10-K

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, 2005
o	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 001-15373

ENTERPRISE FINANCIAL SERVICES CORP

Incorporated in the State of Delaware
I.R.S. Employer Identification # 43-1706259
Address: 150 North Meramec
Clayton, MO  63105
Telephone: (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 checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No   x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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   o

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 this Form 10K.   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer:   o               Accelerated filer:   x               Non-accelerated filer:   o

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act
Yes o    No   x

The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $225,413,717, based on the closing price of the common stock of $26.50 on February 22, 2006, as reported by the NASDAQ National Market.

As of February 22, 2006, the Registrant had outstanding 10,469,029 of outstanding common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required for Part III of this report is incorporated by reference to the Registrant’s Proxy Statement for the 2006 Annual Meeting of Shareholders.

ENTERPRISE FINANCIAL SERVICES CORP
2005 ANNUAL REPORT ON FORM 10-K

		Page
Part I
Item 1:	Business	1
Item 1A:	Risk Factors	6
Item 1B:	Unresolved SEC Comments	8
Item 2:	Properties	8
Item 3:	Legal Proceedings	8
Item 4:	Submission of Matters to Vote of Security Holders	8
Part II
Item 5:	Market for Common Stock and Related Stockholder Matters and Issuer Purchase of Equity Securities	9
Item 6:	Selected Financial Data	10
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8:	Financial Statements and Supplementary Data	36
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36
Item 9A:	Controls and Procedures	36
Item 9B:	Other Information	36
Part III
Item 10:	Directors and Executive Officers of the Registrant	37
Item 11:	Executive Compensation.	37
Item 12:	Security Ownership of Certain Beneficial Owners and Management	37
Item 13:	Certain Relationships and Related Party Transactions	37
Item 14:	Principal Accountant Fees and Services	37
Part IV
Item 15:	Exhibits, Financial Statement Schedules	38
	Management’s Report on Internal Control over Financial Reporting	39
	Report of Independent Registered Public Accounting Firm	40
	Consolidated Financial Statements	42
Signatures		72
Exhibit Index		73

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 Enterprise Financial Services Corp’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, including changes in accounting regulation or standards; of banks, credit risk; exposure to general and local economic conditions; risks associated with rapid increase or decrease in prevailing interest rates; consolidation within the banking industry; competition from banks and other financial institutions; and technological developments; all of which could cause Enterprise Financial Services Corp’s actual results to differ from those set forth in the forward-looking statements.

PART I

ITEM 1: BUSINESS

General
Enterprise Financial Services Corp (“EFSC” or “the Company”), a Delaware corporation, is a financial holding company headquartered in St. Louis, Missouri.  At December 31, 2005, our wholly owned subsidiary, Enterprise Bank & Trust (“Enterprise” or “the Bank”), a Missouri chartered trust company with banking powers, was the largest publicly held bank, in asset size, headquartered in St. Louis, Missouri, with $1.3 billion in assets.  Enterprise is a regional bank primarily serving the St. Louis and Kansas City metropolitan areas.

The Company’s stated mission is “to guide our clients to a lifetime of financial success.”  We have established an accompanying corporate vision “to build an exceptional company that clients value, shareholders prize and where our associates flourish.”   These tenets are fundamental to the Company’s business strategies and operations.

Enterprise is highly focused on serving the needs of private businesses, their owner families and other professionals.  This is achieved through two primary lines of business: commercial banking and wealth management.  We compete with full product lines in each line of business.  We believe our technology combined with the associates who deliver products and services to our clients offer meaningful advantages in product value, product selection and customer service, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability.

The commercial banking line of business offers a broad range of business and personal banking services.  Lending services include commercial, commercial real estate, financial and industrial development, real estate construction and development, residential real estate, and consumer loans.  A variety of deposit products and a complete suite of treasury management services supplement our lending capabilities.

The wealth management line of business provides fee-based corporate and personal financial consulting, advisory and trust services to our target market.  Corporate consulting services are focused in the areas of retirement plans, management compensation and management succession planning.  Personal financial consulting includes estate planning, investment management, and retirement planning.  On October 21, 2005, we acquired controlling interest in Millennium Brokerage Group, LLC (“Millennium”), a life insurance advisory and brokerage operation serving life agents, banks, CPA firms, property and casualty groups and financial advisors.  Millennium’s capabilities, market reach and industry presence significantly enhances our wealth management product line and opens new wholesale marketing opportunities for the Company while strengthening our fee income sources.

Our executive offices are located at 150 North Meramec, Clayton, MO 63105 and our telephone number is (314) 725-5500.

Available Information
The Company’s Internet website is www.enterprisebank.com.  We make available free of charge on or through our website, various reports that we file with or furnish to the Securities and Exchange Commission (“SEC”), including our annual reports, quarterly reports, current reports and proxy statements.  These reports are made available as soon as reasonably practicable after they are filed with or furnished to the SEC. 

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Acquisition
On October 13, 2005, the Company through its new wholly-owned subsidiary, Millenium Holding Company, Inc., executed a Membership Interest Purchase Agreement providing for the acquisition of Millennium.   Millennium is headquartered in Nashville, Tennessee and operates life insurance advisory and brokerage operations from thirteen offices serving life agents, banks, CPA firms, property & casualty groups, and financial advisors in 49 states.  The transaction is structured as a step acquisition with an initial payout of $15 million, 65% cash and 35% company stock, for 60% of Millennium’s membership interests with two subsequent payouts in years 2008 and 2010 for the remaining interests. The consideration mix between stock and cash for subsequent payouts are at the Company’s discretion with a maximum of 70% stock.   Future payouts are conditioned upon certain pre-tax income performance targets up to a maximum of $36 million, inclusive of the initial $15 million payout. EFSC is contractually entitled to a priority return on its investment of 23.1% (pre-tax) before additional distributions to the Millennium principals.  Please refer to the Form 8-K filed by the Company on October 13, 2005 for more information.  Additional information can also be found in Note 2 to the consolidated financial statements later in this document.  The transaction closed on October 21, 2005.

Business Strategy
Our general business strategy is to generate superior shareholder returns by concentrating on private businesses, their owner families and other success-minded individuals through our banking and wealth management lines of business.

Key success factors in pursuing this strategy include a focused and relationship oriented direct and wholesale distribution and sales approach, emphasis on growing wealth management revenues, aggressive credit and interest rate risk management, advanced technology and tightly managed expense growth. 

Building long-term client relationships – The Bank’s historical growth strategy has been both client and asset driven.  The Bank continuously seeks to add clients who fit our target market of business owners and associated families.  Those relationships are maintained, cultivated and expanded over time.  This strategy enables the Bank to attract clients with significant and growing borrowing needs, in tandem with the Bank’s increasing capacity to fund client loan requests.  The Bank’s officers are typically highly experienced and trained to establish and develop long-term relationships.  As a result of its long-term relationship orientation, the Bank is able to fund loan growth primarily with core deposits from its business and professional clients.  This is supplemented by borrowing from the Federal Home Loan Bank, and by issuing brokered certificates of deposits, priced at or below the Bank’s alternative cost of funds. 

Growing wealth management business – Enterprise Trust, a division of the Bank, has grown to $1.4 billion in assets under administration in 7 years by offering primarily fiduciary and financial advisory services.  We staff a full complement of attorneys, certified financial planners, estate planning professionals, as well as, other investment professionals who offer a broad range of services for business owners and other high net worth individuals.  Employing an intensive, personalized methodology, Enterprise Trust representatives assist clients in defining lifetime goals and building plans for achieving them. Consistent with the Company’s long-term relationship strategy, Trust representatives maintain close contact with clients ensuring follow up, discipline, and appropriate adjustments as circumstances change.  The results have been excellent, as measured by client satisfaction, rapid growth, and contributions to Company earnings.

Capitalizing on technology – We view our technological capabilities to be a competitive advantage.  Our systems provide Internet banking, expanded treasury management products, checks and document imaging, as well as a 24-hour voice response system.  Other services currently offered by the Bank include controlled disbursements, repurchase agreements and sweep investment accounts.  Our treasury management suite of products blends advanced technology and personal service, often creating a competitive advantage over larger, nationwide banks. Technology is also utilized extensively in internal systems, operational support functions to improve customer service and management reporting and analysis.

Maintaining asset quality and controlling interest rate risk – Our asset quality is monitored through regular reviews of loans by the loan officers.  In addition, the loan portfolio is subject to ongoing monitoring by a loan review officer who reports directly to the audit committee of our board of directors.  At December 31, 2005, our ratio of non-performing loans to total loans was 0.12%, compared to 0.20% at December 31, 2004, which is significantly better than industry standards.

The Bank’s investment policy is designed to enhance its net income and return on equity through: prudent management of risk; ensuring liquidity to meet cash-flow requirements; managing interest rate risk: ensuring availability of collateral for public deposits, advances and repurchase agreements; and to seek asset diversification.  Through our Asset/Liability Management Committee (“ALCO”), Bank liquidity is managed by structuring the maturity dates of investments to maintain an appropriate relationship between assets and liabilities while maximizing interest rate spreads.

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Accordingly, the ALCO monitors the sensitivity of assets and liabilities with respect to changes in interest rates and maturities and directs the overall acquisition and allocation of funds.  ALCO also utilizes derivative financial instruments to assist in the management of interest rate sensitivity by modifying the re-pricing, maturity and option characteristics of certain assets and liabilities.

Expense management – The Company is focused on leveraging its current expense base and measures the “efficiency ratio” as a benchmark for improvement.  The efficiency ratio is equal to noninterest expense divided by total revenue (net interest income plus noninterest income).  This ratio was 64% in 2005, improved from 67% in 2004.  Continued improvement is targeted to maintain strong earnings per share growth and generate higher returns on equity.

Wholesale distribution opportunities – Historically, we have distributed products and services directly to clients through local offices of the Bank.  However, the application of newer technologies to new Bank products and services, such as Health Savings Accounts, has enabled us to pursue a wholesale distribution strategy to complement our direct operations.  In a wholesale arrangement, Enterprise distributes products and services indirectly to clients through an intermediary, such as another bank, financial services firm, advisor or Company subsidiary.   

Our recent acquisition of Millennium is one example of how we are executing our wholesale strategy.  Millennium provides life insurance products and related consulting services to other independent life insurance agents, CPA firms, banks, property & casualty insurance agents and financial advisors.  Millennium is expected to generate substantial fee income and also to serve as an additional distribution platform for trust and banking services.

Market Areas and Approach to Geographic Expansion
In the St. Louis metropolitan area, the Bank has facilities in Clayton, St. Peters, St. Charles and Sunset Hills, Missouri.  The Bank also has facilities in Johnson County, Kansas and an office in the Country Club Plaza district in Kansas City, Missouri.  The Company chose to locate in each of these markets based on high growth potential, high concentration of closely-held businesses and the large number of professionals and executives.

• The St. Louis region enjoys a stable, diverse economic base and is ranked the 18^th largest MSA in the United States.  It is an attractive environment for us with nearly 60,000 privately held businesses and over 80,000 households with investible assets of $1 million or more.  As noted previously, we are the largest publicly-held, locally headquartered bank in this market.

• Kansas City is also a rich private company market with over 48,000 businesses and over 54,000 households with investible assets of $1 million or more.  Over the past five years, the Bank’s Kansas City region locations have grown 400% to $225 million in assets, making Enterprise one of the fastest growing banks in the market.

The Company, as part of its expansion effort, plans to continue its strategy of operating relatively fewer offices with a larger asset base per office, emphasizing commercial banking and wealth management and employing experienced staff who are compensated on the basis of performance and customer service.   In addition, we are now employing a national wholesale strategy made possible by the Millennium distribution platform.

Competition
The Company and its subsidiaries operate in highly competitive markets.  Our geographic markets are served by a number of large multi-bank holding companies with substantial capital resources and lending capacity.  Many of the larger banks have established specialized units, which target private businesses and high net worth individuals.  In addition, both the St. Louis and Kansas City markets are experiencing an increase in de novo banks, which have either opened or are in the application stage.  In addition to other financial holding companies and commercial banks, we compete with credit unions, investment managers, brokerage firms, money managers and other providers of financial services and products. 

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 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 create 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.

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Millennium and the investment management industry in general are subject to extensive regulation in the United States at both the federal and state level, as well as by self-regulatory organizations such as the National Association of Securities Dealers, Inc. (“NASD”).  The Securities and Exchange Commission is the federal agency that is primarily responsible for the regulation of investment advisers.   Millennium is licensed to sell insurance, including variable insurance policies, in various states and is subject to regulation by the NASD.  This regulation includes supervisory and organizational procedures intended to assure compliance with securities laws including qualification and licensing of supervisory and sales personnel, and rules designed to promote high standards of commercial honor and just and equitable principles of trade.

The Holding Company
The Company is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”).  As a financial holding company, the Company is subject to regulation and examination by the Federal Reserve Board, and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require.  In order to remain a financial holding company, the Company must continue to be considered well managed and well capitalized by the Federal Reserve and have at least a “satisfactory” rating under the Community Reinvestment Act.  See “Capital Resources” in the Management Discussion and Analysis for more information on our capital adequacy and “The Bank – Community Reinvestment Act” below for more information on Community Reinvestment.

Acquisitions: With certain limited exceptions, the BHCA requires every financial holding company or 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.

Permissible Activities: The Gramm-Leach-Bliley Act of 1999 (“GLBA”) eliminates many of the restrictions placed on the activities of certain qualified financial or bank holding companies.  A financial holding company such as EFSC can expand into wide variety of financial services, including securities activities, insurance and merchant banking without the prior approval of the Federal Reserve. 

Privacy Regulation: GLBA also imposes restrictions on the Company and the Bank 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 Company and the Bank policies and practices regarding data sharing with affiliated and non-affiliated parties.

Source of Strength; Cross-Guarantee.  In accordance with Federal Reserve policy, we are expected to act as a source of financial strength to the Bank and to commit resources to support the Bank.  The Federal Reserve takes the position that in implementing this policy, it may require us to provide financial support when we otherwise would not consider ourselves able to do so. 

Sarbanes-Oxley Act.  On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (“SOX”).  The stated goals of SOX are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.  The proposed changes are intended to allow shareholders to monitor the performance of companies and directors more easily and efficiently.

SOX generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC under the Securities Exchange Act of 1934 and includes specific additional disclosure requirements and new corporate governance rules.  The Act addresses, among other matters, (i) certification of financial statements by the chief executive officer and the chief financial officer, (ii) management assessment of internal controls with the issuer’s auditor attesting to and reporting on such assessment, (iii) the forfeiture of certain bonuses in the event of a restatement of financial results.  In addition, public companies whose securities are listed on a national securities exchange must satisfy the following additional requirements: (i) the company’s audit committee must appoint and oversee the company’s auditors, (ii) each member of the company’s audit committee must be independent, (iii) the company’s audit committee must establish procedures for receiving complaints regarding accounting, internal accounting controls and audit-related matters, (iv) the company’s audit committee must have the authority to engage independent advisors and (v) the company must provide appropriate funding to its audit committee, as determined by the audit committee.  SOX also requires the registered public accounting firm that issues the audit report to issue a report on management’s attestation on internal control over financial reporting.

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The Bank
The Bank is a Missouri trust company with banking powers.  It 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.

Transactions with Affiliates and Insiders:  The Bank is subject to the provisions of Regulation W promulgated by the Federal Reserve, which encompasses Sections 23A and 23B of the Federal Reserve Act.  Regulation W places limits and conditions 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.  Regulation W also prohibits, among other things, 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. 

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.

USA Patriot Act: On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”).  Among its other provisions, the USA PATRIOT Act requires each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) implement certain due diligence policies, procedures and controls with regard to correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, the USA PATRIOT Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

Check 21:  The Check Clearing for the 21st Century Act (“Check 21”) was signed into law on October 28, 2003, and became effective on October 28, 2004. Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check clearing.  The law facilitates check clearing by creating a new negotiable instrument called a substitute check, which permits banks to clear original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.  A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checks.

