (i) confer on a regular and frequent basis with the other, report on operational matters, policies and banking practices and promptly advise the other orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, could have, a material adverse effect on CGB or Enterbank, as the case may be, or which would cause or constitute a material breach of any of the representations, warranties or covenants of such party contained herein, (ii) cause each Subsidiary of CGB and Enterbank that is a bank to file all call reports with the appropriate Bank Regulators and all other reports, applications and other documents required to be filed with the applicable Governmental Entities between the date hereof and the Effective Time and (iii) coordinate with the other the declaration of any dividends in respect of Enterbank Common Stock and CGB Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties hereto that holders of Enterbank Common Stock or CGB Common Stock shall not receive two dividends, or fail to receive one dividend, for any single calendar quarter with respect to their shares of Enterbank Common Stock and/or CGB Common Stock and any shares of Enterbank Common Stock any such holder receives in exchange therefor in the Merger. 5.10 AFFILIATES. Each of Enterbank and CGB shall use its commercially reasonable efforts to cause each director, executive officer and other person who is an "affiliate" (for purposes of Rule 145 under the Securities Act, in the case of affiliates of CGB, and for purposes of qualifying the Merger for pooling of interests accounting treatment, in the case of affiliates of either Enterbank or CGB) of such party to execute and deliver, as soon as practicable after the date of this Agreement, and in any event on or prior to the date the Proxy Statements are mailed to the shareholders of CGB and Enterbank, a written agreement, substantially in the form attached hereto as Exhibit B-1 with respect to CGB and Exhibit B-2 with respect to Enterbank. CGB shall instruct CGB's transfer agent regarding stop transfer instructions required in connection with shares of CGB Common Stock owned by "affiliates" of CGB, as described in Exhibit B-1 hereto. 5.11 ADVICE OF CHANGES. Enterbank and CGB shall promptly advise the other party of any change or event which, individually or in the aggregate with other such changes or events, has a material adverse effect on it or which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein. 5.12 SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS; CERTAIN REPORTS. As soon as reasonably available, but in no event more than 45 days after the end of each fiscal quarter (other than the fourth quarter of a fiscal year) or 90 days after December 31, 1999, or the end of each fiscal year ending after the date of this Agreement, each party will deliver to the other party its financial statements or any Quarterly Report on Form 10-Q or its Annual Report on Form 10-K, as the case 53 64 may be, as filed with the SEC under the Exchange Act, and each party will furnish to the other party copies of their management's monthly interim reports (which do not comply with the published rules and regulations of the SEC or GAAP) to their respective Boards of Directors within two days after such reports are so furnished to the Boards. As soon as reasonably available, but in no event more than 90 days after December 31, 1999, or the end of each fiscal year ending after the date of this Agreement, CGB will deliver to Enterbank its financial statements. 5.13 DISSENTERS' RIGHTS. CGB and (if Enterbank will be the Surviving Corporation) Enterbank shall include in the notice of shareholder's meeting required by Section 5.3 hereof a description of appraisal rights as contained in K.S.A. 17-6712 of the KGCC and, if required, Section 262 of the DGCL. 5.14 RETENTION OF FCB OFFICERS AND DIRECTORS. It is the intention of the parties hereto that immediately following the Closing Date the current officers and directors of FCB shall continue to serve FCB in their respective present capacities and on such terms and conditions as are presently in effect. 5.15 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) The Surviving Corporation shall indemnify, defend, and hold harmless the present directors, officers, employees, and agents of CGB and its Subsidiaries (each, an "Indemnified Party") after the Effective Time against all damages in connection with any action arising out of actions or omissions occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the full extent permitted under Kansas Law and by CGB's Certificate of Incorporation and Bylaws as in effect as of the date hereof, including any provisions relating to advances of expenses incurred in the defense of any action, suit or proceeding. Enterbank shall cause the Surviving Corporation and all other relevant Enterbank Subsidiaries to apply such rights of indemnification in good faith and to the fullest extent permitted by applicable Law. (b) With respect to all persons who are currently covered by CGB's directors' and officers' liability insurance, or will become covered by such insurance prior to the Effective Time, the Surviving Corporation shall maintain in effect