ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995

Readers should note that in addition to the historical information contained herein, this Form 10-Q contains forward-looking statements which are inherently subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause or contribute to such differences include, but are not limited to, the effect that changes in interest rates and our cost of funds have on our earnings and assets, our level of loan defaults and delinquencies, our ability to successfully grow and realize profits from our commercial banking operations and our strategic non-banking lines of business, concentrations of our loans in one geographic area, our ability to retain key personnel, the degree and nature of our competition, and changes in government regulation of our business, as well as those discussed in the Company's 1998 Annual Report on Form 10-K.

INTRODUCTION

The discussion summarizes the significant factors affecting the consolidated financial condition, results of operations, liquidity and cash flows of the Company for the three and nine month periods ended September 30, 1999 compared to the three and nine month periods ended September 30, 1998 and the year ended December 31, 1998. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998.

FINANCIAL CONDITION

Total assets at September 30, 1999 were $433 million, an increase of $58 million, or 15%, over total assets of $375 million at December 31, 1998. Loans and leases, net of unearned loan fees, were $378 million, an increase of $104 million, or 38%, over total loans and leases of $274 million at December 31, 1998. The increase in loans and leases is in part attributable to the Company's investment in additional business development officers. Federal funds sold and investment securities were $31 million, a decrease of $30 million, or 49%, from total federal funds sold and investment securities of $61 million at December 31, 1998. The decrease resulted from the shift in earnings assets from short-term investments into loans during the first nine months of 1999.

Total deposits at September 30, 1999 were $387 million, an increase of $48 million over total deposits of $339 million at December 31, 1998.

Total shareholders' equity at September 30, 1999 was $31.7 million, an increase of $2.5 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 $2.5 million for the nine months ended September 30, 1999, and the exercise of incentive stock options by employees, less dividends paid to shareholders.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income was $1,035,328 for the three month period ended September 30, 1999, an increase of 33% over net income of $776,920 for the same period in fiscal 1998. Basic earnings per share for the three-month periods ended September 30, 1999 and 1998 were $0.14 and $0.11, respectively. Diluted earnings per share for the three-month periods ended September 30, 1999 and 1998 were $0.13 and $0.10, respectively.

NET INTEREST INCOME

Net interest income (presented on a tax equivalent basis) was $4.8 million, or 4.88% of average earnings assets, for the three months ended September 30, 1999, compared to $3.6 million, or 4.62% of average earning assets, for the same period in 1998. The $1,240,000, or 35%, increase in net interest income for the three months ended September 30, 1999 resulted primarily from an $86 million increase in average earnings assets to $393 million, from $307 million during the same period in 1998. This increase in earning asset balances was offset by a decrease in the earning asset yield from 8.69% to 8.51%. The increase in 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. The yield on average earning assets decreased to 8.51% for the three month period ended September 30, 1999 compared to 8.69% for the three month period ended September 30, 1998. The decrease in asset yield was primarily due to a general decline in the Prime rate during the twelve-month period ended September 30, 1999. The 0.18% decrease in the earning asset yield is also attributable to a general decrease in the average yield on loans. The increase in net interest income was offset by a $72 million increase in average interest-bearing liabilities to $324 million for the three months ended September 30, 1999 from $252 million during the same period in 1998. The yield on interest-bearing liabilities decreased to 4.40% for the three months ended September 30, 1999 compared to 4.96% for the same period in 1998. This decrease is attributed to the above-mentioned decline in the Prime rate and a change in the mix of interest-bearing liabilities from higher yielding certificates of deposits to lower yielding transaction and 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 the three month periods ended September 30, 1999 and 1998:

                                                             Three Months Ended September 30,
                                     -----------------------------------------------------------------------
----------
                                                       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 <F1>                       $358,642      86.43%    $7,992     8.84%  $256,422      77.79%    $6,005
9.29%
   Taxable investments in debt
     securities                       15,062       3.63        195     5.14     14,754       4.48        205
5.51
   Non-taxable investments in
     debt securities <F2>                638       0.15         10     6.28        663       0.20         11
6.59
   Federal funds sold                 18,483       4.45        233     5.00     35,242      10.69        508
5.72
   Interest earning deposits              31       0.01          0     3.74        131       0.04          2
6.05
                                    --------     ------     ------            --------     ------     ------
Total interest-earning assets        392,856      94.67      8,430     8.51    307,211      93.19      6,731
8.69
Non-interest-earning assets:
   Cash and due from banks            16,287       3.93                         17,887       5.43
   Office equipment and
     leasehold improvements            3,302       0.80                          2,889       0.88
   Prepaid expenses and other
     assets                            6,010       1.45                          4,713       1.43
   Allowance for possible
     loan losses                      (3,513)     (0.85)                        (3,048)     (0.92)
                                    --------     ------                       --------     ------
   Total assets                     $414,942     100.00%                      $329,652     100.00%
                                    ========     ======                       ========     ======