Limitations on Loans and Transaction:  The Federal Reserve Act generally imposes certain limitations on extensions of credit and other transactions by and between banks that are members of the Federal Reserve and other affiliates (which includes any holding company of which a bank is a subsidiary and any other non-bank subsidiary of such holding company).  Banks that are not members of the Federal Reserve are also subject to these limitations.  Further, federal law prohibits a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or the furnishing of services.

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

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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; the Soldiers’ and Sailors Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying obligations of persons in military service; 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 are also 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 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.

ITEM 1A: RISK FACTORS

At any given time, the Company is subject to any number of risk factors that may affect the market price of the Company’s stock.  Some of the specific risks include the following:

Falling interest rates may reduce our net income and future cash flows.  Since June 30, 2004, the U.S. Federal Reserve has increased its target for the federal funds rate fourteen times to 4.50%. If interest rates would start to fall, and if rates on the Bank’s loans and investments reprice downwards faster than the rates on the deposits and borrowings, we would experience compression of our interest rate spread and net interest margin, which would have a negative effect on our profitability.

Recent and possible future acquisitions could involve risks and challenges that could adversely affect our ability to achieve our profitability goals for acquired businesses or realize anticipated benefits of those acquisitions.  We have experienced strong growth in the past several years and our strategy of future growth, while not dependent on, might include the acquisition of banking branches, other financial institutions and other wealth management companies.  Most recently, we completed a partial acquisition of Millennium Brokerage Group LLC. However, we cannot assure investors that it will be able to identify suitable future acquisition opportunities or finance and complete any particular acquisition, combination or other transaction on acceptable terms and prices.  There can be no assurance that the Company will be able to develop and integrate acquired businesses without adversely affecting the Company’s financial performance.  In addition, all acquisitions involve a number of risks and challenges that could adversely affect our ability to achieve anticipated benefits of acquisitions.

The Bank’s allowance for loan losses may be inadequate, which could impair our earnings.  The Bank’s allowance for loan losses may not be adequate to cover actual loan losses and if the Bank is required to increase its reserve, current earnings may be reduced. Our experience shows that some borrowers either will not pay on time or will not pay at all, which will require the Bank to “charge-off” the defaulted loan or loans. We provide for losses by reserving what we believe to be an adequate amount to absorb any probable inherent losses. A “charge-off” reduces the Bank’s allowance for loan losses. If the Bank’s reserves were insufficient, it would be required to increase reserves by recording a larger provision for loan losses, which would reduce earnings for that period.

Changes in economic conditions could cause an increase in delinquencies and non-performing assets, including loan charge-offs, which in turn may negatively affect the Company’s income and growth. The Bank’s loan portfolio includes many real estate secured loans, demand for which may decrease during economic downturns as a result of, among other things, an increase in unemployment, a decrease in real estate values or increases in interest rates. These factors could depress our earnings and consequently our financial condition because:

• customers may not want or need the Company’s products and services;

• borrowers may not be able to repay their loans;

• the value of the collateral securing the Bank’s loans to borrowers may decline; and

• the quality of the Bank’s loan portfolio may decline.

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Any of the latter three scenarios could cause an increase in delinquencies and non-performing assets or require us to “charge-off” a percentage of loans and/or increase the provisions for loan losses, which would reduce our earnings.

Because the Bank competes primarily on the basis of the interest rates it offers depositors and the terms of loans it offers borrowers, the Bank’s margins could decrease if it were required to increase deposit rates or lower interest rates on loans in response to competitive pressure.  The Bank faces intense competition both in making loans and attracting deposits. It competes primarily on the basis of its depository rates, the terms of the loans it originates and the quality of its financial and depository services. This competition has made it more difficult for the Bank to make new loans and at times has forced us to offer higher deposit rates in our market areas.   We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to market entry, enabled banks to expand their geographic reach by providing services over the Internet and enabled non-depository institutions to offer products and services that traditionally have been provided by banks. Recent changes in federal banking law permit affiliation among banks, securities firms and insurance companies, which also will change the competitive environment in which we conduct business. Some of the institutions with which we compete are significantly larger than us and, therefore, have significantly greater resources.

Business Continuity Plans may not adequately anticipate all risks.  We are subject to events that could impact or disrupt our business, although our goal is to ensure continuous service delivery to our customers.  We have undertaken an enterprise-wide Business Continuity Plan in order to respond to and guard against this risk. However, no plan can fully eliminate such risk and there can be no assurance that our Plan will be successful.

Future Government Regulation Could Hinder Future Performance.  The Company is a registered bank holding company under the Bank Holding Company Act of 1956.  Accordingly, both the Company and the Bank are subject to extensive government regulation, legislation and control.  These laws limit the manner in which the Company operates.  Management cannot predict whether, or the extent to which, the government and governmental organizations may change any of these laws or controls.  Changes in authoritative accounting guidance by the Financial Accounting Standards Board or other regulatory agencies could affect the Company in ways that are not currently determinable.  Management cannot predict how any of these changes would adversely affect the Company’s business.

Federal and state law limits the Company’s ability to declare and pay dividends.  In addition, the Board of Governors of the Federal Reserve System may impose restrictions on the Company’s ability to declare and pay dividends on its common stock.

Employees
At December 31, 2005 we had approximately 261 full-time equivalent employees (including Millennium). None of the Company’s employees is covered by a collective bargaining agreement.  Management believes that its relationship with its employees is good.

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ITEM 1B: UNRESOLVED SEC COMMENTS

Not applicable.

ITEM 2: PROPERTIES

Banking facilities
As of December 31, 2005, we had five banking locations in Missouri and one in Kansas.   Our executive offices are located at 150 North Meramec, Clayton, Missouri, 63105.  The Bank owns two of the banking facilities and leases the remainder.  In addition, the Bank leases our Operations Center located in St. Louis County, Missouri.  The terms of the leases expire between 2010 and 2017 and most of the leases include one or more renewal options of 5 years.  All the leases are classified as operating leases.

In January 2006, the Company entered into an agreement to purchase the Operations Center location.  We expect the purchase to close in first quarter 2006.

The following table sets forth specific information on each banking location.

Bank Location	Address	Expiration
Clayton	150 North Meramec, Clayton, MO  63105	2010
St. Peters	300 St. Peters Centre Blvd., St. Peters, MO  63376	2017
St. Charles City	1001 1st Capitol Drive, St. Charles, MO  63301	Owned
Sunset Hills	3890 South Lindbergh Blvd., Sunset Hills, MO 63127	2012
Overland Park	12695 Metcalf Avenue, Overland Park, KS  66213	Owned
Country Club Plaza	444 W 47th Street, Suite 110, Kansas City, MO  64112	2011

Wealth management facilities
Enterprise Trust, a division of the Bank has offices in St. Louis and Kansas City.  The St. Louis office is located at the Clayton branch and the Kansas City office is located at the Overland Park branch.  Expenses related to the space used by Enterprise Trust are allocated to the Wealth Management segment. 

As of December 31, 2005, Millennium had 13 locations in 11 states throughout the United States.  The executive offices are located in Nashville, TN.  None of the locations are owned by Millennium.  The leases are classified as operating leases and expire in various years through 2009. 

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 a vote of security holders in the quarter ended December 31, 2005.

8

PART II

ITEM 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Effective February 8, 2005, the Company’s common stock began trading on the NASDAQ National Market under the symbol “EFSC”.  Prior to that date, the common stock was not traded on an exchange but was traded on the Over-The-Counter Bulletin Board. Below are the dividends declared by quarter along with what the Company believes are the high and low closing sales prices for the common stock.  There may have been other transactions at prices not known to the Company.  As of February 22, 2006, the Company had 707 common stock shareholders of record and a market price of $26.50 per share.

	Market Price
					Dividends Declared
	High		Low
2005
Fourth Quarter	$	23.17	$	19.58	$	0.0350
Third Quarter		25.87		20.77	$	0.0350
Second Quarter		24.71		18.80	$	0.0350
First Quarter		20.75		18.17	$	0.0350
2004
Fourth Quarter	$	19.80	$	14.50	$	0.0250
Third Quarter		15.00		14.00	$	0.0250
Second Quarter		15.25		13.40	$	0.0250
First Quarter		14.10		13.15	$	0.0250

The Company has authorized the repurchase of up to 500,000 shares of its common stock.  In the quarter ended December 31, 2005, the Company repurchased no shares of its common stock.

Dividends
The holders of shares of common stock of the Company are entitled to receive dividends when declared by the Company’s Board of Directors out of funds legally available for the purpose of paying dividends. The amount of dividends, if any, that may be declared by the Company will be dependent on many factors, including future earnings, 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 Company’s common stock.  In addition, the Company currently plans to retain most of its earnings for growth.

Common Stock
The authorized capital stock of the Company consists of 20,000,000 shares of common stock, par value $.01 per share.  Holders of the 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 elects. 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 liabilities of the Company.

9

ITEM 6: SELECTED FINANCIAL DATA

The following table summarizes selected financial data for the Company for the periods indicated. This information should be read in connection with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report. 

	Year ended December 31,
(in thousands, except per share data)	2005			2004			2003			2002			2001
EARNINGS SUMMARY:
Interest income	$	68,108		$	48,893		$	43,245		$	45,207		$	52,612
Interest expense		23,541			12,169			10,544			14,343			23,810
Net interest income		44,567			36,724			32,701			30,864			28,802
Provision for loan losses		1,490			2,212			3,627			2,251			3,230
Noninterest income		8,964			7,122			10,091			5,366			(2,035	)
Noninterest expense		34,321			29,331			28,215			27,364			24,830
Minority interest in net income of consolidated subsidiary		(113	)		—			—			—			—
Income before income taxes		17,607			12,303			10,950			6,615			(1,293	)
Income taxes		6,312			4,088			4,025			1,614			1,242
NET INCOME (loss)	$	11,295		$	8,215		$	6,925		$	5,001		$	(2,535	)
PER SHARE DATA:
Net income (loss) per share-basic	$	1.12		$	0.85		$	0.72		$	0.53		$	(0.28	)
Net income (loss) per share-diluted		1.05			0.82			0.70			0.52			(0.28	)
Cash dividends per share		0.14			0.10			0.08			0.07			0.06
Book value per share		8.85			7.44			6.80			6.19			5.60
BALANCE SHEET DATA:
Year end balances:
Loans	$	1,002,379		$	898,505		$	783,878		$	679,799		$	602,747
Allowance for loan losses		12,990			11,665			10,590			8,600			7,296
Assets held for sale		—			—			—			36,401			40,575
Assets		1,286,968			1,059,950			907,726			877,251			795,590
Deposits		1,116,244			939,628			796,400			716,314			655,553
Subordinated debentures		30,930			20,620			15,464			15,464			11,340
Borrowings		36,931			20,164			24,147			31,823			15,399
Liabilities held for sale		—			—			—			50,053			58,800
Shareholders’ equity		92,605			72,726			65,388			58,810			51,897
Average balances:
Loans		964,259			847,270			738,572			693,551			613,539
Earning assets		1,100,559			967,854			825,973			779,194			701,582
Assets		1,148,691			1,008,022			868,303			820,730			743,503
Interest-bearing liabilities		859,912			748,434			647,087			629,651			583,343
Shareholders’ equity		81,511			68,854			63,175			55,361			56,623
SELECTED RATIOS:
Return on average equity		13.86	%		11.93	%		10.96	%		9.03	%		N/A	%
Return on average assets		0.98			0.81			0.80			0.61			N/A
Efficiency ratio		64.11			66.90			65.94			75.53			92.76
Average equity to average assets		7.10			6.83			7.28			6.75			7.62
Yield on average interest-earning assets		6.25			5.10			5.29			5.84			7.52
Cost of interest-bearing liabilities		2.74			1.63			1.63			2.28			4.09
Net interest rate spread		3.51			3.47			3.66			3.56			3.43
Net interest rate margin		4.11			3.84			4.01			4.00			4.12
Nonperforming loans to total loans		0.14			0.20			0.20			0.57			0.62
Nonperforming assets to total assets		0.11			0.18			0.17			0.46			0.49
Net chargeoffs to average loans		0.02			0.13			0.22			0.14			0.49
Allowance for loan losses to total loans		1.30			1.30			1.35			1.27			1.21
Dividend payout ratio - basic		12.58			11.76			11.11			13.21			N/A

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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, 2005.  It should be read in conjunction with the accompanying consolidated financial statements and the selected financial data presented elsewhere in this report.

The Company has prepared all of the consolidated financial information in this report in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurances that actual results will not differ from those estimates.

EXECUTIVE SUMMARY
This overview of management’s discussion and analysis highlights selected information in this document and may not contain all of the information that is important to you.  For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources and critical accounting estimates, you should carefully read this entire document.

Net income increased 37% to $11.3 million or $1.05 per fully diluted share compared to $8.2 million or $0.82 per fully diluted share in 2004.

Our banking line of business posted strong loan and deposit growth.  Average earning assets increased by $132.7 million or 14%.  Portfolio loans grew by $104 million, or 12% and ended the year at $1 billion.  The investment portfolio grew to $136 million, a $14 million or 11% increase over 2004. Deposits grew 19%, or $177 million and the bank was able to maintain an attractive deposit mix, with 20% of the total held in interest free demand deposits.

Asset quality remained strong.  Non-performing loans were just $1.4 million or 0.14% of portfolio loans and net charge-offs represented only 0.02% of average loans for the year.  The allowance for loan losses was $13.0 million or 1.30% of portfolio loans vs. $11.7 million (also 1.30%) at the end of 2004.  The increase in the allowance was the net result of $1.5 million of provision for loan losses slightly offset by $200,000 of net loan charge-offs in the year.  In 2004, the provision for loan losses was $2.2 million and net loan charge-offs were $1.1 million.  The decline in the provision for loan losses was due to lower non-performing loan levels, continued strengthening of the St. Louis and Kansas City economies and continued low delinquency rates. 

The Company’s fully tax-equivalent net interest rate margin increased from 3.84% to 4.11%, year-to-year.  The 27 basis point improvement in net interest rate margin was primarily due to rising interest rates and the greater benefit of free balances (demand deposits and shareholders’ equity).  In 2005, the net interest spread improved 4 basis points to 3.51% as increases in earning asset yields were largely offset by increases in the cost of interest-bearing liabilities.

Deposit service charges of $2.1 million were essentially flat with those posted in 2004.  A rising earnings credit rate throughout 2005 offset much of the benefit of the growth in numbers of accounts and services provided during the year.

Total Wealth Management income increased by 53%, or $2.3 million, to $6.5 million during the year driven by strong growth in the company’s Trust and Wealth Products Groups.  This included $780,000 of commission income earned by Millennium, which was acquired in October 2005.  Factoring out the benefit of the Millennium acquisition, the company’s Wealth Management business increased its income by $1.5 million or 35% for the year.  Assets under administration increased almost $225 million in 2005 as the result of a 25% increase in the net number of Trust client relationships.  This increase was offset by $250 million of assets managed in a special common trust fund account which were distributed to clients as called for by contact in the fourth quarter of 2005. 

During the late third and throughout the fourth quarter of 2005, the Company elected to reposition a portion of its investment portfolio and recognized net losses of $494,000.  Increases in market rates for the two through four-year maturity ranges and the company’s overall interest rate sensitivity presented an opportunity to strengthen the expected total return on portfolio investments for 2006 and 2007.

11

While the Company’s long range business model (see Form 8-K filing dated July 22, 2005) calls for noninterest expenses to grow on average 10% or less per year through 2010, these expenses grew 17% or $5 million in 2005 over the $29.3 million reported in 2004.  Excluding expenses incurred by Millennium of $504,000 and $152,000 of amortization expenses related to that acquisition, noninterest expenses increased $4.3 million or 15%.  Our three-year compound annual growth rate (ending 2005) in noninterest expenses was 8%, still well under our 10% goal, and expense management remains a priority for us.  The Company’s efficiency ratio improved from 67% to 64% in 2005.  

Employee compensation and benefits represent the largest expense increase.  This was primarily due to increased payouts under the Company’s incentive bonus programs, including the 401(k) match program, which are tied to performance targets.  See “NonInterest Expense” below for more information. 