for a period of not less than three years following the Effective Time the current directors' and officers' liability insurance maintained by CGB (provided that the Surviving Corporation may substitute therefor policies of at least equivalent coverage containing terms and conditions and coverages which are no less advantageous to the current directors and officers of the Company) with respect to matters occurring prior to the Effective Time. (c) If the Surviving Corporation or any of its successors or assigns shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or shall transfer all or substantially all of its assets to any person, corporation or entity, then in each case, proper provision shall be made 54 65 so that the successors and assigns of the Surviving Corporation shall assume the obligations set forth in this Section 5.15. (d) The provisions of this Section 5.15 are intended to be for the benefit of and shall be enforceable by, each Indemnified Party, his or her heirs and representatives, and shall survive the consummation of the Merger and be binding on all successors and assigns of the Surviving Corporation. 5.16 CONFORMING ENTRIES. (a) Notwithstanding that CGB believes that CGB and its Subsidiaries have established all reserves and taken all provisions for possible loan losses required by GAAP and applicable laws, rules and regulations, CGB recognizes that Enterbank may have adopted different loan, accrual and reserve policies (including loan classifications and levels of reserves for possible loan losses). From and after the date of this Agreement, CGB and Enterbank shall consult and cooperate with each other with respect to conforming the loan, accrual and reserve policies of CGB and its Subsidiaries to those policies of Enterbank, as specified in each case in writing to CGB, based upon such consultation and as hereinafter provided. (b) In addition, from and after the date of this Agreement, CGB and Enterbank shall consult and cooperate with each other with respect to determining appropriate accruals, reserves and charges to establish and take in respect of excess equipment write-off or write-down of various assets and other appropriate charges and accounting adjustments taking into account the parties' business plans following the Merger, as specified in each case in writing to CGB, based upon such consultation and as hereinafter provided. (c) CGB and Enterbank shall consult and cooperate with each other with respect to determining the amount and timing for recognizing for financial accounting purposes CGB's expenses of the Merger and the restructuring charges, if any, related to or to be incurred in connection with the Merger. (d) With respect to clauses (a) through (c) of this Section 5.16, it is the objective of CGB that such reserves, accruals, charges and divestitures, if any, to be taken shall be consistent with GAAP. (e) No action taken by CGB at the request of Enterbank pursuant to this Section 5.16 to conform the appropriate policies of CGB and its Subsidiaries to those of Enterbank shall, in and of itself, constitute a breach of any representation or warranty of CGB contained in Section 3.1(d) or 3.1(z) hereof or provide a basis on which Enterbank may assert a breach of any representation or warranty made by CGB in this Agreement. 55 66 ARTICLE VI CONDITIONS PRECEDENT 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction on or prior to the Closing Date of the following conditions: (a) SHAREHOLDER APPROVALS. The CGB Shareholder Approval and the Enterbank Shareholder Approval shall have been obtained. (b) OTHER APPROVALS. All authorizations, consents, orders or approvals of, or declarations or filings with, and all expirations of waiting periods imposed by, any Governmental Entity (all the foregoing, "Consents") which are necessary pursuant to the Merger, other than immaterial Consents which, if not obtained, would have no material adverse effect on the consummation of the transactions contemplated by this Agreement and the Agreement of Merger or on either Enterbank or the Surviving Corporation, shall have been filed, have occurred or been obtained (all such permits, approvals, filings and consents and the lapse of all such waiting periods being referred to as the "Requisite Regulatory Approvals") and all such Requisite Regulatory Approvals shall be in full force and effect. (c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated by this Agreement or the Transaction Agreements shall be in effect. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by this Agreement or the Transaction Agreements, by any Federal, state or foreign Governmental Entity of competent jurisdiction which makes the consummation of the transactions contemplated by this Agreement or the Transaction Agreements illegal. (d) S-4. The S-4 shall become effective under the Securities Act, no stop orders suspending the effectiveness of the S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (e) POOLING. Enterbank shall have received a letter from KPMG LLP, independent public accountants to Enterbank, dated the Closing Date, in form and substance reasonably acceptable to Enterbank and CGB, respectively, to the effect that the Merger will qualify for "pooling of interests" accounting treatment; provided, however, that Deloitte & Touche LLP shall deliver to the CGB Board of Directors a "poolability letter" dated the Closing Date in a form reasonably acceptable to Enterbank and CGB and in accordance with Statement on Auditing Standards No. 50; provided further, however, that if either party shall have knowingly taken or omitted to take any action within the control of such party which shall have prevented such party's 56 67 independent public accountants from rendering such letter, then this condition shall not be applicable to such party. (f) BURDENSOME CONDITION. There shall not be any action taken, or any statute, rule, regulation, order or decree enacted, entered, enforced or deemed applicable to the Merger or the other Transaction Agreements by any Federal, state or foreign Governmental Entity which, in connection with the grant of a Requisite Regulatory Approval or otherwise, imposes any condition or restriction (a "Burdensome Condition") upon Enterbank or CGB or their respective Subsidiaries or Affiliates which would reasonably be expected to (i) have a material adverse effect after the Effective Time on the present or prospective consolidated financial condition, business, operating results or prospects of Enterbank or the Surviving Corporation (including, without limitation, any requirement to dispose of any material assets or businesses or restrict in any significant way any material operations or activities), (ii) prevent Enterbank or CGB or their respective Subsidiaries from realizing all or a substantial portion of the economic benefits of the transactions contemplated by this Agreement, or (iii) materially impair Enterbank's or CGB's ability to exercise and enforce its rights under the Transaction Agreements. (g) DISSENTERS' RIGHTS. The aggregate number of shares of CGB Common Stock or (if Enterbank is the Surviving Corporation) of Enterbank Common Stock held by persons who have taken all of the steps required at or prior to the Enterbank Shareholders' Meeting and the CGB Shareholders' Meeting to perfect their right (if any) to be paid the value of such shares under Section 262 of the DGCL and K.S.A. 17-6712 of the KGCC shall not exceed 9.9% of the outstanding shares of CGB Common Stock when combined with tainted treasury shares held by CGB and fractional shares for which cash will be distributed. (h) AVERAGE ENTERBANK CLOSING PRICE. CGB and Enterbank agree that if the Average Enterbank Closing Price (as hereinafter defined) on the second Business Day prior to the Closing Date (the "Determination Date") is either less than $15.50 or greater than $23.00, then Enterbank and CGB shall in good faith attempt to negotiate a mutually acceptable revised Exchange Ratio; provided, however, that if a mutually acceptable revised Exchange Ratio is not negotiated within five (5) Business Days following the Determination Date, then either CGB (if the Average Enterbank Closing Price is less than $15.50) or Enterbank (if the Average Enterbank Closing Price is greater than $23.00)may terminate this Agreement by providing the other party with written notice of such termination within two (2) Business Days following the fifth Business Day after the Determination Date. If the applicable party does not elect to terminate this Agreement pursuant to this Section 6.1(h), then the Closing Date shall be the seventh Business Day following the Determination Date. For purposes of this Agreement, "Average Enterbank Closing Price" means the average closing sale price of the Enterbank Common Stock for the twenty (20) days on which the New York Stock Exchange is open for trading preceding the second Business Day prior to the Closing Date as reported by J.A. Glynn & Co. or another firm making a market in the Enterbank Common Stock. For each of such twenty (20) Business Days on which there is no reported sale of Enterbank Common Stock, the reported closing price at which shares of Enterbank Common Stock were sold on the most recent Business Day prior thereto on which there was a reported sale of 57 68 Enterbank Common Stock shall be deemed to be the closing sale price. For purposes of this Section 6.1(h), all trades on days on which fewer than an aggregate of 500 shares are traded shall be disregarded. In the event of any termination pursuant to this Section 6.1(h), this Agreement shall be of no further force or effect whatsoever and neither party hereto shall have any further obligation or liability hereunder. 