E N T E R P R I SE F I N A N C I AL S E R V I C ES C O RP
E!'>i •i\'--'y_ii'^':i'^)^;.:4 !.-
Enterprise Financial Services Corp
To O UR S H A R E H O L D E RS A ND FRIENDS
This is Enterprise's twentieth Annual Report. What a great run
we have enjoyed! Those of you who have been with us from the
beginning as original shareholders have seen the value of our initial
investment grow from $L67 per share in 1988 to $23.81 per share at
year-end 2007. From one location on North Meramec in Clayton, we
have grown our banking franchise to $2.0 billion in assets operating in
St. Louis, Kansas City, and now in PhoeniK, Arizona. Our Trust division
will celebrate its tenth anniversary this year and has amassed assets of
over $1.7 biUion. It has become a key part of our value proposition to
clients and shareholders alike. With our highly regarded NASDAQ stock
we have diversified our shareholder base and have grown institutional
ownership to twenty percent of our total, with institutions increasing
their total holdings in our stock by 33% in 2007 alone. Our people, always
the haUmark of Enterprise, have delivered a five-year compound annual
growth rate in earnings per share of 22% - one of the top performances
among small cap bank holding companies over that period. We have
much to be proud of and much for which to be thankful. We hope you
will join us for a special twentieth anniversary celebration at our Annual
Meeting on April 23, 2008. On behalf of our entire management team,
we thank you for your unwavering support.
In last year's Annual Report, we commented on our expectations
that industry headwinds would be "formidable." Little did we know
then that those headwinds would be gale force. Yet, despite the
subprime debacle, a nearly unprecedented sector-wide decline in bank
stock prices, and the emergence of what appears to be a bearish credit
cycle, your Company again posted record net income and earnings per
share for the fifth consecutive year.
Spurred by strong organic growth in addition to our two recent
Kansas City bank acquisitions, loans surged to $1.64 bilUon, a 25% total
increase. In a very tough environment, our bankers also managed to
preserve our enviable core funded deposit mix. Credit quality remained
soUd, with net charge-off's of just fourteen basis points -just one basis
James }. Murphy, Jr.
Kevin C. Eichner
Peter E Benoist
2007 A n n u al Report
ENTERPRISE FINANCIAL
SERVICES C O RP
B O A RD OF DIRECTORS
Chairman
P E T ER F. B E N O I ST
Chairman & CEO,
Enterprise Bank & Trust
Vice Chairman
KEVIN C. EICHNER
President & CEO,
Enterprise Einancial Services Corp
Lead Director
Chairman, Executive
J A M ES J. MURPHY, J R.
Chairman & CEO,
Murphy Company
M I C H A EL A. D E C O LA
President & CEO,
Mississippi Lime Company
Chairman, Compensation
WILLIAM H . D O W N EY
President & CEO,
Kansas City Power & Light Company
ROBERT E. G U E S T, J R.
Partner,
Affinity Law Group, LLC
Chairman,
Nominating & Governance
LEWIS A. LEVEY
Chairman,
Enhanced Value Strategies, Inc.
BIRCH M. M U L L I NS
President,
Lindbergh Warson Properties
BRENDA D. NEWBERRY
Chairman & CEO,
The Newberry Group, Inc.
ROBERT E. S A UR
Chairman,
Conrad Properties
Chairman, Audit
S A N D RA A. V AN T R E A SE
Senior Executive Officer
& Group President,
BJC HealthCare
HENRY D. W A R S H AW
President,
Virtual Realty Enterprises
Advisory Director
W I L L I AM L. Z E L E N IK
CEO,
Millennium Brolcerage Group
point above our nineteen year average. While non-performing loans
rose to 77 basis points of our total loans - nearly all related to the
homebuilder segment - our numbers were far less problematic
than those in the industry which had become overly dependent on
that sector.
With the addition of NorthStar and Great American banks
and our announced entry into the Phoenix market, we have
substantially strengthened our market footprint and presence. We
are now the largest publicly-traded bank headquartered in St. Louis,
with over $1 billion in that market and, at nearly $700 million in
assets, the eighth largest in Kansas City. Beyond the benefits of
the reach and scale of these positions, we have been able to grow
our most powerful asset - our talent base - through the recruitment
and deployment of
some very
experienced and
seasoned bankers in
all three markets. As
these new people
added their market
muscle to that of our
existing people, we
grew loans by $151
million in the second
half of 2007 alone
Enterprise Bank & Trust of Arizona, opening in 2008
This business has always been about the ability to attract, deploy,
and retain top people. We are grateful that our expanded market
presence has allowed us to continue to expand this team.