For the year ended December 31, 2005, the effective tax rate for the Company was 35.8%, an increase from the 33.2% rate in 2004.  During 2004 the Company recognized a $241,000 reversal of the remaining deferred tax valuation allowance related to Merchant Banking losses in 2001 and the Company recognized state income tax refunds of $163,000 related to amendments of prior state income tax returns.  See “Income Taxes” below for more information. 

CRITICAL ACCOUNTING POLICIES
The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations.  These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain.  Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences.  In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected.  The impact and any associated risks related to our critical accounting policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results.  For a detailed discussion on the application of these and other accounting policies, see Note 1 to our Consolidated Financial Statements.

Allowance for Loan Losses
Subject to the use of estimates, assumptions, and judgments, management’s evaluation process used to determine the adequacy of the allowance for loan losses combines several factors: management’s ongoing review of the loan portfolio; consideration of past loan loss experience; trends in past due and nonperforming loans; risk characteristics of the various classifications of loans; existing economic conditions; the fair value of underlying collateral; and other qualitative and quantitative factors which could affect probable credit losses.  Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change significantly.  As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses.  Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.  The Company believes the allowance for loan losses is adequate and properly recorded in the consolidated financial statements.

Derivative Financial Instruments
The Company employs derivative financial instruments to assist in its management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities.  The judgments and assumptions that are most critical to the application of this critical accounting policy are those affecting the estimation of fair value and hedge effectiveness.  Fair value is based on quoted market prices.  Factors that affect hedge effectiveness include the initial selection of the derivative that will be used as a hedge and how well changes in its cash flow or fair value has correlated and is expected to correlate with change in the cash flow or fair value of the underlying hedged asset or liability.  Past correlation is easy to demonstrate, but expected correlation depends upon projections and trends that may not always hold true with acceptable limits.  Changes in assumptions and conditions could result in greater than expected inefficiencies that, if large enough, could reduce or eliminate the economic benefits anticipated when the hedges were established and/or invalidate continuation of hedge accounting.  The consequence of greater inefficiency and discontinuation of hedge accounting results in increased volatility in reported earnings.  For cash flow hedges, this would result in more or all of the change in the fair value of the affected derivative being reported in income. For fair value hedges, this would result in less or none of the change in the fair value of the derivative being offset by changes in the fair value of the underlying hedged asset or liability.

12

Deferred Tax Assets
The Company recognizes deferred tax assets and liabilities for the estimated future tax effects of temporary differences, net operating loss carryforwards and tax credits.  Deferred tax assets are recognized subject to management’s judgment based upon available evidence that realization is more likely than not.  Deferred tax assets are reduced if necessary, by a deferred tax asset valuation allowance.  In the event that management determines it would not be able to realize all or part of net deferred tax assets in the future, the Company would need to adjust the recorded value of our deferred tax assets, which would result in a direct charge to income tax expense in the period that such determination is made.  Likewise, the Company would reverse the valuation allowance when realization of the deferred tax asset is expected.

Goodwill and Other Intangible Assets
The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and other Intangible Assets” on January 1, 2002.  Under this accounting standard, amortization of goodwill ceased and instead the asset is periodically tested for impairment.  The Company tests for impairment utilizing the methodology and guidelines established in SFAS No. 142 on an annual basis.  This methodology involves assumptions including the valuation of the business segments that contain the acquired entities.  Management believes that the assumptions utilized are reasonable.  However, the Company may incur impairment charges related to goodwill in the future due to changes in business prospects or other matters that could affect our valuation assumptions.  Intangible assets other than goodwill, such as trade name intangibles, which are determined to have finite lives are amortized over their estimated remaining useful lives of approximately five years.

We conducted our annual evaluation of our reporting units as of December 31, 2005.  As discussed in Note 9 to the Consolidated Financial Statements, for the period ending December 31, 2005 the estimated fair value of all reporting units exceeded their carrying values and goodwill impairment was not deemed to exist. 

RESULTS OF OPERATIONS ANALYSIS

Net Interest Income
Comparison of 2005 vs. 2004
Net interest income is the primary source of the Company’s revenue.  Net interest income is the difference between interest income on earning assets, such as loans and securities, and the interest expense on interest-bearing deposits and other borrowings, used to fund interest earning and other assets.  The amount of net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities.  Additionally, net interest income is impacted by the sensitivity of the balance sheet to changes in interest rates, which factors in characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies. 

Net interest spread and net interest rate margin are utilized to measure and explain changes in net interest income.  Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets.  The net interest rate margin is expressed as the percentage of net interest income to average interest-earning assets.  The net interest rate margin exceeds the interest rate spread because noninterest-bearing sources of funds (net free funds), principally demand deposits and shareholders’ equity, also support earning assets. 

Changes in the fed funds rate has a direct correlation on changes in the prime rate, the underlying index for most of the variable rate loans issued by the Bank.  Throughout 2005, slightly less than two-thirds of the loan portfolio floated with the prime rate.  Historically we have been asset-sensitive, which means our assets generally re-price faster than our liabilities.  Therefore, the 13 consecutive fed funds rate increases since late 2004 by the Federal Open Markets Committee (“FOMC”) have had a positive influence on our net interest income and margin. 

Net interest income (presented on a tax equivalent basis) was $45.2 million for 2005, an increase of $8.0 million or 21.5% from 2004.  The increase in net interest income was attributable to a higher level of interest-earning assets combined with higher interest-earning asset yields partially offset by higher volumes and rates of interest-bearing liabilities.

Average interest-earning assets were $1.1 billion in 2005, an increase of $132.7 million or 13.7% from 2004. Loans accounted for the majority of the growth , increasing by $117 million or almost 14% to $964.3 million on average in 2005.  For 2005, interest income on loans increased $7.0 million from growth and $10.7 million due to the impact of the rate environment (as noted above), for a net increase of $17.7 million versus 2004 (see “Rate/Volume” below).

13

Average interest-bearing liabilities were $859.9 million in 2005, an increase of $111.5 million or 14.9% from 2004.  The growth in interest-bearing liabilities resulted from an $84.5 million increase in interest-bearing deposits, a $3.9 million increase in subordinated debentures, and a $23.1 million increase in borrowed funds including Federal Home Loan Bank (“FHLB”) advances.  The growth in earning assets was also supported by a $15.9 million or 8.7% increase in average noninterest-bearing deposits (a component of net free funds).  For 2005, interest expense on interest-bearing liabilities increased $2.4 million due to this growth and the impact of rising rates increased interest expense on interest-bearing liabilities by $8.9 million versus 2004.

The net interest rate margin for 2005 was 4.11%, compared to 3.84% in 2004.  The yield on interest-earning assets increased 115 basis point (“bp”) from 5.10% to 6.25%.   The average loan yield increased 117 bp to 6.65%.  The yield on securities and short-term investments combined was up 98 bp to 3.43%.   The cost of interest-bearing liabilities increased from 1.63% in 2004 to 2.74%.  The increase in cost of funds was primarily due to increases in money market and certificate of deposit rates given competitor pricing and the increasing interest rate environment. 

Comparison of 2004 vs. 2003
Net interest income (presented on a tax equivalent basis) was $37.2 million for 2004, an increase of $4.1 million or 12.3% from 2003.  The net interest rate margin for 2004 was 3.84%, compared to 4.01% in 2003. The 17 bp decrease in net interest rate margin is attributable to a 19 bp decrease in interest rate spread (the net of a 19 bp lower yield on earning assets and no change in the cost of interest-bearing liabilities), and a 2 bp higher contribution from net free funds.  Lower re-pricing on fixed rate loan maturities, a less favorable earning asset mix, less interest income from cash flow hedges and price competition for new loans were the main factors responsible for the declining interest-earning asset yield.

For 2004, the cost of interest-bearing liabilities remained level with 2003 at 1.63%.  Higher rates paid on interest-bearing transaction accounts and money market accounts were offset by lower rates paid on certificates of deposit, subordinated debentures, and other borrowed funds.  The rates on interest-bearing transaction accounts and money market accounts tend to track with treasury bill rates and national money market funds, both of which were rising in 2004.  The Company’s certificate of deposit portfolio repriced to lower rates during the year as renewals reflected lower rates for these products in our local markets. 

For 2004, the yield on interest-earning assets fell 19 bp to 5.10%, driven by a 15 bp decline in the loan yield.  The average loan yield was 5.48%.  Competitive pricing pressures, refinancing to lower fixed rates and less interest income from cash flow hedges put downward pressure on loan yields in 2004.  The yield on securities and short-term investments combined was up 12 bp to 2.45%.  The interest-earning asset rate changes reduced interest income by $1.0 million, a combination of $1.2 million lower interest on loans and $0.2 million higher interest on securities and short-term investments combined.

From a volume perspective, the growth and composition change of interest-earning assets in 2004 contributed an additional $6.7 million to net interest income, while the growth and composition of interest-bearing liabilities cost an additional $1.6 million, netting a $5.1 million increase in net interest income. 

Average interest-earning assets were $967.9 million in 2004, an increase of $141.9 million or 17.2% from 2003. Loans accounted for the majority of the growth in interest-earning assets, increasing by $108.7 million or 14.7% to $847.3 million on average in 2004 and representing 87.5% of average interest-earning assets compared to 89.4% in 2003. For 2004, interest income on loans increased $6.0 million from growth, but decreased $1.2 million from the impact of the rate environment (as noted above), for a net increase of $4.8 million versus 2003.

Average interest-bearing liabilities were $748.4 million in 2004, an increase of $101.3 million or 15.7% from 2003.  The growth in earning assets was also supported by a $33.0 million or 21.8% increase in average noninterest-bearing deposits (a component of net free funds).  The growth in interest-bearing liabilities came from a $101.8 million increase in interest-bearing deposits, a $3.5 million increase in subordinated debentures, offset by a $4.0 million decrease in borrowed funds (includes Federal Home Loan Bank advances). For 2004, interest expense on interest-bearing liabilities increased $1.6 million due to this growth.

14

Average Balance Sheet
The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax equivalent basis. 

In April 2003, we sold three bank branches in Southeast Kansas.  The balance of loans and deposits associated with the Southeast Kansas branches are included in the following table for approximately three months of 2003.

	For the years ended December 31,
	2005								2004								2003
(in thousands)	Average Balance			Interest Income/ Expense		Average Yield/ Rate			Average Balance			Interest Income/ Expense		Average Yield/ Rate			Average Balance			Interest Income/ Expense		Average Yield/ Rate
Assets
Interest-earning assets:
Taxable loans (1)	$	944,009		$	62,318		6.60	%	$	830,267		$	45,082		5.43	%	$	723,752		$	40,451		5.59	%
Tax-exempt loans(2)		20,250			1,766		8.72			17,003			1,325		7.79			14,820			1,167		7.87
Total loans		964,259			64,084		6.65			847,270			46,407		5.48			738,572			41,618		5.63
Taxable investments in debt and equity securities		99,284			3,340		3.36			81,949			2,374		2.90			64,915			1,802		2.78
Non-taxable investments in debt and equity securities(2)		1,514			61		4.03			1,639			62		3.78			939			35		3.73
Short-term investments		35,502			1,280		3.61			36,996			522		1.41			21,547			198		0.92
Total securities and short-term investments		136,300			4,681		3.43			120,584			2,958		2.45			87,401			2,035		2.33
Total interest-earning assets		1,100,559			68,765		6.25			967,854			49,365		5.10			825,973			43,653		5.29
Non-interest-earning assets:
Cash and due from banks		35,603								30,031								29,068
Other assets		25,275								21,392								22,989
Allowance for loan losses		(12,746	)							(11,255	)							(9,727	)
Total assets	$	1,148,691							$	1,008,022							$	868,303
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	87,560		$	1,035		1.18	%	$	71,568		$	320		0.45%		$	54,742		$	169		0.31	%
Money market accounts		437,346			10,761		2.46			403,363			4,614		1.14			357,497			3,475		0.97
Savings		4,435			31		0.70			4,254			14		0.33			5,499			24		0.44
Certificates of deposit		259,852			8,647		3.33			225,529			5,050		2.24			185,175			4,532		2.45
Total interest-bearing deposits		789,193			20,474		2.59			704,714			9,998		1.42			602,913			8,200		1.36
Subordinated debentures		22,936			1,348		5.88			19,022			1,405		7.39			15,464			1,270		8.21
Borrowed funds		47,783			1,719		3.60			24,698			766		3.10			28,710			1,074		3.74
Total interest-bearing liabilities		859,912			23,541		2.74			748,434			12,169		1.63			647,087			10,544		1.63
Noninterest-bearing liabilities:
Demand deposits		200,054								184,116								151,140
Other liabilities		7,214								6,618								6,901
Total liabilities		1,067,180								939,168								805,128
Shareholders’ equity		81,511								68,854								63,175
Total liabilities & shareholders’ equity	$	1,148,691							$	1,008,022							$	868,303
Net interest income				$	45,224							$	37,196							$	33,109
Net interest spread							3.51	%							3.47	%							3.66	%
Net interest rate margin(3)							4.11	%							3.84	%							4.01	%

(1)	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 $2,024,000, $1,526,000 and $1,521,000 for the years ended December 31, 2005, 2004, and 2003, respectively.
(2)	Non-taxable income is presented on a fully tax-equivalent basis using the combined statutory federal and state income tax rate in effect for each year.  The tax-equivalent adjustments reflected in the above table is approximately  $658,000, $472,000 and $409,000 for the years ended  December 31, 2005, 2004, and 2003, respectively.
(3)	Net interest income divided by average total interest-earning assets.

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Rate/Volume
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.

In April 2003, we sold three bank branches in Southeast Kansas.  The balance of loans and deposits associated with the Southeast Kansas branches are included in the following table for approximately three months of 2003.

	2005 Compared to 2004 Increase (decrease) due to									2004 Compared to 2003 Increase (decrease ) due to
(in thousands)	Volume(1)			Rate(2)			Total			Volume(1)			Rate(2)			Total
Interest earned on:
Loans	$	6,694		$	10,542		$	17,236		$	5,811		$	(1,180	)	$	4,631
Nontaxable loans (3)		271			170			441			170			(12	)		158
Taxable investments in debt and equity securities		548			418			966			490			82			572
Nontaxable investments in debt and equity securities (3)		(5	)		4			(1	)		26			1			27
Short-term investments		(22	)		780			758			186			138			324
Total interest-earning assets	$	7,486		$	11,914		$	19,400		$	6,683		$	(971	)	$	5,712
Interest paid on:
Interest-bearing transaction accounts	$	86		$	629		$	715		$	61		$	90		$	151
Money market accounts		420			5,727			6,147			479			660			1,139
Savings		1			16			17			(5	)		(5	)		(10	)
Certificates of deposit		858			2,739			3,597			928			(410	)		518
Subordinated debentures		259			(316	)		(57	)		272			(137	)		135
Borrowed funds		813			140			953			(138	)		(169	)		(307	)
Total interest-bearing liabilities		2,437			8,935			11,372			1,597			29			1,626
Net interest income (loss)	$	5,049		$	2,979		$	8,028		$	5,086		$	(1,000	)	$	4,086

(1)	Change in volume multiplied by yield/rate of prior period.
(2)	Change in yield/rate multiplied by volume of prior period.
(3)	Non-taxable income is presented on a fully tax-equivalent basis using the combined statutory federal and state income tax rate in effect for each year.
NOTE:	The change in interest due to both rate and volume has been allocated to rate and volume changes in in proportion to the relationship of the absolute dollar amounts of the change in each.

Provision for loan losses.   The provision for loan losses was $1.5 million for 2005 compared to $2.2 million for 2004.  The $722,000 decrease from 2005 to 2004 was due to lower non-performing loan levels, continued strengthening local economies and continued low delinquency rates.

The provision for loan losses was $2.2 million for 2004 compared to $3.6 million for 2003.  The $1.4 million decrease in the provision for loan losses from 2003 to 2004 was due to stable and low non-performing loan levels, strengthening local economies and favorable delinquency trends.  See the sections below captioned “Loans” And “Allowance for Loan Losses” for more information on our loan portfolio and asset quality.