6.2 CONDITIONS TO OBLIGATIONS OF ENTERBANK. The obligation of Enterbank to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived by Enterbank: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of CGB set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, and Enterbank shall have received a certificate signed on behalf of CGB by its President and Chief Executive Officer to such effect. (b) PERFORMANCE OF OBLIGATIONS. CGB shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Enterbank shall have received a certificate signed on behalf of CGB by its President and Chief Executive Officer and Chief Financial Officer to such effect. (c) CORPORATE ACTION. Enterbank shall have received a copy of the resolution or resolutions duly adopted by the Board of Directors (or a duly authorized committee thereof) of CGB and of the holders of the CGB Common Stock authorizing the execution, delivery and performance by CGB of this Agreement and the other Transaction Agreements, certified by the Secretary or an Assistant Secretary of CGB. (d) TAX OPINION. Enterbank shall have received the opinion of Armstrong Teasdale LLP, counsel to Enterbank, dated the Closing Date, to the effect that (i) the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of section 368(a) of the Code and (ii) Enterbank and CGB will each be a party to that reorganization within the meaning of section 368(b) of the Code. In rendering such opinion, such counsel may require and rely upon representations and covenants contained in certificates of officers of Enterbank, CGB and others. If the opinion referred to in this Section 6.2(d) is not delivered, such condition shall be deemed to be satisfied if Enterbank shall have received an opinion to the effect of subsections (i) and (ii) above from Deloitte & Touche LLP or another accounting firm or law firm selected by CGB and reasonably acceptable to Enterbank. Enterbank will cooperate in obtaining such opinion. (e) MATERIAL ADVERSE EFFECT. Except as disclosed to Enterbank in writing prior to the date hereof, no material adverse effect upon CGB shall have occurred since September 30, 1999, and CGB shall not be a party to or so far as CGB is aware, threatened with, and to CGB's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, 58 69 any arbitrator of any kind or any government agency, which in the reasonable judgment of Enterbank, could have a material adverse effect upon CGB, and Enterbank shall have received a certificate signed on behalf of CGB by its President and Chief Executive Officer to such effect. (f) CLOSING DOCUMENTS. Enterbank shall have received from CGB such certificates and other closing documents as counsel for Enterbank shall reasonably request. (g) FAIRNESS OPINION. Enterbank shall have received a written "bring-down" opinion of Stifel, Nicolaus & Company, Incorporated, dated as of the date of Enterbank's Proxy Statement, to the effect that, as of such date, the consideration to be received by the holders of the Enterbank Common Stock in the Merger is fair to the holders of the Enterbank Common Stock from a financial point of view. 6.3 CONDITIONS TO OBLIGATIONS OF CGB. The obligation of CGB to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived by CGB: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Enterbank set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, and CGB shall have received a certificate signed on behalf of Enterbank by its President and Chief Executive Officer and its Chief Financial Officer to such effect. (b) PERFORMANCE OF OBLIGATIONS. Enterbank shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and CGB shall have received a certificate signed on behalf of Enterbank by its President and Chief Executive Officer and its Chief Financial Officer to such effect. (c) CORPORATE ACTION. CGB shall have received a copy of the resolution or resolutions duly adopted by the Board of Directors (or a duly authorized committee thereof) of Enterbank and of the holders of the Enterbank Common Stock authorizing the execution, delivery and performance by Enterbank of this Agreement and the other Transaction Agreements, certified by the Secretary or an Assistant Secretary of Enterbank. (d) TAX OPINION. CGB shall have received the opinion of Stinson, Mag & Fizzell, independent counsel to CGB (or other accounting or law firm reasonably acceptable to Enterbank), dated the Closing Date, to the effect that (i) the Merger should be treated for Federal income tax purposes as a reorganization within the meaning of section 368(a) of the Code, (ii) Enterbank and CGB should each be a party to that reorganization within the meaning of section 368(b) of the Code and (iii) (1) except for any cash received in lieu of any fractional share, no gain or loss should be recognized by holders of CGB Common Stock who receive Enterbank Common Stock in exchange for the CGB Common Stock which they hold; (2) the holding period of Enterbank 59 70 Common Stock exchanged for CGB Common Stock should include the holding period of the CGB Common Stock for which it is exchanged, assuming the shares of CGB Common Stock are capital assets in the hands of the holder thereof at the Effective Time; and (3) the basis of the Enterbank Common Stock received in the exchange should be the same as the basis of the CGB Common Stock for which it was exchanged, less any basis attributable to fractional shares for which cash is received. In rendering such opinion, such independent accountants ( or law firm) may require and rely upon representations and covenants contained in certificates of officers of Enterbank, CGB and others. If the opinion referred to in this Section 6.3(d) is not delivered, such condition shall be deemed satisfied if CGB shall have received an opinion to the effect of subsections (i) and (ii) above from Armstrong Teasdale LLP or another law or accounting