Liabilities and
Shareholders' Equity
--------------------
Interest-bearing liabilities:
   Interest-bearing transaction
     accounts                       $ 26,182       6.31%      $131     1.98%  $ 20,321       6.16%    $  139
2.71%
   Money market                      187,338      45.15      2,043     4.33    123,999      37.62      1,457
4.66
   Savings                             1,754       0.42         11     2.47      1,534       0.47          9
2.33
   Certificates of deposit            98,730      23.79      1,277     5.13    106,501      32.31      1,547
5.76
   Notes payable                       3,233       0.78         48     5.87         --         --         --
--
   Federal Home Loan Bank advances     7,046       1.70         86     4.86         --         --         --
--
   Federal funds purchased               109       0.03          2     5.47         --         --         --
--
                                    --------     ------     ------            --------     ------     ------
Total interest-bearing
  liabilities                        324,392      78.18      3,598     4.40    252,354      76.55      3,152
4.96
Noninterest-bearing liabilities:
   Demand deposits                    57,945      13.96                         48,008      14.56
   Other liabilities                   1,147       0.28                          1,167       0.35
                                    --------     ------                       --------     ------
   Total liabilities                 383,484      92.42                        301,530      91.47
   Shareholders' equity               31,458       7.58                         28,121       8.53
                                    --------     ------                       --------     ------
   Total liabilities and
     shareholders' equity           $414,942     100.00%                      $329,652     100.00%
                                    ========     ======                       ========     ======
Net interest income                                         $4,832                                    $3,579
                                                            ======                                    ======
      Net interest margin                                              4.88%
4.62%

---------------------------------------
<F1>  Average balances include non-accrual loans.  The income on such loans is
      included in interest but is recognized only upon receipt.
      Loan fees included in interest income are approximately $265,000 and
      $160,000, for 1999 and 1998, respectively.

<F2>  Non-taxable investment income is presented on a fully tax-equivalent
      basis assuming a tax rate of 34%.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income was $2,707,365 for the nine month period ended September 30, 1999, an increase of 29% over net income of $2,102,815 for the same period in fiscal 1998. Basic earnings per share for the nine-month periods ended September 30, 1999 and 1998 were $0.38 and $0.30, respectively. Diluted earnings per share for the nine-month periods ended September 30, 1999 and 1998 were $0.35 and $0.28, respectively.

NET INTEREST INCOME

Net interest income (presented on a tax equivalent basis) was $12.8 million, or 4.70% of average earnings assets, for the nine months ended September 30, 1999, compared to $10.0 million, or 4.72% of average earning assets, for the same period in 1998. The $2.8 million, or 29% increase, in net interest income for the nine months ended September 30, 1999 resulted primarily from an $84 million increase in average earnings assets to $366 million, from $282 million during the same period in 1998. This increase in earning asset balances was offset by a 0.44% decrease in the earning asset yield from 8.80% to 8.36%. The increase in 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. The yield on average earning assets decreased to 8.36% for the nine month period ended September 30, 1999 compared to 8.80% for the nine month period ended September 30, 1998. The decrease in asset yield was primarily due to a general decline in the Prime rate during the twelve-month period ended September 30, 1999. The 0.44% decrease in the earning asset yield is also attributable to a general decrease in average yield on loans. The increase in net interest income was offset by a $73 million increase in average interest-bearing liabilities to $304 million for the nine months ended September 30, 1999 from $231 million during the same period in 1998. Eight million of the $73 million increase in interest-bearing liabilities represents an increase in notes payable and Federal Home Loan Bank advances as of September 30, 1999 as compared to September 30, 1998. The yield on interest-bearing liabilities decreased to 4.40% for the nine months ended September 30, 1999 compared to 4.99% for the same period in 1998. This decrease is attributable to the above-mentioned declines in the Prime rate and a concerted effort by management to decrease the interest paid on deposits.