16

Noninterest Income
Comparison of 2005 vs. 2004

	Years ended December 31,
(in thousands)	2005			2004		$ Change
Wealth Management income	$	6,522		$	4,264	$	2,258
Service charges on deposit accounts		2,065			2,032		33
Other service charges and fee income		464			396		68
Gain on sale of mortgage loans		281			262		19
Gain on Sale of other real estate		91			—		91
(Loss) gain on sale of securities		(494	)		126		(620	)
Miscellaneous income		35			42		(7	)
Total noninterest income	$	8,964		$	7,122	$	1,842

Service charges on deposit accounts were basically unchanged year over year due to a rising earnings credit rate on commercial accounts, which was offset by increased account activity. 

Wealth Management income increased 53% during 2005.  The increase includes $780,000 of commission income earned by Millennium since the acquisition in October.  Excluding Millennium, Wealth Management income increased $1.5 million, or 35% for the year.  The increase was the result of a 25% growth rate in net Trust client relationships as well as having a full year of revenue generated from the Wealth Products Group (“WPG”) unit.  Favorable market conditions and client mix also factored in this growth.  Assets under administration increased almost $225 million in 2005, but were offset by $250 million of assets managed in a special common trust fund account which were distributed to clients as called for by contact in the fourth quarter of 2005. 

During the second half of 2005, we elected to reposition a portion of our investment portfolio by selling and reinvesting approximately $29 million of investments.  Increases in market rates for the two through four-year maturity ranges and the company’s overall interest rate sensitivity presented an opportunity to strengthen the expected total return on portfolio investments for 2006 and 2007. 

The Company sold a foreclosed real estate property during the third quarter of 2005 for a gain of $91,000.

Comparison of 2004 vs. 2003

	Years ended December 31,
(in thousands)	2004		2003		$ Change
Wealth Management income	$	4,264	$	3,622	$	642
Service charges on deposit accounts		2,032		1,782		250
Other service charges and fee income		396		369		27
Gain on sale of mortgage loans		262		927		(665	)
Gain on sale of securities		126		78		48
Gain on sale of branches		—		2,938		(2,938	)
Miscellaneous income		42		375		(333	)
Total noninterest income	$	7,122	$	10,091	$	(2,969	)

2004 noninterest income decreased 29% from 2003.  Excluding the $2.9 million gain on the sale of Southeast Kansas branches in 2003, total noninterest income decreased $31,000. 

The increase in service charges on deposit accounts was the result of an increase in the number of accounts and balances outstanding, an increase in the fee schedule and better collection efforts of non-sufficient fund charges in 2004.

The increase in Wealth Management income was the result of increased assets under administration, a more favorable mix of managed versus custodial assets, and the introduction of the Company’s new WPG unit in March of 2004.  Assets under administration in Enterprise Trust were $1.33 billion at December 31, 2004 versus $1.15 billion at December 31, 2003.  WPG had revenue of $309,000 in 2004.

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The decrease in gain on the sale of mortgage loans was due to lower levels of refinancing activities in 2004 as compared to 2003.  During 2004 securities were sold to slightly adjust the interest rate risk profile of the Company’s consolidated balance sheet in anticipation of higher rates.

During 2003 the Company recognized a $3.1 million gain on the sale of the Southeast Kansas branches, less a $150,000 write-off of related goodwill.  Also, in 2003, the Company recognized $375,000 of miscellaneous income from a lawsuit settlement in connection with, but not directly related to, a charged-off loan in 2002.

Noninterest Expense
Comparison of 2005 vs. 2004
Our efficiency ratio, which expresses non-interest expense as a percentage of tax-equivalent net interest income and other income, was 64% for 2005, improved from 67% in 2004.  The improved efficiency ratio was due to revenue growth and cost management across all lines of business.   Noninterest expense for 2005 includes three months of Millennium operations subsequent to the acquisition. 

The following table summarizes noninterest expense for 2005 and 2004.

	December 31,
(in thousands)	2005		2004		$ Change
Employee compensation and benefits	$	22,130	$	18,553	$	3,577
Occupancy		2,327		2,090		237
Furniture, equipment and data processing		1,839		1,517		322
Correspondent bank charges		318		270		47
Professional, legal and consulting		1,348		955		392
Other losses and settlement		6		63		(56	)
Postage, courier and armored car		719		659		60
Meals, entertainment, and travel		1,004		664		340
Stationary and office supplies		351		344		7
Communications		295		245		50
Marketing and public relations		631		552		79
Director related expense		542		167		375
Noncompete expense		154		180		(26	)
FDIC and other insurance		519		417		102
Amortization of debt issuance costs		11		599		(589	)
Other		2,127		2,056		72
Total noninterest expense	$	34,321	$	29,331	$	4,990

Expense management remains a priority for the Company.   Our organic growth model calls for noninterest expenses to grow on average 10% or less per year through 2010.   These expenses grew 17% or $5 million in 2005 over 2004.  Excluding expenses incurred for Millennium of $504,000 and $152,000 of amortization expenses related to the acquisition, noninterest expenses increased $4.3 million, or 15%.  Our three-year compound annual growth rate (ending 2005) in noninterest expenses was 8%, still well under our 10% goal.

Employee compensation and benefits.  Our compensation programs reflect our philosophy that carefully selected associates who are properly trained, directed and motivated will dramatically impact our performance and represent a sustaining competitive advantage.   We compensate our associates in ways to attract and retain top performers, and to provide base salary, incentives and rewards that incent the behaviors consistent with a high-performing company.  Over the last three years, we have implemented a disciplined process for managing the performance of our associates against defined business goals and results.   The process includes frequent and candid performance feedback, measures individual contributions, differentiates individual performance and reinforces contribution with highly differentiated rewards.  Two major components of our compensation program are the variable-pay incentive bonus pool and the Long-Term Incentive Plan (“LTIP”).

2005 expenses under the Company’s incentive bonus programs, including the 401(k) match program, which is tied to performance targets, increased $1.3 million over 2004 from $2.9 million to $4.2 million.  Driving this increase were the Company’s EPS growth in 2005, asset quality statistics, and growth in deposits and wealth management revenue and referrals.

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On January 1, 2005, the Board of Directors adopted a Long Term Incentive Plan.  Under terms of the plan, the Company will award restricted share units (“RSU’s”) to selected personnel based on the Company’s three year rolling average increase in earnings per share in comparison to a peer group of approximately 150 financial institutions.  RSU’s will be expensed annually as they vest and will impact earnings per share accordingly in 2005 and beyond.  The amount expensed is easily determinable based on the number of RSU’s times the stock price at award date.  This is in direct contrast to options where multiple levels of inputs and potentially multiple models would be necessary.   Compensation expense related to the RSUs was $483,000 in 2005.  

Growth in wealth management revenues increased commissions by $594,000.  Salaries and benefits of new associates, annual merit increases, along with increases in medical and disability insurance costs contributed $784,000 to the increase.  Recruiting fees increased $115,000 over 2004.  Actual expenses related to the 2004 acceleration of vesting on stock options were $15,000.  The remaining increase was attributable to Millennium.

All other expense categories.  Excluding the increase in employee compensation and benefits and Millennium, all other noninterest expenses increased $1 million, or 9% over 2004.

Occupancy expense increases were due to scheduled rent increases on various Company facilities along with a full year of rent for additional space leased at the Company’s Operation Center and related leasehold improvements completed at the Operations Center.    The new St. Charles City banking location and the addition of Millennium also contributed to the increase. 

Data processing expenses increased due to upgrades to our AS400 computer system, licensing fee increases for our core banking system as a result of our increased asset size and increased maintenance fees for various Company systems.  Furniture & equipment increases were due to the new St. Charles bank location, Millennium and the expansion of the Operations Center. 

The increase in professional, legal and consulting includes acquisition related activities, as well as, expenses for the further development of our business continuity plan, development of bank products, human resource consulting, investment management consulting and various legal issues. 

Meals and entertainment increases were due to the addition of Millennium, various client related events and more employee travel between the St. Louis and Kansas City banking locations. 

In 2005, director compensation was restructured to more competitive levels including restricted stock units granted to the directors.  Mark to market adjustments for outstanding Stock Appreciation Rights (SARs) paid to the directors also increased over 2004.

In 2005 and 2004, the Company recognized non-compete expenses related to the former CEO, who resigned in 2002. 

In the first quarter of 2005, our Directors and Officers liability coverage was renewed which  resulted in increased insurance premiums.  During the renewal, based on our increased asset size and the current business environment, we increased the amount of insurance coverage.  The growth in Bank deposits also increased FDIC insurance expenses.

In 2004, we expensed unamortized debt issuance costs related to the refinancing of $11 million of Trust Preferred Securities (“TRUPS”). 

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Comparison of 2004 vs. 2003
The following table depicts noninterest expense categories for 2004 and 2003:

	December 31,
(in thousands)	2004		2003		$ Change
Employee compensation and benefits	$	18,553	$	17,698	$	855
Occupancy		2,090		1,974		116
Furniture, equipment and data processing		1,517		1,774		(256	)
Correspondent bank charges		270		350		(79	)
Professional, legal and consulting		955		1,052		(97	)
Other losses and settlement		63		81		(18	)
Postage, courier and armored car		659		669		(10	)
Meals, entertainment, and travel		664		656		8
Stationary and office supplies		344		325		19
Communications		245		302		(58	)
Marketing and public relations		552		318		234
Director related expense		167		449		(283	)
Noncompete expense		180		380		(200	)
FDIC and other insurance		417		420		(2	)
Amortization of debt issuance costs		599		41		559
Other		2,056		1,728		327
Total noninterest expense	$	29,331	$	28,215	$	1,116

Noninterest expense increased 4% over 2003.  Excluding the $554,000 charge taken in the 4^th quarter of 2004 for unamortized debt issuance costs associated with the refinancing of subordinated debentures, noninterest expense was up 2%.

Employee compensation and benefits increased as the result of several items.  Annual merit increases and higher compensation of new middle and senior management hired during 2003 and 2004 represent $705,000 of the increase.   Payouts under the Company’s incentive bonus program and 401(k) match benefit, both of which are tied to performance targets increased $118,000.  As a result of the higher compensation, payroll taxes increased $94,000.  Employee benefits increased $151,000 due to increased medical and disability insurance expenses and additional expenses related to life insurance and other benefits such as car allowances.  Compensation expense increased $146,000 due to the accelerating of the vesting on the Company’s outstanding stock options.  These increases were partially offset by $329,000 in lower commission expenses related to our Wealth Management operations.

Historically the Company had used stock options as the long-term incentive component of many officers’ total compensation.  These equity instruments helped align officer and shareholder interests and have proven to be an attractive tool for both recruiting and retaining talented officers.  Beginning in late 2003 and during 2004, the Board and its Compensation Committee, like many others in public companies, became increasingly uncomfortable with the level of uncertainty and judgments required in valuing and expensing these options, since they are not publicly traded, and then having to record such uncertain amounts in future years.  In addition, the Board and management were interested in tying long term incentives even more directly to the Company’s earning per share growth rates, while retaining the recruiting and retention power of equity-based compensation.

Based on the valuation and accounting uncertainties under proposed accounting treatment for stock options at the time, and the fact that no associates had been awarded any long term incentive for eighteen months in the midst of a very competitive environment for banking talent, the Board of Directors accelerated the vesting on the Company’s outstanding stock options during the fourth quarter of 2004.

This action resulted in two financial reporting impacts.  First, the remaining fair value of all outstanding stock options was recognized in 2004 as part of the pro-forma footnote disclosures.  Secondly, the Company recognized $146,000 of compensation expense in the fourth quarter of 2004 based on the product of the number of outstanding unvested options times the spread between their weighted average stock price and the Company stock price on October 1, 2004 times the estimated option forfeiture rate of 9.5%.  The forfeiture rate is based on the Company’s history over the past several years, but actual forfeiture effects in the future are measured and recognized in expense for any differences versus the estimate.

20

In summary, the acceleration of the options vesting 1) assisted in the transition with officers to an even more closely aligned business metric, 2) eliminated uncertain long-term incentive plan expense impacts on future earnings, and 3) rewarded officers for the performance of the past two years.

Occupancy expense increased due to scheduled rent increases on various Company facilities and additional space leased at the Company’s Operation Center.   

The decrease in furniture, equipment and data processing is related to lower depreciation expense as some assets became fully depreciated. 

The decrease in professional, legal and consulting expenses were related to non-recurring 2003 expenses related to non-performing loan legal issues and other special matters, as well as, legal issues and other special matters related to the 2003 sale of Southeast Kansas branches.  The decrease was offset by additional expenses related to Sarbanes-Oxley 404 compliance and outside consulting for the Company’s compensation committee.  The remaining decrease was due to less work on special matters such as human resource consulting, tax consulting and various legal issues.

Losses and settlements in both 2004 and 2003 include expenses for a legal settlement related to a loan dispute with another financial institution. 

Historically, we did not invest in marketing campaigns.  During 2003, we began several initiatives to increase its presence in its two markets, including sponsoring a “university” for private business owners, soliciting customer surveys, and advertising in local business periodicals aimed at the Company’s target market.  These efforts continued in 2004 and expanded to include radio and television spots, which increased the cost of the campaign.

The decrease in Director related expenses was related to director incentive and appreciation programs earned in 2003 including fewer outstanding Stock Appreciation Rights (“SARs”), (which require marking to market) in 2004 versus 2003.  Prior to 2001, SARs were used as compensation for director time.

In 2004, we recognized non-compete expenses related to the former CEO, who resigned in 2002.  In 2003, the Company recognized non-compete expenses related to the former CEO and another former employee. 

In 2004, we wrote-off $554,000 of unamortized debt issuance costs related to the refinancing of $11 million of TRUPS. 

The increase in other expenses is due to $163,000 of expenses related to a nonperforming loan and $150,000 write-down on a foreclosed real estate property.

Minority Interest in Net Income of Consolidated Subsidiary
On October 21, 2005, the Company acquired a 60% controlling interest in Millennium.  The Company records its 40% non-controlling interest in Millennium, related to Millennium’s results of operations, in minority interest on the consolidated statement of income.  For the year ended December 31, 2005, we recorded $113,000 of minority interest.

Income Taxes
In 2005, the Company recorded income tax expense of $6.3 million on pre-tax income of $17.6 million, an effective tax rate of 35.8%.  Income tax expense was $4.1 million and $4.0 million for 2004 and 2003, respectively.  The effective tax rates were 33.2% and 36.7% for 2004 and 2003, respectively.  In 2001, a valuation allowance was established in the amount of $1.0 million related to capital losses on certain merchant banking investments.  As of December 31, 2001, the Company had determined it was more likely than not that certain of the deferred tax assets related to the capital losses would not be realized.  Due to the availability of certain tax planning strategies in the fourth quarter of 2002 (i.e. the sale of the branches which would generate significant capital gains), the Company reversed $800,000 of the valuation allowance recorded in 2001.  During 2004, the Company reversed the remaining $241,000 of the valuation allowance.  The nature and deductibility of these losses were finally determined when the Company filed its 2003 income tax returns during 2004.  Also, during 2004, the Company recognized state income tax refunds of $163,000 related to amendments of prior state income tax returns.  Exclusive of these non-recurring items, the effective tax rate in 2004 would have been approximately 36.5%.

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FINANCIAL CONDITION
Comparison for the years ended December 31, 2005 and 2004
Total assets at December 31, 2005 were $1.3 billion, an increase of $227 million, or 21%, over total assets of $1.1 billion at December 31, 2004.  The increase in total assets was related to growth in loans and investment securities.  Loans were $1.002 billion, an increase of $104 million, or 12%, over total loans of $899 million at December 31, 2004.  While new loan originations were strong during the year the Bank experienced a higher than normal level of refinance activity as clients took advantage of the relatively flat yield curve to refinance floating rate debt to the fixed rate permanent markets.  Management does not currently believe that it is in the Company’s long-term best interest to compete aggressively for longer term fixed rate loans at these pricing levels.

Investment securities were $136 million, an increase of $14 million, or 11%, from a comparable balance of $122 million at December 31, 2004.  At December 31, 2005, investment securities included $40 million of short-term discount agency securities, which matured in January 2006 compared to $30 million in short-term discount agency securities, which matured in January 2005.  These investments were used as an alternative to overnight funds to obtain higher yield.  During 2005, we sold $29.0 million of investment securities and reinvested the proceeds to reposition the portfolio.  Realized losses of $506,000 were recorded.  The realized losses were slightly offset by $12,000 of realized gains on the sale of equity securities.