While growth and asset quality are certainly common
challenges to all banks in this environment, perhaps the greatest
challenge is in preserving net interest margin - the difference
between what we pay for our deposits and what we are able to
generate in rates and fees from our loan portfolio. Protecting and
growing our core funding base has and will continue to be a key
element of our strategy for producing margin. In fact, aucdysts and
investors continue to be impressed with our showing in this regard.
However, our margin, like that of nearly every bank, is under
pressure. Last year, our margin declined from 4.01% to 3.83%.
At our current size, every basis point of margin is worth nearly
Enterprise Financial Services Corp
$200,000 in pre-tax income. That means last year's decline
of eighteen basis points cost us $2.9 million in lost pre-tax
earnings! We have said for years that the battleground in
banking is at the funding level. It is abundantly clear this
is true. Continued development of speciflc market niches
and increasingly specialized resources like our excellent
Treasury Management group will become more and
more important as we combat this issue.
As our investors know, one of the reasons we
entered the wealth management business was to diversify
our revenue and profits away from an over-dependence
on banking industry margins, which have been declining
for several years. Five years ago, less than seven percent
ofour revenues came from Wealth Management (Trust
and insurance). In 2007, that number had grown to 17%.
Five years ago, we lost over $700,000 pre-tax in the trust
business. This year, between Trust and Millennium, we
earned $3.5 miUion pre-tax. Clearly, our offerings have
been met with real success and are playing an
increasingly important strategic role in our company.
But Wealth Management has its share of
challenges as well. MiUennium increased its sales by a
robust 29% in 2007, only to give the benefits of that
growth back in the form ofa serious margin decline from
39%) to 29%. A shift in carrier mix and higher payouts to
producers were the culprits. Accordingly, we restructured
our compensation arrangements with MiUennium
principals and bought out the remaining 40%o minority
interest in that business to position it for future growth
and expansion. The net effect of this is likely to be a
slight decline in Millennium earnings for 2008 as the unit
adjusts further to a lower margin structure and higher
compensation for principals and producers. Even at
these adjusted levels, however, MiUennium has been
accretive to our EPS ($.08 in 2006 and $.05 in 2007) and
gives us an important edge in high-end financial planning
and life insurance sales.
Our Trust division grew revenues by six percent
in 2007 and achieved a new record in its profitability at
$1.4 milUon pre-tax. Despite the loss of some senior
E A R N I N GS P ER S H A RE
Itl dollars (fullv diluted)
L O AN G R O W TH
Portfolio loans al year end in millions of dollars
D E P O S IT G R O W TH
Yetn-end ilt'posils in millions ofdoilars
W E A L TH
Gro.v.s- revenue in millions oj dollars
r V I A N A G E I V I E NT
07 G r o w th at 2%
5-vr CAGR ('02-'07)
at 3 6 . 0%
le.o
1-4.o
12.0
10.0
so
6 .0
fl.O
2 .0
2 0 07 A n n u al Report
people, our team persevered and continued to deliver a level of service and capability
matched by very few. In 2008, we are introducing a new pricing model, new systems, and a
new organizational design which we believe will enhance our already high service levels and
continue to raise the profitability of this key unit. We wiU continue to evaluate acquisitions in
the advisory and life insurance businesses to add to our base, and wiU be giving special
attention to generating an on-the-ground wealth management capabUity in Arizona to
augment the efforts of our bankers there. We are hopeful of receiving a new national trust
charter in 2008 under the auspices ofthe Office ofThrift Supervision to better support our
expansion. We must continue to grow our wealth management businesses to fulfiU our
mission of guiding our clients to lifetimes of financial success and to continue to increasingly
diversify our revenue and profit sources.
The past year saw advances in many other parts of our company less obvious to outside
observers. We have always had a strong track record in compliance and in regulatory relations.
This is an important dimension for any company in our industry, and we were proud again to
have received high ratings in all ofour examinations from federal and state authorities.
Our human resources department continued to distinguish itself through enhanced
recruiting support, advanced training and development programs for our people, and
strengthened infrastructure and systems.
Our Performance Management System
has been studied by others and is widely
admired. We consider it to be one of our
core competencies.
I V I A R K ET D A TA
0 2 20
E
Q.200
The finance, operations and
information technology groups not only m
absorbed the impact of two bank
acquisitions but also continued to
support major organic growrth with very
few personnel additions. They help us
set ourselves apart from competitors on
the quality of our service and the
advanced nature of our products. Our front line client service people are well served by these
teams as we strive to build our productivity and market impact.