The following table sets forth, on a tax-equivalent basis, certain information relating to the Company's average balance sheet and reflects the average yield earned on interest-earning assets, the average cost of interest-bearing liabilities and the resulting net interest income for the nine month periods ended September 30, 1999 and 1998:

                                                              Nine Months Ended September 30,
                                     -----------------------------------------------------------------------
----------
                                                       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 <F1>                       $326,216      83.60%   $21,378     8.76%  $244,765      80.93%   $17,023
9.30%
   Taxable investments in debt
     securities                       19,422       4.98        758     5.22     11,866       3.92        497
5.60
   Non-taxable investments in
     debt securities <F2>                611       0.16         29     6.37        602       0.20         30
6.66
   Federal funds sold                 19,542       5.01        696     4.76     24,954       8.25      1,031
5.52
   Interest earning deposits              20       0.01          0     2.95        126       0.04          5
5.30
                                    --------     ------    -------            --------     ------    -------
Total interest-earning assets        365,811      93.76     22,861     8.36    282,313      93.35     18,586
8.80
Non-interest-earning assets:
   Cash and due from banks            18,979       4.86                         15,967       5.28
   Office equipment and
     leasehold improvements            3,135       0.80                          2,562       0.85
   Prepaid expenses and other
     assets                            5,613       1.44                          4,519       1.49
   Allowance for possible
     loan losses                      (3,356)     (0.86)                        (2,924)     (0.97)
                                    --------     ------                       --------     ------
   Total assets                     $390,182     100.00%                      $302,438     100.00%
                                    ========     ======                       ========     ======

LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Interest-bearing liabilities:
   Interest-bearing transaction
     accounts                        $26,085       6.69%   $   363     1.86%  $ 20,437       6.76%   $   413
2.70%
   Money market                      171,058      43.84      5,527     4.32    106,485      35.21      3,721
4.67
   Savings                             1,696       0.43         31     2.47      1,486       0.49         27
2.43
   Certificates of deposit            97,107      24.89      3,789     5.22    102,261      33.81      4,455
5.82
   Notes payable                       1,372       0.35         51     5.00         --         --         --
--
   Federal Home Loan Bank advances     6,741       1.73        245     4.86         --         --         --
--
   Federal Funds Purchased                37       0.01          2     5.83         --         --         --
--
                                    --------     ------    -------            --------     ------    -------
Total interest-bearing
  liabilities                        304,096      77.94     10,008     4.40    230,669      76.27      8,616
4.99
Noninterest-bearing liabilities:
   Demand deposits                    54,536      13.98                         43,377      14.34
   Other liabilities                     997       0.25                          1,081       0.36
                                    --------     ------                       --------     ------
   Total liabilities                 359,629      92.17                        275,127      90.97
   Shareholders' equity               30,553       7.83                         27,311       9.03
                                    --------     ------                       --------     ------
   Total liabilities and
     shareholders' equity           $390,182     100.00%                      $302,438     100.00%
                                    ========     ======                       ========     ======
Net interest income                                        $12,853                                   $ 9,970
                                                           =======                                   =======
Net interest margin                                                    4.70%
4.72%

--------------
<F1>  Average balances include non-accrual loans.  The income on such loans is
      included in interest but is recognized only upon receipt.
      Loan fees included in interest income are approximately $774,000 and
      $462,000, for 1999 and 1998, respectively.

<F2>  Non-taxable investment income is presented on a fully tax-equivalent
      basis assuming a tax rate of 34%.

PROVISION FOR POSSIBLE LOAN LOSSES

The provision for possible loan losses was $446,000 and $684,000 for the three-month and nine-month periods ended September 30, 1999, respectively, compared to $121,000 and $642,000 for the same periods in 1998. The Company's asset quality remained strong with net recoveries of $16,000 for the nine months ended September 30, 1999 compared to net charge-offs of

$23,000 for the same period in 1998. Loan growth remained strong during the first nine months of 1999, exceeding the Company's expectations. Due to the strong growth in the loans in the third quarter, the Company increased the reserve for possible loan losses by charging provision expense $446,000. The increase in provision expense in the third quarter of 1999 as compared to the same period in 1998 was made to maintain an appropriate level of loan loss reserve to loans. Such increases were not due to asset quality concerns.