Goodwill and intangible assets were $16.6 million at December 31, 2005, compared to $2.1 million at December 31, 2004, an increase of $14.5 million.  The increase in goodwill and intangible assets was related to the purchase of Millennium.   See Note 7 to the Consolidated Financial Statements for more information.

The growth in loans was primarily funded by increases in deposits and advances from the Federal Home Loan Bank (“FHLB”).  Total deposits at December 31, 2005 were $1.1 billion, an increase of $177 million, or 19%, over total deposits of $940 million at December 31, 2004.  The deposit growth was recorded across all deposit categories, except savings, as a result of new client relationships and increased sales penetration of existing clients. 

Early in 2005, to take advantage of lower rates, we executed $30 million of Brokered CD’s to replace the same amount that was maturing later in the year.  As our asset growth continued, in mid-year we entered into $22 million of long-term FHLB advances at a weighted-average rate of 4.50% with a weighted-average term of 8 years.  The FHLB advances were available at more attractive rates than the Broker CD market.  At December 31, 2005, FHLB advances were $28.6 million, an $18.3 million increase over December 31, 2004.   There were no short-term FHLB advances outstanding at December 31, 2005.  

Junior subordinated debentures increased by $10.3 million due to a pooled trust offering that was issued on October 11, 2005 though a statutory trust established by the Company.  In conjunction with the issuance of the trust preferred offering, the Company issued $10.0 million in junior subordinated debentures to the trust.  The issuance of the additional junior subordinated debentures was to partially fund the acquisition of Millennium.

Federal funds (“Fed funds”) sold were $65 million at December 31, 2005 compared to $6.3 million of fed funds purchased at December 31, 2004.  Stronger deposit growth relative to loan growth during 2005 resulted in higher liquidity levels. Given our outlook for the first quarter 2006, we expect to utilize most of this liquidity after our seasonal deposit runoff for loan volume.

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4^th Quarter 2005 Discussion
The Company earned $2.9 million in net income for the fourth quarter ended December 31, 2005, a $1.1 million increase over net income of $1.8 million the same period in 2004. 

The net interest rate margin was 4.06% for the fourth quarter of 2005 as compared to 3.85% for the same period in 2004.  Net interest income in the fourth quarter of 2005 increased $1.8 million from the fourth quarter of 2004.  This increase in net interest income was the result of a $5.9 million increase in interest income offset by a $4.0 million increase in interest expense.  The yield on average interest-earning assets increased to 6.66% during the fourth quarter of 2005 as compared to 5.25% during the same period in 2004.  The increase in asset yield was due to several prime rate increases during 2005.  The cost of interest-bearing liabilities increased to 3.27% for the fourth quarter of 2005 from 1.82% for the same period in 2004.  This increase is attributed mainly to an increase in money market interest rates and certificates of deposit due to the rate environment. 

The provision for loan losses was $70,000 in the fourth quarter of 2005 versus $775,000 in 2004.  The decrease of $705,000 was due to lower non-performing loan levels, continued strengthening local economies and continued low delinquency rates.

Noninterest income was $2.6 million during the fourth quarter of 2005, a $700,000 increase over $1.9 million in noninterest income during the same period in 2004.  The increase includes $780,000 of commission income earned by Millennium since the acquisition in October of 2005 offset by $408,000 of net realized losses from the sale of securities.  The remaining increase is due to increased income from the Trust division of the Bank.

Noninterest expense was $9.9 million during the fourth quarter of 2005 versus $8.3 million during the same period in 2004.  This represents a $1.6 million increase.  The increase includes $655,000 of expense incurred by Millennium since the acquisition in October of 2005 including $152,000 of amortization of intangibles related to the acquisition.  The remaining increase was primarily due to additional compensation expense tied to the our incentive bonus programs, including the 401(k) match program, which is tied to performance targets such as EPS growth, asset quality statistics, and growth in deposits and wealth management revenue and referrals.

Income tax expense was $1.6 million during the fourth quarter of 2005 versus $1.1 million in the same period in 2004.  The effective tax rates were 36.0% and 36.6%, respectively for the fourth quarter of 2005 and 2004, respectively. 

Loans
Total loans, less unearned loan fees, increased $104 million, or 12% during 2005.  The Company’s lending strategy emphasizes commercial, residential real estate, real estate construction and commercial real estate loans to small and medium sized businesses and their owners in the St. Louis and Kansas City metropolitan markets.  Consumer lending is minimal.  A common underwriting policy is employed throughout the Company.  Lending to these small and medium sized businesses are riskier from a credit perspective than lending to larger companies, but the risk tends to be offset with higher loan pricing and ancillary income from cash management activities.

The Company has implemented a targeted hiring program designed to attract and retain experienced commercial middle market bankers in both the St. Louis and Kansas City markets.  As a result of this strategy the Company has targeted, and will continue to target larger and more sophisticated commercial and industrial and commercial real estate clients.  It is expected that the Company’s average relationship size will increase resulting in greater efficiencies as the same level of cost can originate and service larger average relationships and their related higher revenues.  In addition, it is anticipated that the characteristics of the credit requirements of these clients will require a heavier underwriting emphasis on cash flows as the primary credit granting criteria.

23

The following table sets forth the composition of the Company’s loan portfolio by type of loans at the dates indicated:

	December 31,
(in thousands)	2005			2004			2003			2002			2001
Commercial and industrial	$	265,488		$	253,594		$	209,928		$	167,842		$	160,218
Real estate:
Commercial		410,382			328,986			257,202			187,044			167,378
Construction		138,318			127,180			130,074			139,319			123,788
Residential		151,575			149,293			150,371			189,613			162,100
Consumer and other		36,616			39,452			36,303			31,275			28,570
Less: Portfolio loans held for sale		—			—			—			(35,294	)		(39,307	)
Total Loans	$	1,002,379		$	898,505		$	783,878		$	679,799		$	602,747
	December 31,
	2005			2004			2003			2002			2001
Commercial and industrial		26.5	%		28.2	%		26.8	%		24.7	%		26.6	%
Real estate:
Commercial		40.9	%		36.6	%		32.8	%		27.5	%		27.8	%
Construction		13.8	%		14.2	%		16.6	%		20.5	%		20.5	%
Residential		15.1	%		16.6	%		19.2	%		27.9	%		26.9	%
Consumer and other		3.7	%		4.4	%		4.6	%		4.6	%		4.7	%
Less: Portfolio loans held for sale		—			—			—			-5.2	%		-6.5	%
Total Loans		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Commercial and industrial loans include loans to a diverse range of industries that are made based on the borrowers’ character, experience, general credit strength, and ability to generate cash flows for repayment from income sources, even though such loans may also be secured by real estate or other assets. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations.

Real estate loans are also based on the borrowers’ character, but more emphasis is placed on the estimated collateral values.  Real estate commercial loans are mainly for owner-occupied business and industrial properties, multifamily properties, and other commercial properties on which income from the property is the primary source of repayment.  Credit risk on these loan types is managed in a similar manner to commercial loans and real estate construction loans by employing sound underwriting guidelines, lending to borrowers in local markets, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.  In many cases the Company will take additional real estate collateral to further secure the overall lending relationship.

Real estate construction loans, relating to residential and commercial properties, represent financing secured by real estate under construction for eventual sale.  Real estate construction loans are made to developers and project managers who are well known to the Company, have prior successful project experience, and are well capitalized.  Projects undertaken by these developers are carefully reviewed by the Company to ensure that they are economically viable.   The credit risk associated with real estate construction loans is confined to specific geographic areas, but is also influenced by general economic conditions.  The Company controls the credit risk on these types of loans by making loans in the Company’s primary markets to local developers with which the Company has a strong relationship.  In addition, the Company reviews the merits of each individual project and regularly monitors project progress and construction advances.

Real estate residential loans include residential mortgages (which consist of loans that, due to size, do not qualify for conventional home mortgages, that the Company sells into the secondary market and second mortgages) and home equity lines.  Residential mortgage loans are usually limited to a maximum of 80% of collateral value.

Consumer and other represent loans to individuals secured by personal assets such as automobiles or investment securities.  Credit risk is controlled by reviewing the creditworthiness of the borrowers as well as taking appropriate collateral and guaranty positions on such loans.

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Portfolio loans held for sale relate to loans originated by the Southeast Kansas branches that were sold on April 4, 2003.

Factors that are critical to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an adequate allowance for loan losses, and sound nonaccrual and charge-off policies.

Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions.  At December 31, 2005, no significant concentrations existed in the Company’s portfolio in excess of 10% of loans.

Loans at December 31, 2005 mature or reprice as follows:

	Loans Maturing or Repricing
(in thousands)	In One Year or Less		After One Through Five Years		After Five Years		Total
Fixed Rate Loans (1)
Commercial and industrial	$	21,150	$	52,124	$	711	$	73,985
Real estate:
Commercial		32,640		158,413		20,953		212,006
Construction		5,416		15,602		2,557		23,575
Residential		9,603		28,040		140		37,783
Consumer and other		1,412		4,421		6,549		12,382
Total	$	70,221	$	258,600	$	30,910	$	359,731
Variable Rate Loans (1) (2)
Commercial and industrial	$	217,066	$	—	$	—	$	217,066
Real estate:
Commercial		172,813		—		—		172,813
Construction		114,743		—		—		114,743
Residential		113,792		—		—		113,792
Consumer and other		24,234		—		—		24,234
Total	$	642,648	$	—	$	—	$	642,648
Loans (1) (2)
Commercial and industrial	$	238,216	$	52,124	$	711	$	291,051
Real estate:
Commercial		205,453		158,413		20,953		384,819
Construction		120,159		15,602		2,557		138,318
Residential		123,395		28,040		140		151,575
Consumer and other		25,646		4,421		6,549		36,616
Total	$	712,869	$	258,600	$	30,910	$	1,002,379

(1) Loan balances are shown net of unearned loan fees.

(2) Not adjusted for impact of interest rate swap agreements.

As indicated in the above maturity table, most of our lending is done on a variable-rate basis based on prime.  In addition, most loan originations have one to three year maturities.  While the loan relationship has a much longer life, the shorter maturities allow the Company to revisit the underwriting and pricing on each relationship periodically.

Fixed rate loans comprise 36% of the loan portfolio at December 31, 2005 versus 27% at the end of 2004. This trend is consistent with the recent interest rate environment, especially with a flat yield curve. Management monitors this mix as part of its interest rate risk management. See “Interest Rate Risk” section.

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Allowance for Loan Losses
The loan portfolio is the primary asset subject to credit risk.  Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance.  Active asset quality administration, including early problem loan identification and timely resolution of problems, further ensures appropriate management of credit risk and minimization of loan losses.  Credit risk management for each loan type is discussed briefly in the section entitled “Loans.”

The allowance for loan losses represents management’s estimate of an amount adequate to provide for probable credit losses in the loan portfolio at the balance sheet date.  Management’s evaluation of the adequacy of the allowance for loan losses is based on management’s ongoing review and grading of the loan portfolio, consideration of past loss experience, trends in past due and nonperforming loans, risk characteristics of the various classifications of loans, existing economic conditions, the fair value of underlying collateral, and other factors that could affect probable credit losses.  Assessing these numerous factors involves significant judgment.  Management considers the allowance for loan losses a critical accounting policy (see section “Critical Accounting Policies”).

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 charged to expense.

	At December 31,
(in thousands)	2005			2004			2003			2002			2001
Allowance at beginning of period	$	11,665		$	10,590		$	8,600		$	7,296		$	7,097
Loans charged off:
Commercial and industrial		171			425			1,492			700			2,538
Real estate:
Commercial		424			577			—			25			279
Construction		—			—			—			—			—
Residential		—			100			335			417			165
Consumer and other		49			194			77			104			170
Total loans charged off		644			1,296			1,904			1,246			3,152
Recoveries of loans previously charged off:
Commercial and industrial		209			92			107			55			38
Real estate:
Commercial		74			—			66			8			25
Construction		—			—			—			—			—
Residential		177			42			38			192			52
Consumer and other		19			25			56			44			6
Total recoveries of loans		479			159			267			299			121
Net loans charged off		165			1,137			1,637			947			3,031
Provision for loan losses		1,490			2,212			3,627			2,251			3,230
Allowance at end of period	$	12,990		$	11,665		$	10,590		$	8,600		$	7,296
Average loans	$	964,259		$	847,270		$	738,572		$	693,551		$	613,539
Total loans		1,002,379			898,505			783,878			679,799			602,747
Nonperforming loans		1,421			1,827			1,548			3,888			3,749
Net charge-offs to average loans		0.02	%		0.13	%		0.22	%		0.14	%		0.49
Allowance for loan losses to loans		1.30			1.30			1.35			1.27			1.21

Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, accrued interest, and related expenses.

The Company’s credit management policies 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 and regulatory bank examinations. The system requires rating all loans at the time they are made, at each renewal date and as conditions warrant.

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Adversely rated credits, including loans requiring close monitoring, which would normally not be considered criticized credits by regulators, are included on a monthly loan watch list. Other loans are added whenever any adverse circumstances are detected which might affect the borrower’s ability to meet the terms of the loan.  This could be initiated by any of the following:
	1)	delinquency of a scheduled loan payment,
	2)	deterioration in the borrower’s financial condition identified in a review of periodic financial statements,
	3)	decrease in the value of collateral securing the loan or,
	4)	change in the economic environment in which the borrower operates.

Loans on the watch list require detailed loan status reports, including recommended corrective actions, prepared by the responsible loan officer every three months.  These reports are then discussed in formal meetings with the Senior Credit Administration Officer, Chief Credit Officer and Chief Executive Officer of the Bank.

Downgrades of loan risk ratings may be initiated by the responsible loan officer, internal loan review, or the credit analyst department at any time.  Upgrades of certain risk ratings may only be made with the concurrence of the Senior Credit Administration Officer, Chief Credit Officer and Loan Review Officer.

In determining the allowance and the related provision for loan losses, three principal elements are considered:
	1)	specific allocations based upon probable losses identified during a monthly review of the loan portfolio,
	2)	allocations based principally on the Company’s risk rating formulas, and
	3)	an unallocated allowance based on subjective factors.

The first element reflects management’s estimate of probable losses based upon a systematic review of specific loans considered to be impaired.  These estimates are based upon collateral exposure, if they are collateral dependent for collection.  Otherwise, discounted cash flows are estimated and used to assign loss.

The second element reflects the application of our loan rating system.  This rating system is similar to those employed by state and federal banking regulators.  Loans are rated and assigned a loss allocation factor for each category that is consistent with our historical losses, adjusted for environmental factors.  The higher the rating assigned to a loan, the greater the allocation percentage that is applied.

The unallocated allowance is based on management’s evaluation of conditions that are not directly reflected in the determination of the formula and specific allowances.  The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they may not be identified with specific problem credits or portfolio segments.  The conditions evaluated in connection with the unallocated allowance include the following:
	•	general economic and business conditions affecting our key lending areas;
	•	credit quality trends (including trends in nonperforming loans expected to result from existing conditions);
	•	collateral values;
	•	loan volumes and concentrations;
	•	competitive factors resulting in shifts in underwriting criteria;
	•	specific industry conditions within portfolio segments;
	•	recent loss experience in particular segments of the portfolio;
	•	bank regulatory examination results; and
	•	findings of our internal loan review department.

Executive management reviews these conditions quarterly in discussion with our entire lending staff.  To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such conditions may be reflected as a specific allowance, applicable to such credit or portfolio segment.  Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss related to such condition is reflected in the unallocated allowance.

Based on this quantitative and qualitative analysis, provisions are made to the allowance for loan losses.  Such provisions are reflected in our consolidated statements of income.

The allocation of the allowance for loan losses by loan category is a result of the analysis above.  The allocation methodology applied by the Company, designed to assess the adequacy of the allowance for loan losses, focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and other nonperforming loans, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, and historical losses on each portfolio category.  Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. 

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The total allowance is available to absorb losses from any segment of the portfolio.  Management continues to target and maintain the allowance for loan losses equal to the allocation methodology plus an unallocated portion, as determined by economic conditions and other qualitative and quantitative factors affecting the Company’s borrowers, as described above.