firm selected by Enterbank and reasonably acceptable to CGB. CGB will cooperate in obtaining such opinion. (e) MATERIAL ADVERSE EFFECT. Except as disclosed to CGB in writing prior to the date hereof, no material adverse effect upon Enterbank shall have occurred since September 30, 1999, and Enterbank shall not be a party to or so far as Enterbank is aware, threatened with, and to Enterbank's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, any arbitrator of any kind or any governmental agency, which in the reasonable judgment of CGB, could have a material adverse effect upon Enterbank, and CGB shall have received a certificate signed on behalf of Enterbank by its President and Chief Executive Officer and its Chief Financial Officer to such effect. (f) CLOSING DOCUMENTS. CGB shall have received from Enterbank such certificates and other closing documents as counsel for CGB shall reasonably request. (g) ADDITIONS TO ENTERBANK BOARD OF DIRECTORS. Enterbank shall have amended its Bylaws or taken any other action necessary to increase the number of authorized directors on its Board of Directors to permit the appointment of the four CGB Designees (pursuant to Section 1.3(a)(iv)) at least five (5) Business Days prior to the Closing Date. (h) FAIRNESS OPINION. CGB shall have received a written "bring-down" opinion of Fister & Associates, Inc., dated as of the date of CGB's Proxy Statement, to the effect that, as of such date, the consideration to be received by the holders of the CGB Common Stock in the Merger is fair to the holders of the CGB Common Stock from a financial point of view. ARTICLE VII TERMINATION AND AMENDMENT 7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, by action taken or authorized by the Board of Directors of the terminating party or parties, whether before or after adoption of the Agreement by the shareholders of CGB or Enterbank: 60 71 (a) by mutual consent of Enterbank and CGB in a written instrument; (b) by either Enterbank or CGB (i) upon written notice to the other party if any Bank Regulator shall have issued an order denying approval of the Merger and the other material aspects of the transactions contemplated by this Agreement or if any Governmental Entity of competent jurisdiction shall have issued a final permanent order enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement or (ii) if any Governmental Entity of competent jurisdiction shall have issued an order in connection with the transactions contemplated hereby imposing a Burdensome Condition on Enterbank or the Surviving Corporation, and in any such case the time for appeal or petition for reconsideration of any such order referred to in clauses (i) or (ii) shall have expired without such appeal or petition being granted; (c) by either Enterbank or CGB if the Merger shall not have been consummated on or before July 31, 2000; provided that if the Merger shall not have been consummated on or before such date, such termination date may be extended by up to 60 days thereafter (i) at the election of the non-breaching party, if the Merger shall not have been consummated due to the volitional breach of any material representation, warranty or covenant in this Agreement by Enterbank or CGB, or (ii) at the election of the party who has requested any Requisite Regulatory Approval, in the event that the Merger shall not have been consummated due to the fact that any such Requisite Regulatory Approvals shall not yet have been received; (d) by Enterbank in the event of a breach by CGB of any representation, warranty or covenant contained in this Agreement, which breach (i) either is not cured within 45 days after the giving of written notice to CGB, or is of a nature which cannot be cured prior to the Closing and (ii) would entitle the non-breaching party to elect not to consummate the transactions contemplated hereby pursuant to Article VI; provided, however, that Enterbank may immediately terminate this Agreement upon notice to CGB in the event that CGB shall breach the covenant provided for in Section 5.4 hereof; (e) (i) by CGB in the event of a breach by Enterbank of any representation, warranty or covenant contained in this Agreement, which breach (1) either is not cured within 45 days after the giving of written notice to Enterbank or is of a nature which cannot be cured prior to the Closing and (2) would entitle the non-breaching party to elect not to consummate the transactions contemplated hereby pursuant to Article VI; provided, however, that CGB may terminate this Agreement within ten (10) Business Days after notice to Enterbank in the event that Enterbank shall breach the covenant provided for in Section 4.2(c) hereof and such breach shall not have been cured within such ten (10) Business Day period and, upon such termination, Enterbank shall pay to CGB the Enterbank Termination Fee as liquidated damages to CGB for such breach, which sum shall be paid by wire transfer of immediately available Federal Funds, to such account as CGB shall designate; (ii) by Enterbank, in the event that, notwithstanding its obligations in Section 4.2(c), a third party makes a written offer regarding a Takeover Proposal of Enterbank in 61 72 