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:

                                                                   Nine Months Ended
                                                                     September 30,
                                                               --------------------------
                                                                 1999              1998
                                                               --------          --------
                                                                 (Dollars in Thousands)
Allowance at beginning of year                                 $  3,200          $  2,510
Loans charged off:
   Commercial and industrial                                         --                30
   Real estate:
       Commercial                                                    15                19
       Construction                                                  --                --
       Residential                                                   --                --
   Consumer and other                                                --                --
                                                               --------          --------
   Total loans charged off                                           15                49
                                                               --------          --------
Recoveries of loans previously charged off:
   Commercial and industrial                                         --                18
   Real estate:
       Commercial                                                    18                 8
       Construction                                                  11                --
       Residential                                                   --                --
   Consumer and other                                                 2                --
                                                               --------          --------
   Total recoveries of loans previously charged off                  31                26
                                                               --------          --------
Net loans (recovered) charged off                                   (16)               23
                                                               --------          --------
Provisions charged to operations                                    684               642
                                                               --------          --------
Allowance at end of period                                     $  3,900          $  3,129
                                                               ========          ========

Average loans                                                  $326,216          $244,765
Total loans                                                    $377,690          $262,101
Nonperforming loans                                            $    319          $    108

Net charge-offs to average loans                                   0.00%             0.01%
Allowance for possible loan losses to loans                        1.03%             1.19%
Allowance for possible loan losses to
  non-performing loans                                              N/M               N/M

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. 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 in 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 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 a detailed list of loans on the watch list and summaries of the entire loan portfolio categorized by risk rating. These are coupled with an analysis of changes in the risk profiles of the portfolios, changes in past due and non-performing 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 non-accrual, past due or restructured loans if such assets were loans.

Management believes the allowance for loan losses is adequate to absorb losses in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to increase the allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examinations.

While the Company has benefited from very low historical net charge-offs during an extended period of rapid loan growth, management remains cognizant that historical loan loss and non-performing asset experience may not be indicative of future results. Were the experience to deteriorate, and additional provisions for loan losses were required, future operational 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.

The following table sets forth information concerning the Company's non-performing assets as of the dates indicated:

                                                             September 30,      December 31,
                                                                  1999              1998
                                                             -------------      ------------
                                                                 (Dollars in Thousands)
Non-accrual loans                                              $    319          $      2
Loans past due 90 days or more
   and still accruing interest                                       --                --
Restructured loans                                                   --                --
                                                               --------          --------
   Total nonperforming loans                                        319                 2
Foreclosed property                                                 806               806
                                                               --------          --------
Total non-performing assets                                    $  1,125               808
                                                               ========          ========

Total assets                                                   $432,807          $375,304
Total loans                                                    $377,690          $273,818
Total loans plus foreclosed property                           $378,496          $274,624

Nonperforming loans to loans                                       0.08%             0.00%
Nonperforming assets to loans plus
   foreclosed property                                             0.30%             0.29%
Nonperforming assets to total assets                               0.26%             0.22%

NONINTEREST INCOME

Noninterest income was $807,000 and $1,785,000 for the three month and nine month periods ended September 30, 1999, respectively, compared to $431,000 and $1,293,000 for the same periods in 1998. The increase is primarily attributable to increased service charges on deposit accounts and financial advisory fees. Service charges on deposit accounts were $182,000 and $450,000 for the three month and nine month periods ended September 30, 1999, respectively, compared to $70,000 and $182,000 for the same periods in 1998. The increase in service charges is due to a concerted effort by the Company's management to alter service charges and other fees to stay competitive in the marketplace. Financial advisory and Trust fees were $453,000 and $543,000 for the three month and nine month periods ended September 30, 1999, respectively as compared to $0 for the same periods in 1998. The Company began offering financial advisory and trust services in October 1998. The above mentioned increases were offset by a $101,000 and $197,000 decrease in the gain on the sale of mortgage loans for the three month and nine month periods ended September 30, 1999 compared to the same periods ended September 30, 1998. This decrease is due to an increase in interest rates during the last half of the year in 1998 and throughout 1999. Over half of the gain on sale of mortgage loans for the three and nine month periods ended September 30, 1998 were due to refinancing. The demand for mortgage loans dramatically decreased with the rise in interest rates.