The following table is a summary of the allocation of the allowance for loan losses for the five years ended December 31, 2005:

	December 31,
	2005					2004					2003					2002					2001
(in thousands)	Allowance		Percent by Category to Total Loans			Allowance		Percent by Category to Total Loans			Allowance		Percent by Category to Total Loans			Allowance		Percent by Category to Total Loans			Allowance		Percent by Category to Total Loans
Commercial and industrial	$	3,172		26.5	%	$	2,948		28.2	%	$	2,948		26.8	%	$	2,846		24.7	%	$	2,366		26.6	%
Real estate:
Commercial		4,245		40.9			3,671		36.6			3,715		32.8			1,903		27.5			1,915		27.8
Construction		1,048		13.8			1,037		14.2			1,099		16.6			1,062		20.5			932		20.5
Residential		1,774		15.1			1,903		16.6			2,093		19.2			2,369		27.9			1,625		26.9
Consumer and other		313		3.7			283		4.4			245		4.6			244		4.6			198		4.7
Loans held for sale		—		—			—		—			—		—			—		(5.2	)		—		(6.5	)
Not allocated		2,439					1,823					490					176					260
Total allowance	$	12,990		100.0	%	$	11,665		100.0	%	$	10,590		100.0	%	$	8,600		100.0	%	$	7,296		100.0	%

Prior to 2004, the methods of calculating the allowance requirements had not changed significantly over time. The reallocations among different categories of loans that appear between periods were the result of the redistribution of the individual loans that comprise the aggregate portfolio due to the factors listed above.  However, the perception of risk with respect to particular loans within the portfolio will change over time as a result of the characteristics and performance of those loans, overall economic and market trends, and the actual and expected trends in nonperforming loans.  Consequently, while there are no specific allocations of the allowance resulting from economic or market conditions or actual or expected trends in nonperforming loans, these factors are considered in the initial assignment of risk ratings to loans, subsequent changes to those risk ratings and to a lesser extent in the size of the unallocated allowance amount.

Beginning in 2004, as a part of an overall effort to further improve its risk assessment; the Company refined its methodology with special attention to the unallocated allowance.  The unallocated allowance is based on factors that cannot necessarily be associated with a specific loan or loan category.  In its 2004 assessment, management focused on the following factors and conditions:
	•	There is a level of imprecision necessarily inherent in the estimates of expected loan losses, and the unallocated reserve gives reasonable assurance that this level of imprecision in our formula methodologies is adequately provided for.
	•	With respect to the real estate sector, management considered the continued weakness in the commercial office market with vacancy rates continuing to remain high and rents continuing to remain soft.
	•	Pressures to maintain and grow the loan portfolio in a slower economic environment with increasing competition from de novo institutions and larger competitors have to some degree affected credit granting criteria adversely.  The Company monitors the disposition of all credits, which have been approved through its Executive Loan Committee in order to better understand competitive shifts in underwriting criteria.
	•	While the Bank’s target client has not changed, the Bank is focusing more of its calling efforts on larger middle market commercial and industrial companies.  This move “up market” results in larger average loans per client, and generally more complex credit structures.

While the Company has no significant specific industry concentration risk, analysis showed that over 60% of the loan portfolio was dependent on real estate collateral.  The Company has policies, guidelines, and individual risk ratings in place to control this exposure at the transaction level.  However, the percentage of the portfolio secured by commercial real estate increased from 27.5% at December 31, 2002 to 36.6% at December 31, 2004.  Given the trend of rising rates inherent in the current economic cycle and the likely adverse impacts on borrowers’ debt service coverage ratios, management believed it was prudent to increase the unallocated allowance component.

Additionally, the Company continues to be committed to a strategy of acquiring relationships with larger commercial and industrial companies.  The percentage of the portfolio represented by these clients increased from 24.7% at December 31, 2002 to 28.2% at December 31, 2004.  Management believed it was prudent to increase the percentage of the unallocated allowance to cover the risks inherent in the higher average loan size of these relationships.

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Finally, management believed that the level of competition for credit relationships had increased substantially over the prior year in both of our primary markets.  During 2004, the entry of National City Bank into the St. Louis market along with six new banking charters are examples of the increased level of competition.  To the extent that substantially increased levels of competition for credit may inherently result in an increased level of credit risk, management believed it was prudent to increase the Company’s unallocated allowance component.

As a result of the above analysis, management increased the unallocated allowance by $1.3 million from 2003 to 2004.  The factors noted for 2004 are still applicable at December 31, 2005.  The increase in the unallocated allowance from 2004 to 2005 is primarily due to the increase in loan balances and the continued increase in interest rate levels and their impact on borrower cash flows and real estate values. 

Nonperforming assets include nonaccrual loans, loans with payments past due 90 days or more and still accruing interest, restructured loans and foreclosed real estate.  The following table presents the categories of nonperforming assets and certain ratios as of the dates indicated:

	At December 31,
(in thousands)	2005			2004			2003			2002			2001
Non-accrual loans	$	1,421		$	1,827		$	1,548		$	2,212		$	2,506
Loans past due 90 days or more and still accruing interest		—			—			—			—			—
Restructured loans		—			—			—			1,676			1,243
Total noperforming loans		1,421			1,827			1,548			3,888			3,749
Foreclosed property		—			123			—			125			138
Total non performing assets	$	1,421		$	1,950		$	1,548		$	4,013		$	3,887
Total assets	$	1,286,968		$	1,059,950		$	907,726		$	875,987		$	795,250
Total loans		1,002,379			898,505			783,878			679,799			602,747
Total loans plus foreclosed property		1,002,379			898,628			783,878			679,924			602,885
Nonperforming loans to loans		0.14	%		0.20	%		0.20	%		0.57	%		0.62	%
Nonperforming assets to loans plus foreclosed property		0.14			0.22			0.20			0.59			0.64
Nonperforming assets to total assets		0.11			0.18			0.17			0.46			0.49
Allowance for loan losses to non-performing loan		914.00	%		639.00	%		684.00	%		221.00	%		195.00	%

Nonperforming loans are defined as loans on nonaccrual status, loans 90 days or more past due but still accruing, and restructured loans.  Loans are placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments.  Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectibility of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due.  Previously accrued and uncollected interest on such loans is reversed and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible.  If collectibility of the principal is in doubt, payments received are applied to loan principal.

Loans past due 90 days or more but still accruing interest are also included in nonperforming loans.  Loans past due 90 days or more but still accruing are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection.  Also included in nonperforming loans are “restructured” loans.  Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate.

Nonperforming loans were $1.4 million at December 31, 2005.  The decrease in nonperforming loans from the prior year was due to successful efforts by relationship managers to encourage customers to either refinance the credit at another financial institution or liquidate collateral and reduce our exposure.  In some other cases, the nonperforming loans were charged off or the assets securing the loan were foreclosed and the recovery process begun.  At December 31, 2005, the nonperforming loans consisted of five accounts.  Two of the accounts accounted for 68% of the total nonperforming loans.  At December 31, 2004 and 2003, approximately 36% and 37%, respectively, of the nonperforming loans related to a printing company and the remainder consists of five and eight different borrowers, respectively.

At December 31, 2001 and 2002, $1.2 million of the restructured loans related to an auto dealership that had financial difficulties.  At December 31, 2001, $1.9 million or 75% of the nonaccrual totals related to the owner of a large distribution company that filed bankruptcy.  The remainder of the balances in 2001 and 2002 represent ten to twenty different borrowers.

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The Company’s nonaccrual loans and restructured loans meet the definition of “impaired loans” under U.S. GAAP.  As of December 31, 2005, 2004 and 2003, the Company had 5, 8, and 11 impaired loans, respectively, all of which are considered potential problem loans as well. 

Management believes that the allowance for loan losses is adequate.

Investment Securities
At December 31, 2005, the investment securities portfolio was $136 million, or 10.5% of total assets.  Our debt securities portfolio is primarily comprised of U.S. government agency obligations, mortgage-backed pools, collateralized mortgage obligations and municipal bonds.  Our equity investments primarily consist of equity investments in the FHLB (Des Moines).  The size of the investment portfolio is generally 5-10% of total assets and will vary within that range based on liquidity.  Typically, management classifies securities as available for sale to maximize management flexibility, although securities may be purchased with the intention of holding to maturity.  Securities available-for-sale are carried at fair value, with related unrealized net gains or losses, net of deferred income taxes, recorded as an adjustment to equity capital. 

The table below sets forth the carrying value of investment securities held by the Company at the dates indicated:

	December 31,
	2005					2004					2003
(in thousands)	Amount		Percent Of Total Securities			Amount		Percent Of Total Securities			Amount		Percent Of Total Securities
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	117,326		86.5	%	$	98,944		81.4	%	$	51,869		61.8	%
Mortgage-backed securities		12,953		9.6	%		18,514		15.2	%		27,814		33.1	%
Municipal Bonds		1,231		0.9	%		1,616		1.3	%		1,658		2.0	%
Equity securities		4,049		3.0	%		2,564		2.1	%		2,608		3.1	%
	$	135,559		100.0	%	$	121,638		100.0	%	$	83,949		100.0	%

Included in US Treasury securities and obligations of U.S. government corporations and agencies were $40 million of short-term discount agency notes that matured in January 2006.  These investments were used as an alternative to overnight funds to obtain higher yield given the excess liquidity.

The Company had no securities classified as trading at December 31, 2005, 2004 or 2003.

The following table summarizes expected maturity and yield information on the investment portfolio at December 31, 2005:

	Within 1 year					1 to 5 years					5 to 10 years					10 or more years					No Stated Maturity					Total
(in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	42,702		4.08	%	$	74,624		3.84	%	$	—		0.00	%	$	—		0.00	%	$	—		0.00	%	$	117,326		3.93	%
Mortgage-backed securities		1,531		2.68	%		10,979		3.30	%		243		4.56	%		200		5.41	%		—		0.00	%		12,953		3.29	%
Municipal Bonds		481		2.82	%		286		4.37	%		464		5.55	%		—		0.00	%		—		0.00	%		1,231		4.21	%
Equity securities		—		0.00	%		—		0.00	%		—		0.00	%		—		0.00	%		4,049		4.01	%		4,049		4.01	%
Total	$	44,714		4.02	%	$	85,889		3.77	%	$	707		5.21	%	$	200		5.41	%	$	4,049		4.01	%	$	135,559		3.87	%

Yields on tax exempt securities are computed on a taxable equivalent basis using a tax rate of 36%.  Expected maturities will differ from contractual maturities, as borrowers may have the right to call on repay obligations with or without prepayment penalties.

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Deposits

The following table shows, for the periods indicated, the average annual amount and the average rate paid by type of deposit:

	For the year ended December 31,
	2005					2004					2003
(in thousands)	Average balance		Weighted average rate			Average balance		Weighted average rate			Average balance		Weighted average rate
Interest-bearing transaction accounts	$	87,560		1.18	%	$	71,568		0.45	%	$	54,742		0.31	%
Money market accounts		437,346		2.46	%		403,363		1.14	%		357,497		0.97	%
Savings accounts		4,435		0.70	%		4,254		0.33	%		5,499		0.44	%
Certificates of deposit		259,852		3.33	%		225,529		2.24	%		185,175		2.45	%
		789,193		2.59	%		704,714		1.42	%		602,913		1.36	%
Noninterest-bearing demand deposits		200,054		—			184,116		—			151,140		—
	$	989,247		2.07	%	$	888,830		1.12	%	$	754,053		1.09	%

We continued to experience rapid loan and deposit growth due to aggressive direct calling efforts of relationship officers. 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 as a stable deposit base.  In 2002, the Company began using brokered certificates of deposit to help fund its growth.  In the future, the Bank expects to continue to use certificates of deposit sold to retail customers of regional and national brokerage firms (i.e. brokered certificates of deposit).  At December 31, 2005 and 2004, the Company had $64 million in brokered certificates of deposit.

Maturities of certificates of deposit of $100,000 or more are as follows:

(in thousands)	Total
Three months or less	$	67,757
Over three through six months		30,655
Over six through twelve months		52,373
Over twelve months		79,054
Total	$	229,839

Liquidity and Capital Resources
The objective of liquidity management is to ensure the Company has the ability to generate sufficient cash or cash equivalents in a timely and cost-effective manner to meet its commitments as they become due.  Funds are available from a number of sources, such as from the core deposit base and from loans and securities repayments and maturities.  Additionally, liquidity is provided from sales of the securities portfolio, lines of credit with major banks, the Federal Reserve and the Federal Home Loan Bank, the ability to acquire large and brokered deposits and the ability to sell loan participations to other banks.

The Company’s liquidity management framework includes measurement of several key elements, such as the loan to deposit ratio, wholesale deposits as a percentage of total deposits, and various dependency ratios used by banking regulators.  The Company’s liquidity framework also incorporates contingency planning to assess the nature and volatility of funding sources and to determine alternatives to these sources. 

Strong capital ratios, credit quality and core earnings are essential to retaining cost-effective access to the wholesale funding markets.  Deterioration in any of these factors could have an impact on the Company’s ability to access these funding sources and, as a result, these factors are monitored on an ongoing basis as part of the liquidity management process.

While core deposits and loan and investment repayments are principal sources of liquidity, funding diversification is another key element of liquidity management.  Diversity is achieved by strategically varying depositor types, terms, funding markets, and instruments.

We manage the parent company’s liquidity to provide the funds necessary to pay dividends to shareholders, service debt, invest in the Bank as necessary, and satisfy other operating requirements.  The parent company’s primary funding sources to meet its liquidity requirements are dividends from subsidiaries, borrowings against its $15 million line of credit with a major bank, and proceeds from the issuance of equity (i.e. stock option exercises).

31

The Bank is subject to regulations and, among other things, may be limited in its ability to pay dividends or transfer funds to the parent company.  Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows may not represent cash immediately available for the payment of cash dividends to the Company’s shareholders or for other cash needs.

Another source of funding for the parent company includes the issuance of subordinated debentures.  In October of 2005, the Company issued $10.0 million of additional subordinated debentures as part of a Trust Preferred Securities Pool (“TRUPS”) at a fixed rate of 6.14% for five years.  Following the five-year period, the TRUPS will pay a variable rate of three-month LIBOR plus 144 bp that reprices quarterly.  These securities are classified as debt but count as regulatory capital and the related interest expense is tax-deductible, which makes them very attractive. 

Investment securities are an important tool to the Company’s liquidity objective.  As of December 31, 2005, the entire investment portfolio was available for sale.  Of the $136 million investment portfolio available for sale, $18 million was pledged as collateral for public deposits, treasury, tax and loan notes, and other requirements.  The remaining securities could be pledged or sold to enhance liquidity if necessary.

The Bank has a variety of funding sources (in addition to key liquidity sources, such as core deposits, loan repayments, loan participations sold, and investment portfolio sales) available to increase financial flexibility.  At December 31, 2005, the Bank had $132 million available from the Federal Home Loan Bank of Des Moines under a blanket loan pledge, absent the Bank being in default of its credit agreement, and $168 million available from the Federal Reserve Bank under a pledged loan agreement.  The Bank also has access to over $70 million in overnight federal funds lines purchased from various banking institutions.  Finally, because the Bank plans to remain a “well-capitalized” institution, it has the ability to sell certificates of deposit through various national or regional brokerage firms, if needed.

Over the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit.  These transactions are managed through the Company’s various risk management processes.  Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity.  The Company has $346 million in unused loan commitments as of December 31, 2005.  While this commitment level would be very difficult to fund given the Company’s current liquidity resources, we know that the nature of these commitments are such that the likelihood of such a funding demand is very low. 

For the year ended December 31, 2005 and 2004, net cash provided by operating activities was materially consistent.  Net cash used in investing activities was $132 million in 2005 versus $158 million in 2004.  The decrease of $26 million was primarily due to a reduction in investment security activity.  Net cash provided by financing activities was $206 million in 2005 versus $145 million in 2004.  This increase consisted of greater deposit growth in 2005, the issuance of subordinated debentures and additional long-term Federal Home Loan Bank advances.