Q ISO
X ISO
LU
Q i.»o
Z
~ 120
K BW B A NK INDEX
Rounding out an exceUent year for aU of our support areas, our marketing function
continued to bmld the awareness of our offerings through client on-boarding sessions, event
based marketing programs, and Enterprise University, which enroUed over 600 business
owners and executives this year alone. More than 3000 have attended one or more of our EU
programs since 2004. Our cUent university is considered unique in the entire industry. We also
introduced our new Lifetime Client System which is designed to enhance sales productivity
and to ensure that all clients move through our four stage client experience - from transaction,
to relationship, to partner, and to ideal status.
2 0 07 A n n u al Report
"As we have said m a ny times, ive will not
r un this business for the sake o fa quarter's or even
a year's reported earnings. We will continue to m a ke
Strategic investments a nd m a n a ge EFSCfor
long r un capital appreciation."
After a 44%) increase in 2006, our shareholders saw the price of our shares fall 27% in
2007. Certainly, with an increase of fourteen percent in net income and a three percent increase
in earnings per share, our performance would not appear to justify such a decline. Unfortunately,
our entire sector was beset with a very negative posture on the part of the broader investment
community, and our stock was caught in the vortex ofthe most violent sector rotation away
from flnancial stocks in over twenty years. While it is little solace when our price is down, it
should be noted that our superior operating fundamentals, business model, and performance
continue to help us gain premium earnings and book-value multiples when compared to most.
As we have said many times, we will not run this business for the sake of a quarter's or even a
year's reported earnings. We wiU continue to make strategic investments and manage EFSC for
long-run capital appreciation. In this way, when market conditions again become more
favorable, as they eventually will, we will be positioned to take exceptional advantage of them.
Finally, your Board also advanced considerably in 2007. Two outstanding new directors
joined the Board. Mr. Mike DeCola, President and CEO of Mississippi Lime, and Ms. Brenda
Newberry, President and CEO of The Newberry Group, were recruited. They are already bringing
their considerable insights, expertise and contacts to bear on behalf of our shareholders. All
committees were very active and were advised by first-class counsel. Paul Cahn, a long-time
director and friend of Enterprise, retired from our Board in 2007, and we thank him for his
many years of tireless and energetic service.
As we look toward 2008 and beyond, it is clear that our industry will continue to face
many challenges. Concerns about a possible recession, a bear credit cycle, continuing fallout
from the subprime debacle, and margin compression are real and will separate the best from the
rest. At this writing, unprecedented Federal Reserve rate cuts have added to the earnings pressure
as banks, including ours, struggle to reprice Uabilities quickly enough to maintain spreads.
As daunting as some of these challenges are, we believe they will also drive a flight to
quality by investors, personnel, and clients as the market will once again remind us aU of the
importance of core values and pricing to risk. Because ofour people, positioning and strategy,
we remain optimistic in this cUmate about our future. As one of our more experienced senior
executives queried recently, "Whose hand would you rather be playing right now?"
We prefer ours.
Thanks for your support for the past twenty years,
c^--t!W^^^ ^ I ^ ^ ' p^ Q . ^ ^ ^^
James J. Murphy Jr.
Lead Director
Kevin C. Eichner
President & CEO
Peter E Benoist
Chairman
Enterprise Financial Services Corp
E N T E R P R I SE S E N I OR M A N A G E M E NT
0^
K E V IN C. EICHNER
President and CEO,
Enterprise Financial
Services Corp
PETER F. BENOIST
Chairman and CEO,
Enterprise Bank & Trust
M I C H A EL D . B A L S B A U GH M I T C H E LL L. B A R IS
Clmirman, Executive
Vice President and
Chief Lending Officer,
Great Ametican Bank
Senior Vice President
and Director,
Tax Credit Lending
R O B E RT K. B A R K ER
President.
Enterprise Bank & Trust,
Eastem Jackson County
J A CK G. B A R RY
President and CEO,
Enterprise Bank & Trust,
Arizona
D E B O R AH N. B A R S T OW
Senior Vice President
and Controller
D O U G L AS N. B A U C HE
Group President,
Enterprise Bank & Trust,
St. Peters
JOSEPH J. FELD
Senior Vice President,
Information Technology
and Deposit Processing
SCOTT R. G O O D M AN
President,
Enterprise Bank & Tmst,
Clayton
J A M ES E. GRASER
President,
Enterprise Bank & Trust,
Sunset Hills
LINDA M. H A N S ON
President,
Enterprise Bank & Trust,
Kansas City Hegion
J O HN J. HEET
Senior Vice President,
Credit Administration
KENNETH M. H I TT
Senior Vice President,
Regional Retail Manager
Kansas City
iit 41 £ik ia
CRAIG G. HUSTON
President,
Enterprise Bank & Trust,
Overland Park
NICHOLAS G. KARABAS
Vice President.