NONINTEREST EXPENSE

Noninterest expense was $3.5 million and $9.8 million for the three month and nine month periods ended September 30, 1999 respectively, compared to $2.6 million and $7.2 million for the same periods in 1998. The increase is primarily due to increases in salaries and benefits expense, occupancy and equipment expense and other operating expenses. Increases in salaries and benefits and occupancy and equipment expenses are primarily due to: 1) the personnel, occupancy and equipment expenses for the new trust and financial planning operations initiated in late 1998; 2) salaries

and benefits related to continued growth in the banking facilities opened in 1996; and 3) normal increases associated with growth. Expenses related to other operations were $1,557,006 and $4,083,340 for the three month and nine month periods ended September 30, 1999, respectively, an increase of $361,827, or 30%, and $706,051 or 21% over the three month and nine month periods ended September 30, 1998. This increase is attributed to normal operating expenses associated with growth.

The following is a breakdown of noninterest expenses by the above units:

                                            Three months ended September 30,        Nine months ended
September 30,
                                                    1999 versus 1998                       1999 versus 1998
                                          -----------------------------------   ----------------------------
---------
                                           $ Change       1999        1998        $ Change       1999
1998
                                          ---------   ----------   ----------   -----------   ----------   -
---------
Merchant Banking Division                 $(68,399)   $   80,324   $  148,723   $  (19,965)   $  412,764   $
392,799
St. Peters and Sunset Hills
  banking units                            358,036     1,406,413    1,048,377    1,080,766     3,909,762
2,828,996
Mortgage operations                         29,222       194,163      164,941      128,721       657,792
529,071
Enterprise Financial Advisors              250,471       304,716       54,245      684,258       748,648
64,390
Other operations                           343,827     1,539,006    1,195,179      706,051     4,083,340
3,377,289
                                          --------    ----------   ----------   ----------    ----------   -
---------
Total noninterest expense                 $913,157    $3,524,622   $2,611,465   $2,619,761    $9,812,306
$7,192,545
                                          ========    ==========   ==========   ==========    ==========
==========

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 Company's State of Readiness:

The Company has developed a Y2K compliance program with five primary phases. These are: 1) Awareness, 2) Assessment, 3) Renovations, 4) Validation and
5) Implementation. As of September 30, 1999 all five phases were complete and all systems have been reviewed for Y2K compliance. The scope of the Assessment phase included all areas of technology for the Company and its subsidiaries including, but not limited to, the phone system, voice mail system, computer network, banking mainframe and related software. The Company completed its contingency plan related to Y2K on June 30, 1999. Contingency plan training is currently underway and will be completed by November 30, 1999. The Company feels its primary Y2K exposure is in its core banking software, which is leased from a third party bank software vendor providing the same software to hundreds of other banks. This vendor is working closely with the Company to address any Y2K issues that may be discovered and has indicated to the Company that there should be no material Y2K problems.

The Cost of Y2K Compliance:

The total cost to the Company to assess, correct and verify Y2K issues is estimated at $103,000, consisting of $45,000 in salaries and benefit costs allocated to Y2K projects and $58,000 in software and hardware expenses required for upgrading and testing of the Company's systems. This cost estimate does not include the cost associated with regulatory reporting, legal review of regulatory requirements, auditing requirements or other costs incurred related only to the disclosure requirements and not actual software or hardware issues. Such costs are difficult to determine as these requirements change frequently. If these non-systems related costs become significant and quantifiable, they will be disclosed at that time.

What Risks Exist for the Company:

The most likely risk the Company faces with respect to Y2K issues is in the core banking software. This system identifies and calculates payments due the Company's subsidiary bank for loans made to customers and amounts due to the bank's customers for deposits. 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.

Contingency Plans:

Management believes the Company will be Y2K compliant by December 31, 1999. The Company is currently testing its contingency plans. However, as a precautionary measure, the Company will create electronic and paper based reports of every account as a back up. The back up reports will include the necessary information to calculate balance and payment information. If necessary, the electronic version of this information can be used by other common software applications such as Lotus 1-2-3 or Microsoft Excel to perform many of the calculations performed by the bank's core software system. The back up reports can also be used to manually calculate customer information indefinitely if needed. Training for bank personnel on the contingency plan is currently underway and should be completed by November 30, 1999.