Risk-based capital 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 consists of (a) common shareholders’ equity (excluding the unrealized market value adjustments on the available-for-sale securities and cash flow hedges), (b) qualifying perpetual preferred stock and related additional paid in capital 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 loan losses, and subordinated debentures.

32

The following table summarizes the Company’s risk-based capital and leverage ratios at the dates indicated:

	At December 31,
(in thousands)	2005			2004			2003
Tier I capital to risk weighted assets		10.31	%		9.94	%		9.77	%
Total capital to risk weighted assets		11.55	%		11.19	%		11.02	%
Leverage ratio (Tier I capital to average assets)		8.75	%		8.44	%		8.67	%
Tangible capital to tangible assets		5.98	%		6.68	%		7.00	%
Tier I capital	$	107,538		$	92,096		$	77,981
Total risk-based capital	$	120,528		$	103,673		$	87,970

Risk Management

Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk.  The Company faces market risk in the form of interest rate risk through transactions other than trading activities.  Market risk from these activities, in the form of interest rate risk, is measured and managed through a number of methods.  The Company uses financial modeling techniques to measure interest rate risk.  These techniques measure the sensitivity of future earnings due to changing interest rate environments.  Guidelines established by the Company’s Asset/Liability Management Committee and approved by the Company’s Board of Directors are used to monitor exposure of earnings at risk.  General interest rate movements are used to develop sensitivity as the Company feels it has no primary exposure to a specific point on the yield curve.  These limits are based on the Company’s exposure to a 100 bp and 200 bp immediate and sustained parallel rate move, either upward or downward.

Interest Rate Risk
In order to measure earnings sensitivity to changing rates, the Company uses a static gap analysis and earnings simulation model. 

The static gap analysis starts with contractual repricing information for assets, liabilities, and off-balance sheet instruments.  These items are then combined with repricing estimations for administered rate (interest-bearing demand deposits, savings, and money market accounts) and non-rate related products (demand deposit accounts, other assets, and other liabilities) to create a baseline repricing balance sheet.  In addition, mortgage-backed securities are adjusted based on industry estimates of prepayment speeds.

33

The following table represents the estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of December 31, 2005.  Significant assumptions used for this table included: loans will repay at historic repayment rates; interest-bearing demand accounts and savings accounts are interest sensitive due to immediate repricing, 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.

(in thousands)	Year 1		Year 2		Year 3		Year 4		Year 5		Beyond 5 years or no stated maturity		Total
Interest-Earning Assets
Investments in debt and equity securities	$	44,449	$	40,072	$	29,378	$	16,697	$	7	$	4,956	$	135,559
Interest-bearing deposits		84		—		—		—		—		—		84
Federal Funds Sold		64,709		—		—		—		—		—		64,709
Loans (1)		712,869		77,713		96,941		29,806		54,140		30,910		1,002,379
Loans held for sale		2,761		—		—		—		—		—		2,761
Total interest-earning assets	$	824,872	$	117,785	$	126,319	$	46,503	$	54,147	$	35,866	$	1,205,492
Interest-Bearing Liabilities
Savings, NOW and Money market deposits	$	591,898	$	—	$	—	$	—	$	—	$	—	$	591,898
Certificates of deposit (1)		202,422		69,810		21,004		679		1,106		—		295,021
Subordinated debentures		20,620		—		—		—		10,310		—		30,930
Other borrowings		9,872		1,250		650		1,050		5,800		18,309		36,931
Total interest-bearing liabilities	$	824,812	$	71,060	$	21,654	$	1,729	$	17,216	$	18,309	$	954,780
Interest-sensitivity GAP
GAP by period	$	60	$	46,725	$	104,665	$	44,774	$	36,931	$	17,557	$	250,712
Cumulative GAP	$	60	$	46,785	$	151,450	$	196,224	$	233,155	$	250,712	$	250,712
Ratio of interest-earning assets to interest-bearing liabilities
Periodic		1.00		1.66		5.83		26.90		3.15		1.96		1.26
Cumulative GAP		1.00		1.05		1.17		1.21		1.25		1.26		1.26

(1) Adjusted for the impact of the interest rate swaps.

At December 31, 2005, the Company was asset sensitive on a cumulative basis for all periods based on contractual maturities.  Asset sensitive means that assets will reprice faster than liabilities.

Along with the static gap analysis, determining the sensitivity of short-term future earnings to a hypothetical plus or minus 100 and 200 basis point parallel rate shock can be accomplished through the use of simulation modeling.  In addition to the assumptions used to create the static gap, simulation of earnings includes the modeling of the balance sheet as an ongoing entity.  Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included.  These items are then modeled to project net interest income based on a hypothetical change in interest rates.  The resulting net interest income for the next 12-month period is compared to the net interest income amount calculated using flat rates.  This difference represents the Company’s earnings sensitivity to a plus or minus 100 basis points parallel rate shock.

The resulting simulations for December 31, 2005, projected that net interest income would increase by approximately 4.0% if rates rose by a 100 basis point parallel rate shock, and projected that the net interest income would decrease by approximately 7.0% if rates fell by a 100 basis point parallel rate shock.

The Company uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above.  They are used to modify the Company’s exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources.  At December 31, 2005, the Company had $100 million in notional amount of outstanding interest rate swaps to reduce interest rate risk.  Derivative financial instruments are also discussed in Note 7 to the Consolidated Financial Statements. 

34

Contractual Obligations, Off-Balance Sheet Risk, and Contingent Liabilities
Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments.  Such obligations relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment.  As a financial services provider, the Company routinely enters into commitments to extend credit.  While contractual obligations represent future cash requirements of the Company, a significant portion of commitments to extend credit may expire without being drawn upon.  Such commitments are subject to the same credit policies and approval process accorded to loans made by the Company.

The required contractual obligations and other commitments at December 31, 2005 were as follows:

(in thousands)	Total		Less Than 1 Year		Over 1 Year Less than 5 Years		Over 5 Years
Operating leases	$	11,590	$	1,673	$	6,712	$	3,205
Certificates of deposit		295,021		192,422		102,599		—
Subordinated debentures		30,930		—		—		30,930
Federal Home Loan Bank advances		28,584		1,525		8,750		18,309
Commitments to extend credit		346,205		283,585		32,917		29,703
Standby letters of credit		28,013		28,013		—		—

The Company also enters into derivative contracts under which the Company is required to either receive cash from or pay cash to counterparties depending on changes in interest rates.  Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date.  The fair value of these contracts changes daily as market interest rates change.  Derivative liabilities are not included as contractual cash obligations as their fair value does not represent the amounts that may ultimately be paid under these contracts.

Effects of New Accounting Standards

On July 14, 2005, the Financial Accounting Standards Board (“FASB”) issued an exposure draft for Accounting for Uncertain Tax Positions, an Interpretation of FAS No. 109, Accounting for Income Taxes.  The proposed interpretation would clarify the accounting for uncertain tax positions in accordance with FAS 109.  An enterprise would be required to recognize, in its financial statements, the best estimate of the impact of a tax position only if that position is probable of being sustained on audit based solely on the technical merits of the position. In evaluating whether the probable recognition threshold has been met, this proposed Interpretation would require the presumption that the tax position will be evaluated during an audit by taxing authorities. The term probable is used in this proposed Interpretation consistent with its use in FASB Statement No. 5, Accounting for Contingencies, to mean “the future event or events that are likely to occur.” Individual tax positions that fail to meet the probable recognition threshold will generally result in either (a) a reduction in the deferred tax asset or an increase in a deferred tax liability or (b) an increase in a liability for income taxes payable or the reduction of an income tax refund receivable. The impact may also include both (a) and (b). This proposed Interpretation also would provide guidance on disclosure, accrual of interest and penalties, accounting in interim periods, and transition.  If approved, the Interpretation would be effective as of the end of the first fiscal year ending after December 15, 2005.   The FASB comment period ended on September 12, 2005.   We are waiting on the final decision related to this Interpretation by FASB and are presently unable to determine its overall impact on our consolidated financial statements or results of operations.

On May 5, 2005, the Financial Accounting Standards Board (“FASB”) issued FAS No. 154, Statement Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.  FAS 154 requires retrospective application for voluntary changes in accounting principles unless it is impracticable to do so.  FAS 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. Early application is permitted for accounting changes and corrections of errors during fiscal years beginning after June 1, 2005. We have evaluated the requirements of SFAS No.154 and expect the implementation will have no material effect on our consolidated financial condition or results of operations.

In December 2004, FASB issued FAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”).  FAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  FAS No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award.  The accounting provisions of FAS 123(R) are effective for annual reporting periods beginning after June 15, 2005, therefore, we will be required to adopt FAS 123R in the first quarter of fiscal 2006.

35

The pro forma disclosures previously permitted under FAS 123 will no longer be an alternative to financial statement recognition.  The pro forma net income and net income per share amounts (based on a fair-value method similar to the methods required under FAS123R to measure compensation expense for employee stock incentive awards) are shown in Note 1 to the Consolidated Financial Statements.   We expect the implementation of FAS 123R will have less than $0.01 effect on our earnings per share in 2006. 

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on criteria to evaluate whether to record a loss and disclose additional information about unrealized losses relating to debt and equity securities under EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The consensus applies to investments in debt and marketable equity securities that are accounted under FAS 115, Accounting for Certain Investments in Debt and Equity Securities.  After many organizations, including banks, which could be impacted by this guidance, asked for clarification on the meaning of other-than-temporary impairment and its application to certain investments, the FASB postponed the implementation.  In July 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but instead issued FASB staff position (“FSP”) EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, as final.  The final position supersedes several previously issued EITF topics and replaces guidance set forth in several others.  The final position, titled FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, codifies guidance set forth in EITF Topic D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value, and clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made.  The effective date of the FSP will be reporting periods beginning after December 15, 2005.  We have evaluated the impact of the final rule and expect the implementation of FAS 115-1 will not have a material effect on our consolidated financial position or results of operations.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to “Market Risk” included in Management’s Discussion and Analysis under Item 7.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Please refer to Item 15 below.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

NONE

ITEM 9A: CONTROLS AND PROCEDURES

As of December 31, 2005, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2005, to ensure that information required to be disclosed in the Company’s periodic SEC filings is processed, recorded, summarized and reported when required.  There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of the evaluation.

Under the supervision and with the participation of the Company’s CEO and CFO, management has excluded the internal controls over financial reporting associated with Millennium Brokerage Group, LLC from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2005.

ITEM 9B: OTHER INFORMATION

The Company is not aware of any information required to be disclosed in a report on Form 8-K during the fourth quarter covered by their Form 10-K, but not reported, whether or not otherwise required by this Form 10-K.

36

PART III – MANAGEMENT

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated herein by reference to the Company’s Proxy Statement for its annual meeting to be held on Wednesday, April 19, 2006.

ITEM 11: EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the Company’s Proxy Statement for its annual meeting to be held on Wednesday, April 19, 2006.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference to the Company’s Proxy Statement for its annual meeting to be held on Wednesday, April 19, 2006.

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 terms 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 the entity’s unimpaired capital plus reserve for loan losses.  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.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the Company’s Proxy Statement for its annual meeting to be held on Wednesday, April 19, 2006.

37

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed or incorporated by reference as part of this Report:
	Enterprise Financial Services Corp and subsidiaries
					Page Number
		1.	Financial Statements:
				Management’s Report on Internal Control over Financial Reporting	39
				Report of Independent Registered Public Accounting Firm	40
				Consolidated Balance Sheets at December 31, 2005 and 2004	42
				Consolidated Statements of Income for the years ended December 31, 2005, 2004, and 2003	43
				Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2005, 2004, and 2003	44
				Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and 2003	45
				Notes to Consolidated Financial Statements	46
		2.	Financial Statement Schedules
			None other than those included in the Notes to Consolidated Financial Statements.
		3.	Exhibits
			See Exhibit Index

38

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Company’s internal control over financial reporting is a process designed under the supervision of the CEO and CFO to provide reasonable assurance regarding reliability of financial reporting and preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. GAAP.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.”  Based on the assessment, management determined that, as of December 31, 2005, the Company’s internal control over financial reporting was effective based on these criteria.

On October 21, 2005, the Company and its wholly-owned subsidiary, Millennium Holding Company, Inc., acquired 60 percent of the membership interests of Millennium Brokerage Group, LLC.  Management has excluded the internal controls over financial reporting associated with Millennium Brokerage Group LLC from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2005.  As of December 31, 2005 the assets associated with Millennium Brokerage Group, LLC, represented less than 1% of the total assets of the Company.  Total revenue, defined as net interest income and noninterest income, associated with Millennium Brokerage Group, LLC, included in the Company’s total revenue for the year ended December 31, 2005 was limited to the period from October 22, 2005 through December 31, 2005, and represented 1.5% of the Company’s total revenue for the year ended December 31, 2005.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included in this Form 10-K.

39

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Enterprise Financial Services Corp:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Enterprise Financial Services Corp and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Enterprise Financial Services Corp maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, Enterprise Financial Services Corp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by COSO.

The Company acquired Millennium Brokerage Group, LLC during 2005, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, Millennium Brokerage Group LLC’s internal control over financial reporting. As of December 31, 2005, the assets associated with Millennium Brokerage Group, LLC represented less than 1% of the total assets of the Company. Total revenue, defined as net interest income and noninterest income, associated with Millennium Brokerage Group, LLC for the period from October 22, 2005 through December 31, 2005 represented approximately 1.5% of the Company’s total revenue for the year ended December 31, 2005. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Millennium Brokerage Group, LLC.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Enterprise Financial Services Corp as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 1, 2006 expressed an unqualified opinion on those consolidated financial statements.

St. Louis, Missouri
March 1, 2006

40

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Enterprise Financial Services Corp:

We have audited the accompanying consolidated balance sheets of Enterprise Financial Services Corp and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows, for each of the years in the three-year period ended December 31, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States).  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 Enterprise Financial Services Corp and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Enterprise Financial Services Corp’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

St. Louis, Missouri

March 1, 2006

41

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2005 and 2004

	December 31,
(In thousands)	2005			2004
Assets
Cash and due from banks	$	54,118		$	28,324
Federal funds sold		64,709			—
Interest-bearing deposits		84			156
Total cash and cash equivalents		118,911			28,480
Investments in debt and equity securities:
Available for sale, at estimated fair value		135,559			121,630
Held to maturity, at amortized cost (estimated fair value of $8 at December 31, 2004)		—			8
Total investments in debt and equity securities		135,559			121,638
Loans held for sale		2,761			2,376
Loans, less unearned loan fees		1,002,379			898,505
Less: Allowance for loan losses		12,990			11,665
Loans, net		989,389			886,840
Other real estate		—			123
Fixed assets, net		10,276			8,044
Accrued interest receivable		5,598			4,238
Goodwill		12,042			1,938
Intangibles		4,548			135
Prepaid expenses and other assets		7,884			6,138
Total assets	$	1,286,968		$	1,059,950
Liabilities and Shareholders’ Equity
Deposits:
Demand	$	229,325		$	197,283
Interest-bearing transaction accounts		108,712			85,523
Money market accounts		479,507			432,340
Savings		3,679			3,919
Certificates of deposit:
$100 and over		229,839			178,851
Other		65,182			41,712
Total deposits		1,116,244			939,628
Subordinated debentures		30,930			20,620
Federal Home Loan Bank advances		28,584			10,299
Other borrowings		6,847			9,616
Notes payable		1,500			250
Accrued interest payable		2,704			1,665
Accounts payable and accrued expenses		7,221			5,146
Total liabilities		1,194,030			987,224
Minority interest in equity of consolidated subsidiary		333			—
Shareholders’ equity:
Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 10,458,852 shares at December 31, 2005 and 9,778,357 at December 31, 2004.		105			98
Additional paid in capital		53,218			41,326
Unearned compensation		(1,531	)		—
Retained earnings		41,950			32,075
Accumulated other comprehensive loss		(1,137	)		(773	)
Total shareholders’ equity		92,605			72,726
Total liabilities and shareholders’ equity	$	1,286,968		$	1,059,950

See accompanying notes to consolidated financial statements.