Trust Advisory Services,
Enterprise Trust
T I M O T HY P. KELLEY
Senior Vice President,
Business Continuity
Planning and Facilities
JEFFREY J. KIEFFER
President and CEO,
Great American Bank
t tk t ti gik £A
J A CK A. M A N N E B A CH
Senior Vice President.
Director, Specialized
Deposit Products
S T E P H EN P. M A R SH
President a nd
Senior Credit Officer,
Enterprise Bank & Trust
S H A N N ON F. M O E N K H A US
Senior Vice President,
Trust Advisory Seruices,
Enterprise Trust
J E R RY M. M U E L L ER
SeniorVice President,
Marketing
J A M ES B. LALLY
Senior Vice President
andDirector,
Enterprise Value Lending
RICHARD C. LEUCK
Regional President,
Enterprise Bank & Trust,
St. Charles County and
Director, Bank Operations
DENNIS J. M A H ER
Group {^sident.
Enterprise Bank & Trust,
St Charles
M A RK G. M U R T HA
Senior Vice President,
H u m an Resources
R O B E RT T. O W E NS
President,
Enterprise Bank & Trust,
Plaza
S T E V EN L. R AY
President,
Enterprise Trust
FRANK H. SANFILIPPO
Executive Vice President
and ChiefFinancial Officer Enterprise Bank & Trust,
SCOTT A. TAYLOR
President,
Kansas City North
PAUL A. TYMOSKO
Chief Admimstrative Officer, President,
Enterprise Bank & Trust.
Kansas Cily Region
Enterprise Bank & Trust,
Northland Region
President,
Wealth Products Group,
Enterprise Trust
A N G E LA WASSON-HUNT M I C H A EL S. W E I S M AN
W I L L I AM L. ZELENIK
CEO.
Millennium Brokerage
Group
I A TE H E A D Q U A R T E RS
Enterprise Financial Services Corp
150 North Meramec, Suite 300, Clayton, Missouri 63105
314.725.5500, Toll-free:800.396.8141
K A N S AS C I TY R E C B I O N AL H E A D Q U A R T E RS
Enterprise Bank & Trust
12695 Metcalf Avenue, Overland Park, Kansas 66213
913.663.5525
T R U ST D I V I S I O N, K A N S AS C I TY
Enterprise Bank & Trust
Park Central Plaza 1, Suite 450
4717 Grand Avenue, Kansas City, Missouri 64112
816.714.1800
T R U ST D I V I S I O N, S T. L Q U IS
Enterprise Bank & Trust
150 North Meramec, Suite 350, Clayton, Missouri 63105
314.725.5900
i
E N T E R P R I SE B A NK & T R U ST
S U P P O RT C E N T ER
1281 North Warson Road, St. Louis, Missouri 63132
314.993.6200, Toil-Free: 800.438.0378
G R E AT A M E R I C AN B A NK
33050 West 83rd Street, DeSoto, Kansas 66018
913.585.1131
M I L L E N N I UM B R O K E R A GE G R Q UP
611 Commerce Street, Suite 2704, Nashville, Tennessee 37203
615.259.9355, Toll-Free: 800.434.1992
Shareholders are invited to address issues,
questions or concerns to the Enterprise Inves.
Relations Dept., c/o Frank Sanfilippo,
i
Executive Vice President and Chief Financial
Officer at 314.512.7214,
fsanfilippo@enterprisebank.com.
150 N. Meramec, Suite 300,
Clayton, MO 63105.
I
Shareholders can use the internet to
obtain share price and volume information,*
press releases and filings by Enterprise, its
officers and directors with the SEC by
cUcking on the Investor Relations tab on
the Enterprise home page at
I
?
the Company's trading symbol "EFSC" and
foUowing the prescribed protocol.
It should be noted that in addition to the historical
information contained herein, this Annual Report contains
forward-looking statements, which are inherently subject
to risks and uncertainties that could cause actual results to
differ materially from those contemplated from such
statements. Factors that could cause or contribute to such
differences include, but are not limited to, burdens imposed
by federal and state regulations of banks, credit risk,
exposure to local and national economic conditions, risks
associated with rapid increase or decrease in prevailing
|
interest rates, effects of mergers and acquisitions, effects ol-
critical accounting policies and judgments, legal and
regulatory developments and competition from banks and
other flnancial institutions, as well as other risk factors
described in Enterprise Financial's 2007 Annual Report
on Form 10-K. Forward-looking statements speak only as
ofthe date they are made, and the Company undertakes
no obligation to update them in light of new information
or future events.
i
,ENTERFF.ISE
BANK&TRLJST
TALENT • STRENGTH • PASSION