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, deposit inflows, proceeds from borrowings, and retained earnings.

The Company's deposit growth has not kept pace with the loan growth. Loan growth far exceeded the Company's initial expectations, which caused a decrease in short term assets as they were converted into loans. The Company monitors its liquidity on an ongoing basis. The Company is making a concerted effort to increase deposits through calling efforts and additional certificates of deposits from the national network of time depositors. As an additional precaution for Y2K liquidity, the Bank obtained a line of credit from the Federal Reserve for $114 million.

Since inception, the Company has experienced rapid loan and deposit growth primarily due to the aggressive direct calling efforts of the Company's relationship officers and sustained economic growth in the local market served by the Company. Management has pursued privately held businesses who desire a close working relationship with a locally managed, full service bank. Due to the relationships developed with these customers, management views deposits from this source as a stable deposit base. Additionally, the Company belongs to a national network of time depositors (primarily credit unions) which places time deposits with the Company, typically in increments of $99,000. The Company has used this source of deposits for over four years and considers it to be a stable source of deposits enabling the Company to acquire funds at a cost below its alternative cost of funds. There were $21 million and $29 million of deposits from the national network with the Company at September 30, 1999 and December 31, 1998, respectively.

The following table sets forth the amount and maturity of certificates of deposit that had balances of more than $100,000 at September 30, 1999:

       Remaining Maturity                          Amount
---------------------------------------          ----------
                (Dollars in Thousands)
Three months or less                              $13,811
Over three through six months                       9,964
Over six through twelve months                     16,225
Over twelve months                                  2,068
                                                  -------
                                                  $42,068
                                                  =======

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

In March 1999, the Company obtained a $2,500,000 unsecured line of credit from Jefferson Bank and Trust. 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 outstanding principal balance on the loan as of September 30, 1999 was $5,000,000. The Company used a portion of the proceeds from the Preferred Securities offering to pay off this debt.

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, (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 less purchased mortgage servicing rights to 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:

                                                                                                     To Be
Well

Capitalized Under
                                                                          For Capital             Prompt
Corrective
                                                   Actual              Adequacy Purposes          Action
Provisions
                                           --------------------       --------------------       -----------
---------
                                             Amount      Ratio          Amount       Ratio         Amount
Ratio
                                           -----------   ------       -----------    -----       -----------
------
At September 30, 1999:
    Total Capital
      (to Risk Weighted Assets)
         Enterbank Holdings, Inc.          $35,899,551    9.28%       $30,955,445    8.00%       $38,694,307
10.00%
         Enterprise Bank                   $38,448,483   10.00%       $30,771,766    8.00%       $38,464,707
10.00%
    Tier I Capital
      (to Risk Weighted Assets)
         Enterbank Holdings, Inc.          $31,999,551    8.27%       $15,477,723    4.00%       $23,216,584
6.00%
         Enterprise Bank                   $34,548,483    8.98%       $15,385,883    4.00%       $23,078,824
6.00%
    Tier I Capital
      (to Average Assets)
         Enterbank Holdings, Inc.          $31,999,551    7.51%       $11,705,461    3.00%       $19,509,102
5.00%
         Enterprise Bank                   $34,548,483    8.89%       $11,664,785    3.00%       $19,441,308
5.00%

At 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 I 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 I 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%

EFFECT OF INFLATION

Changes in interest rates may have a significant impact on a commercial bank's performance because virtually all assets and liabilities of commercial banks are monetary in nature. 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.

PART II- ITEM 4
Submissions of Matters to a Vote of Security Holders

A Special Meeting of Shareholders of the Company was held on September 29, 1999. A proposal to amend the Company's Certificate of Incorporation to increase the authorized shares of the Company's common stock, par value $.01 per share, from 3,500,000 shares to 20,000,000 shares, was approved. Of the 2,380,212 shares entitled to vote at such meeting, 2,039,693 shares were present at the meeting in person or by proxy. At the meeting, 2,014,445 votes were cast in favor of the amendment, 17,498 votes were cast against the amendment and 7,750 votes abstained or were withheld.