which such third party indicates that they would not be willing to consummate such a Takeover Proposal unless this Agreement is terminated, and the Board of Directors of Enterbank determines in good faith, based upon the written advice of outside counsel, that failing to accept such Takeover Proposal would constitute a breach of fiduciary duty by Enterbank's Board of Directors under applicable law; provided, however, that upon such termination, Enterbank shall pay to CGB the Enterbank Termination Fee as liquidated damages to CGB for such termination, which sum shall be paid in the manner described in subsection 7.1(e)(i) above; (f) (i) by Enterbank (1) if, in accordance with Section 5.3, the Board of Directors of CGB fails to recommend adoption of this Agreement by the shareholders of CGB, or amends or modifies such recommendation in a manner materially adverse to Enterbank or withdraws such recommendation to the shareholders of CGB, (2) if the condition set forth in Section 6.2(q) is not satisfied, or (3) if Deloitte & Touche LLP fails to deliver the "poolability letter" required by Section 6.1(e); (ii) by CGB (1) if, in accordance with Section 5.3, the Board of Directors of Enterbank fails to recommend adoption of this Agreement by the shareholders of Enterbank, or amends or modifies such recommendation in a manner materially adverse to CGB or withdraws such recommendation to the shareholders of Enterbank, or (2) if the condition set forth in Section 6.3(h) is not satisfied; (g) by Enterbank or CGB, if (i) the CGB Shareholder Approval or the Enterbank Shareholder Approval shall not have been obtained at a duly held meeting of shareholders of CGB or Enterbank, as appropriate, held for such purpose or at any adjournment, postponement or continuation thereof, or (ii) the condition set forth in Section 6.1(h) is not satisfied, or (iii) KPMG LLP fails to deliver the letter required by Section 6.1(f) (although Deloitte & Touche LLP has delivered the "poolability letter" required by Section 6.1(f)); (h) (1) by Enterbank in the event there has been a change, or any event involving a prospective change, in the business, financial condition, results of operations or prospects of CGB or any of its Subsidiaries which has had, or would be reasonably likely to have, a material adverse effect on CGB; provided, however, that termination pursuant to this subsection (1) shall be effective 45 days after the giving of written notice to CGB if the change or event described in said notice has not been cured; and provided, further that termination under this subsection (1) shall be effective immediately after the giving of written notice if said change or event cannot be cured prior to the Closing; and (2) by CGB in the event there has been a change, or any event involving a prospective change, in the business, financial condition, results of operations or prospects of Enterbank or any of its Subsidiaries which has had, or would be reasonably likely to have, a material adverse effect on Enterbank; provided, however, that termination pursuant to this subsection (2) shall be effective 45 days after the giving of written notice to Enterbank if the change or event described in said notice has not been cured; and provided, further that termination under this subsection (2) shall be effective immediately after the giving of written notice if said change or event cannot be cured prior to Closing. 62 73 7.2 EFFECT OF TERMINATION. Termination of this Agreement shall not terminate or affect the obligations of the parties under Section 4.2(c), 5.4, 5.8 or 8.10 or otherwise to pay expenses as provided elsewhere herein, to maintain the confidentiality of the other party's information pursuant to Section 5.2 or the provisions of this Section 7.2 or of Section 8.2 or 8.6, and shall not affect any agreement after such termination. The parties agree that any termination of this Agreement shall not in any manner release or be construed as so releasing the nonterminating party or parties or their respective officers or directors from any liability or damage to the other party or parties arising out of, in connection with or otherwise relating to, directly or indirectly, such parties willful breach of its covenants, agreements, representations or warranties hereunder, except to the extent expressly provided herein. 7.3 AMENDMENT. This Agreement may be amended by the parties hereto at any time before or after approval of this Agreement by the shareholders of CGB and Enterbank, but after any such approval, no amendment shall be made which by law requires further approval by such shareholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.4 EXTENSION; WAIVER. At any time prior to the Closing Date, the parties hereto, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE VIII GENERAL PROVISIONS 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. No investigation by Enterbank or CGB made before or after the date hereof shall affect the representations and warranties which are contained in this Agreement; provided that all representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant hereto or thereto shall expire on, and be terminated and extinguished at, the Effective Time other than covenants and agreements that by their terms are to survive or be performed, in whole or in part, after the Effective Time; provided that no such representations, warranties or covenants shall be deemed to be terminated or extinguished so as to deprive Enterbank or CGB (or any director or officer thereof) of any defense in law or equity which otherwise would be available against the claims of any person, including, without limitation, any shareholder or former shareholder of either Enterbank or CGB, the aforesaid representations, warranties, covenants and agreements being material inducements to the consummation by Enterbank and CGB of the transactions contemplated herein. 63 74 8.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service, or (c) on the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice. (a) if to CGB, to: Commercial Guaranty Bancshares, Inc. 12695 Metcalf Avenue Overland Park, Kansas 66213 Attention: Mr. Joe C. Morris Chairman Fax: (913) 663-4172 with a copy to: Stinson, Mag & Fizzell 1201 Walnut, Suite 2800 Kansas City, Missouri 64106-2150 Attention: C. Robert Monroe Fax: (816) 691-3495 and (b) if to Enterbank, to: Enterbank Holdings, Inc. 150 N. Meramec Avenue St. Louis, Missouri 63105 Attention: Mr. James C. Wagner Chief Financial Officer Fax: (314) 727-3239 64 75 with a copy to: Armstrong Teasdale LLP One Metropolitan Square, Suite 2600 St. Louis, Missouri 63102 Attention: John L. Gillis, Esq. Fax: (314) 621-5065 8.3 INTERPRETATION. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. 8.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF OWNERSHIP. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement, which shall survive the execution and delivery of this Agreement, and (b) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder except as otherwise expressly provided in Section 5.7. The parties hereby acknowledge that, except as hereinafter agreed to in writing, no party shall have the right to acquire or shall be deemed to have acquired shares of common stock of the other party pursuant to the Merger until consummation thereof. No current or former employee of CGB, Enterbank, or any of their respective Subsidiaries, shall be construed as a third party beneficiary under this Agreement, and no provision in this Agreement shall create any right in any such employee (or his or her beneficiary or dependent) for any reason, including, without limitation, in respect of employment, continued employment, or resumed employment with the Surviving Corporation, CGB or Enterbank (or any of their respective Affiliates) or in respect of any benefits that may be provided, directly or indirectly, under any Benefit Plan maintained by the Surviving Corporation, CGB or Enterbank (or any of their respective Affiliates). 8.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri without giving effect to the principles of conflicts of law. 65 76 8.7 SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability and, unless the effect of such invalidity or unenforceability would prevent the parties from realizing the major portion of the economic benefits of the Merger that they currently anticipate obtaining therefrom, shall not render invalid or unenforceable the remaining terms and provisions of this Agreement or affect the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. 8.9 PUBLICITY. Enterbank, FCB, and CGB shall consult with each other before issuing any press release with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other parties, which shall not be unreasonably withheld; provided, however, that a party may, without the prior consent of the other parties (but after prior consultation, to the extent practicable in the circumstances) issue such press release or make such public statement as may upon the advice of outside counsel be required by law. Without limiting the reach of the preceding sentence, Enterbank and CGB shall cooperate to develop all public announcement materials and make appropriate management available at presentations related to the transactions contemplated by this Agreement as reasonably requested by the other party. In addition, CGB and its Subsidiaries shall (a) consult with Enterbank regarding communications with customers, shareholders, prospective investors and employees related to the transactions contemplated hereby, (b) provide Enterbank with shareholders lists of CGB and (c) allow and facilitate Enterbank contact with shareholders of CGB and other prospective investors. 8.10 ATTORNEYS' FEES. In the event of any dispute between the parties arising out of or relating to this Agreement, the prevailing party in any litigation (whether at law or in equity), arbitration or other proceeding with respect to such dispute, including any appeal thereof (collectively, an "Action"), shall be entitled to recover such party's reasonable attorneys' fees and all other reasonable costs and expenses incurred in connection with such Action from the non-prevailing party. 66 77 IN WITNESS WHEREOF, Enterbank and CGB have caused this Agreement to be executed by their respective officers thereunto duly authorized, all as of date first above written. ENTERBANK HOLDINGS, INC. By: /s/ Fred H. Eller -------------------------------- Name: Fred H. Eller Title: By: /s/ James C. Wagner -------------------------------- Name: James C. Wagner Title: Secretary COMMERCIAL GUARANTY BANCSHARES, INC. By: /s/ Joe C. Morris -------------------------------- Name: Joe C. Morris Title: By: /s/ Scott A. Woods -------------------------------- Name: Scott A. Woods Title: Secretary 67 EX-11.1 5 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE (1)
Basic Diluted EPS number EPS number Net Basic Diluted of shares of shares Income EPS EPS --------------------------------------------------------------- 812 months ended December 31, 1998 7,052,289 7,544,288 $3,010,774 $0.43 $0.40 12 months ended December 31, 1999 7,135,697 7,704,800 $3,820,185 $0.54 $0.50 12 MONTHS ENDED DECEMBER 31, 1998 Basic Diluted ----------- --------- Average Shares Outstanding 7,052,289 7,052,289 Options - Plan 1 130,197 Average Option Price $2.00 Total Exercise Cost $260.394 Shares Repurchased 28,141 Net Shares from Option - Plan 1 102,056 Options - Plan 2 220,563 Average Option Price $2.54 Total Exercise Cost $560,230 Shares Repurchased 60,544 Net Shares from Option - Plan 2 160,019 Options - Plan 3 543,669 Average Option Price $5.34 Total Exercise Cost $2,903,192 Shares Repurchased 313,746 Net Shares from Option - Plan 3 229,923 ----------- --------- Gross Shares 7,052,289 7,544,288 Price $9.25 12 MONTHS ENDED DECEMBER 31, 1999 Basic Diluted ----------- --------- Average Shares Outstanding 7,135,697 7,135,697 Options - Plan 1 34,477 Average Option Price $2.30 Total Exercise Cost $79,297 Shares Repurchased 5,526 Net Shares from Option - Plan 1 28,951 Options - Plan 2 217,521 Average Option Price $2.55 Total Exercise Cost $554,679 Shares Repurchased 38,654 Net Shares from Option - Plan 2 178,867 Options - Plan 3 553,240 Average Option Price $5.63 Total Exercise Cost $3,114,741 Shares Repurchased 217,055 Net Shares from Option - Plan 3 336,185 Options - Plan 4 83,959 Average Option Price $10.06 Total Exercise Cost $844,628 Shares Repurchased 58,859 Net Shares from Option - Plan 4 25,100 ----------- --------- Gross Shares 7,135,697 7,704,800 Price $14.35
(1) Adjusted to give retroactive effect to a 3-for-1 stock split effective September 29, 1999 EX-21.1 6 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Company State of 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 EBH Capital Trust I Delaware EX-23.1 7 CONSENT OF KPMG, LLP 1 EXHIBIT 23.1 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 No. 333-43365 on Form S-8 of our report dated February 18, 2000, relating to the consolidated balance sheets of Enterbank as of December 31, 1999 and 1998, 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, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of Enterbank. /s/ KPMG LLP St. Louis, Missouri March 9, 2000 EX-24.1 8 POWER OF ATTORNEY 1 EXHIBIT 24.1 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 these 10-K, S-4 and Y-3 Reports, 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: /s/ James C. Wagner By: /s/ Fred H. Eller By: /s/ Stacey Tate --------------------------- --------------------------- ------------------------- 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, these 10-K, S-4, and Y-3 Reports have 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 February _, 2000 /s/ Ronald E. Henges - --------------------------------- Ronald E. Henges Chairman of the Board of Directors February 24, 2000 - --------------------------------- Kevin C. Eichner Vice Chairman of the February _, 2000 Board of Directors - --------------------------------- Paul R. Cahn Director February _, 2000 /s/ Birch M. Mullins - --------------------------------- Birch M. Mullins Director February 24, 2000 /s/ Robert E. Saur - --------------------------------- Robert E. Saur Director February 24, 2000 /s/ James A. Williams - --------------------------------- James A. Williams Director February 24, 2000
2 - --------------------------------- Henry D. Warshaw Director February _, 2000 - --------------------------------- James L. Wilhite Director February _, 2000 /s/ Ted C. Wetterau - --------------------------------- Ted C. Wetterau Director February 24, 2000 /s/ Randall D. Humphreys - --------------------------------- Randall D. Humphreys Director February 24, 2000 - --------------------------------- Paul L. Vogel Director February _, 2000 - --------------------------------- William B. Moskoff Director February _, 2000 /s/ James C. Wagner - --------------------------------- James C. Wagner Chief Financial Officer, February 24, 2000 Secretary, and Treasurer
EX-27.1 9 FINANCIAL DATA SCHEDULE
9 0001025835 ENTERBANK HOLDINGS INC. 10-K 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 14,798,216 469 54,825,000 210,000 23,807,572 679,806 676,851 386,540,094 4,235,000 488,001,444 435,797,830 0 557,338 17,920,386 0 0 71,436 32,689,249 488,001,444 30,018,530 1,004,753 1,113,626 32,136,909 13,754,225 14,352,119 17,784,790 1,021,256 202,454 13,386,172 5,943,098 3,698,694 0 121,491 3,820,185 0.54 0.50 8.39 293,750 0 0 770,455 3,200,000 19,000 33,000 4,235,000 4,070,000 0 165,000
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