42

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2005, 2004 and 2003

	Years ended December 31,
(In thousands, except per share data)	2005			2004		2003
Interest income:
Interest and fees on loans	$	63,448		$	45,956	$	41,221
Interest on debt and equity securities:
Taxable		3,192			2,274		1,691
Nontaxable		39			41		23
Interest on federal funds sold		1,267			520		196
Interest on interest-bearing deposits		13			2		2
Dividends on equity securities		149			100		112
Total interest income		68,108			48,893		43,245
Interest expense:
Interest-bearing transaction accounts		1,035			320		169
Money market accounts		10,761			4,614		3,475
Savings		31			14		24
Certificates of deposit:
$100 and over		6,925			3,993		2,972
Other		1,722			1,057		1,560
Subordinated debentures		1,348			1,405		1,270
Federal Home Loan Bank borrowings		1,581			725		1,033
Notes payable and other borrowings		138			41		41
Total interest expense		23,541			12,169		10,544
Net interest income		44,567			36,724		32,701
Provision for loan losses		1,490			2,212		3,627
Net interest income after provision for loan losses		43,077			34,512		29,074
Noninterest income:
Service charges on deposit accounts		2,065			2,032		1,782
Wealth Management income		6,522			4,264		3,622
Other service charges and fee income		464			396		369
Gain on sale of branches		—			—		2,938
Gain on sale of mortgage loans		281			262		927
Gain on sale of other real estate		91			—		—
(Loss) gain on sale of securities		(494	)		126		78
Miscellaneous income		35			42		375
Total noninterest income		8,964			7,122		10,091
Noninterest expense:
Employee compensation and benefits		22,130			18,553		17,698
Occupancy		2,327			2,090		1,974
Furniture and equipment		821			720		841
Data processing		1,018			797		932
Other		8,025			7,171		6,770
Total noninterest expense		34,321			29,331		28,215
Minority interest in net income of consolidated subsidiary		(113	)		—		—
Income before income tax expense		17,607			12,303		10,950
Income tax expense		6,312			4,088		4,025
Net income	$	11,295		$	8,215	$	6,925
Per share amounts:
Basic earnings per share	$	1.12		$	0.85	$	0.72
Basic weighted average common shares outstanding		10,103,074			9,695,500		9,566,059
Diluted earnings per share	$	1.05		$	0.82	$	0.70
Diluted weighted average common shares outstanding		10,747,097			10,054,691		9,875,141

See accompanying notes to consolidated financial statements.

43

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
Years ended December 31, 2003, 2004, and 2005

	Common Stock				Additional Paid in Capital		Unearned Compensation			Retained earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity
(in thousands, except shares)	Shares		Amount
Balance December 31, 2002		9,497,794	$	95	$	38,402	$	—		$	18,674		$	1,639		$	58,810
Net income		—		—		—		—			6,925			—			6,925
Unrealized loss on securities, net of tax		—		—		—		—			—			(180	)		(180	)
Reclassification adjustment for gains realized in net income, net of tax		—		—		—		—			—			(52	)		(52	)
Unrealized loss on cash flow hedges, net of tax		—		—		—		—			—			(789	)		(789	)
Total comprehensive income																	5,904
Dividends declared ($0.08 per share)		—		—		—		—			(767	)		—			(767	)
Stock options exercised, including related tax benefit		120,688		1		1,150		—			—			—			1,151
Noncash compensation attributed to stock option grants		—		—		289		—			—			—			289
Balance December 31, 2003		9,618,482	$	96	$	39,841	$	—		$	24,832		$	618		$	65,387
Net income		—		—		—		—			8,214			—			8,214
Unrealized loss on securities, net of tax		—		—		—		—			—			(418	)		(418	)
Reclassification adjustment for gains realized in net income, net of tax		—		—		—		—			—			(83	)		(83	)
Unrealized loss on cash flow hedges, net of tax		—		—		—		—			—			(890	)		(890	)
Total comprehensive income																	6,823
Dividends declared ($0.10 per share)		—		—		—		—			(971	)		—			(971	)
Stock options exercised, including related tax benefit		159,875		2		1,251		—			—			—			1,253
Noncash compensation attributed to stock option grants		—		—		234		—			—			—			234
Balance December 31, 2004		9,778,357	$	98	$	41,326	$	—		$	32,075		$	(773	)	$	72,726
Net income		—		—		—		—			11,295			—			11,295
Unrealized loss on securities, net of tax		—		—		—		—			—			(648	)		(648	)
Reclassification adjustment for losses realized in net income, net of tax		—		—		—		—			—			201			201
Unrealized gain on cash flow hedges, net of tax		—		—		—		—			—			83			83
Total comprehensive income																	10,931
Dividends declared ($0.14 per share)		—		—		—					(1,420	)		—			(1,420	)
Stock options exercised, including related tax benefit		400,078		5		4,465		—			—			—			4,470
Restricted stock unit activity		31,256		—		—		—			—			—			—
Acquisition of Millennium Brokerage Group, LLC		249,161		2		5,247		—			—			—			5,249
Noncash compensation attributed to stock option grants		—		—		49		—			—			—			49
Unearned compensation		—		—		2,131		(2,131	)		—			—			—
Amortization of unearned compensation		—		—		—		600			—			—			600
Balance December 31, 2005		10,458,852	$	105	$	53,218	$	(1,531	)	$	41,950		$	(1,137	)	$	92,605

See accompanying notes to consolidated financial statements.

44

ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2005, 2004 & 2003

	Years ended December 31,
(in thousands)	2005			2004			2003
Cash flows from operating activities:
Net income	$	11,295		$	8,215		$	6,925
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		1,272			996			1,231
Provision for loan losses		1,490			2,212			3,627
Net amortization of debt and equity securities		342			1,817			907
Net amortization of intangible assets		287			180			160
Loss (gain) on sale of available for sale investment securities		494			(126	)		(78	)
Mortgage loans originated		(65,891	)		(60,263	)		(115,308	)
Proceeds from mortgage loans sold		65,787			60,998			120,378
Gain on sale of mortgage loans		(281	)		(262	)		(927	)
Decrease in settlement accrual of disputed note		—			(575	)		(725	)
Gain on sale of other real estate		(91	)		—			—
Noncash compensation for stock option grants & restricted share units		649			234			289
Tax benefit for nonqualified stock options		831			11			—
Gain on sale of branches		—			—			(2,938	)
Changes in:
Accrued interest receivable		(1,360	)		(959	)		180
Accrued interest and other liabilities		1,699			589			2,196
Other, net		(360	)		2,015			63
Net cash provided by operating activities		16,163			15,082			15,980
Cash flows from investing activities:
Cash paid in sale of branches		—			—			(16,741	)
Purchase of business, net of cash acquired		(8,882	)		—			—
Net increase in loans		(104,518	)		(116,046	)		(98,197	)
Purchases of available for sale debt and equity securities		(165,944	)		(351,696	)		(81,786	)
Proceeds from sales of available for sale debt securities		39,040			62,766			11,193
Proceeds from redemption of equity securities		4,672			2,534			605
Proceeds from maturities and principal paydowns on available for sale debt and equity securities		106,786			246,244			51,939
Proceeds from sales of other real estate		229			—			451
Recoveries of loans previously charged off		479			159			267
Purchases of fixed assets		(3,505	)		(1,723	)		(953	)
Net cash used in investing activities		(131,643	)		(157,762	)		(133,222	)
Cash flows from financing activities:
Net increase in non-interest bearing deposit accounts		32,042			32,331			8,671
Net increase in interest bearing deposit accounts		144,574			110,897			69,901
Proceeds from issuance of subordinated debentures		10,310			16,496			—
Paydown of subordinated debentures		—			(11,340	)		—
Proceeds from Federal Home Loan Bank advances		301,200			55,000			130,000
Repayments of Federal Home Loan Bank advances		(282,915	)		(59,201	)		(144,964	)
(Decrease) increase in federal funds purchased		(6,333	)		(2,047	)		8,381
Increase in customer repurchase agreements		3,565			3,086			—
Proceeds from notes payable		1,500			350			100
Paydowns on notes payable		(250	)		(100	)		(100	)
Decrease in other borrowings		—			(1,070	)		(1,092	)
Cash dividends paid on common stock		(1,420	)		(971	)		(767	)
Proceeds from the exercise of common stock options		3,638			1,241			1,115
Net cash provided by financing activities		205,911			144,672			71,245
Net increase in cash and cash equivalents		90,431			1,992			(45,997	)
Cash and cash equivalents, beginning of year		28,480			26,488			72,485
Cash and cash equivalents, end of year	$	118,911		$	28,480			26,488
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	22,502		$	11,655		$	10,658
Income taxes		6,456			3,280			4,517
Noncash transactions:
Transfer to other real estate owned in settlement of loans	$	—		$	273		$	345
Writeoff of goodwill associated with sale of branches		—			—			150
Stock issued for acquisition of business		5,249			—			—

See accompanying notes to consolidated financial statements.

45

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The more significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below:

Business
Enterprise Financial Services Corp (the “Company” or “EFSC”) is a financial holding company that provides a full range of banking and wealth management services to individual and corporate customers located in the St. Louis and Kansas City metropolitan markets through its subsidiary, Enterprise Bank & Trust (the “Bank”).  In addition, as of October 21, 2005, the Company owns 60% of Millennium Brokerage Group, LLC (“Millennium”) through its wholly-owned subsidiary, Millennium Holding Company, Inc. Millennium is headquartered in Nashville, Tennessee and operates life insurance advisory and brokerage operations from 13 offices serving life agents, banks, CPA firms, property & casualty groups, and financial advisors in 49 states.  Millennium is included in the Wealth Management segment along with Enterprise Trust, a division of the Bank, which provides fee-based trust, personal financial planning, estate planning, and corporate planning services to the Company’s target market.

The Company is subject to competition from other financial and nonfinancial institutions providing financial services in the markets served by the Company’s subsidiary.  Additionally, the Company and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies.  Millennium and the investment management industry in general are subject to extensive regulation in the United States at both the federal and state level, as well as by self-regulatory organizations such as the National Association of Securities Dealers, Inc. The Securities and Exchange Commission is the federal agency that is primarily responsible for the regulation of investment advisers.  

Basis of Financial Statement Presentation
The consolidated financial statements of the Company and its subsidiaries have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) 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 that are particularly susceptible to significant change in a short period of time include the determination of the allowance for loan losses, derivative financial instruments, deferred tax assets and goodwill.  Actual amounts could differ from those estimates.

Consolidation
The consolidated financial statements include the accounts of the Company, Bank (100% owned) and Millennium (60% owned).  Acquired businesses are included in the consolidated financial statements from the date of acquisition.  All material intercompany accounts and transactions have been eliminated.  Minority ownership interests are reported in our Consolidated Balance Sheets as a liability.  The minority ownership interest of our earnings or loss, net of tax, is classified as “Minority interest in net income of consolidated subsidiary” in our Consolidated Statements of Income.

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.

46

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.  The impairment is charged to earnings and a new cost basis for the security is established.  To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating cost of the investment is recoverable outweighs evidence to the contrary.  Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, and forecasted performance of the investee.

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
The Company provides long-term financing of one to four-family residential real estate by originating fixed and variable rate loans. Long-term, fixed and variable rate loans are sold into the secondary market without recourse.  Upon receipt of an application for a real estate loan, the Company determines whether the loan will be sold into the secondary market or retained in the Company’s loan portfolio.  The interest rates on the loans sold are locked with the buyer and the Company bears no interest rate risk related to these loans.  Mortgage loans that are sold in the secondary market are sold 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.  The Company does not retain servicing on any loans sold, nor did the Company have any capitalized mortgage servicing rights at December 31, 2005 and 2004.  Gains on the sale of loans held for sale are reported net of direct origination fees and costs in the Company’s consolidated statements of income.

Interest and Fees on Loans
Interest income on loans is accrued 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.

Loan origination fees and direct origination costs are deferred and recognized over the lives of the related loans as a yield adjustment using a method, which approximates the interest method. 

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 probable 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.  The Bank’s non-accrual loans, loans past due greater than 90 days and still accruing, and restructured loans qualify as “impaired loans.”  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.  Interest income on impaired loans is recorded when cash is received and only if principal is considered to be fully collectible.

47

Other Real Estate
Other real estate represents property acquired through foreclosure or deeded to the Bank in lieu of foreclosure on loans on which the borrowers have defaulted as to the payment of principal and interest.  Other real estate 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.

Gains and losses resulting from the sale of other real estate are credited or charged to current period earnings.  Costs of maintaining and operating other real estate are expensed as incurred, and expenditures to complete or improve other real estate properties are capitalized if the expenditures are expected to be recovered upon ultimate sale of the property.

Fixed Assets
Buildings, leasehold improvements, and furniture, fixtures, and equipment are stated at cost less accumulated depreciation and amortization is computed using the straight-line method over their respective estimated useful lives. Furniture, fixtures and equipment is depreciated over three to ten years and buildings and leasehold improvements over ten to forty years based upon lease obligation periods.

Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses acquired.  The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142.  SFAS No.142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and review for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

Other intangible assets consist of customer lists, trade names and agreements not to compete.  Intangibles are amortized using the straight-line method over the estimated useful lives of approximately 5 years.

Impairment of Long-Lived Assets
SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of.  SFAS No. 144 also changes the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations.  The Company adopted SFAS No. 144 on January 1, 2002.  The adoption of SFAS No. 144 was considered in the accounting and disclosure of the Company’s April 2003 sale of the Southeast Kansas branches.

In accordance with SFAS No. 144, long-lived assets, such as fixed assets, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.  The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.  An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

Derivative Instruments and Hedging Activities
The Company began utilizing derivative instruments to assist in the management of interest rate sensitivity and to modify the repricing, maturity and option characteristics of certain assets and liabilities in 2002.  The Company uses such derivative instruments solely to reduce its interest rate exposure.  The following is a summary of the Company’s accounting policies for derivative instruments and hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.

Interest Rate Swap Agreements – Cash Flow Hedges.  Interest rate swap agreements designated as cash flow hedges are accounted for at fair value.  The effective portion of the change in the cash flow hedge’s gain or loss is initially reported as a component of other comprehensive income net of taxes and subsequently reclassified into

48

noninterest income when the underlying transaction affects earnings.  The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in earnings on each quarterly measurement date.  The swap agreements are accounted for on an accrual basis with the net interest differential being recognized as an adjustment to interest income or interest expense of the related asset or liability.

Interest Rate Swap Agreements – Fair Value Hedges.  Interest rate swap agreements designated as fair value hedges are accounted for at fair value.  Changes in the fair value of the swap agreements are recognized currently in noninterest income.  The change in the fair value on the underlying hedged item attributable to the hedged risk adjusts the carrying amount of the underlying hedged item and is also recognized currently in noninterest income.  All changes in fair value are measured on a quarterly basis.  The swap agreement is accounted for on an accrual basis with the net interest differential being recognized as an adjustment to interest income or interest expense of the related asset or liability.  

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.  A valuation allowance is recognized if the Company determines it is more likely than not that all or some portion of the deferred tax asset will not be recognized.

Stock Options
The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25,  issued in March 2000, to account for its fixed-plan stock options.  Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.  SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans.  As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted the disclosure only requirements of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123.  The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

	Years ended December 31,
(In thousands, except per share data)	2005			2004			2003
Net income, as reported	$	11,295		$	8,215		$	6,925
Add total stock-based employee compensation expense included in reported net income, net of tax		393			93			—
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax		(400	)		(3,391	)		(959	)
Pro forma net income	$	11,288		$	4,917		$	5,966
Earnings per share:
Basic:
As reported	$	1.12		$	0.85		$	0.72
Pro forma		1.12			0.51			0.62
Diluted:
As reported	$	1.05		$	0.82		$	0.70
Pro forma		1.05			0.49			0.60

49

Based on the valuation and accounting uncertainties that outstanding options presented under proposed accounting treatment at the time, and the transition issues associated with the Company’s new Long Term Incentive Plan (“LTIP”), the Board of Directors accelerated the vesting on the Company’s outstanding stock options during the 4^th quarter of 2004.  This action resulted in two financial reporting impacts.  First, the remaining fair value of all outstanding stock options was recognized in 2004 as part of the pro-forma footnote disclosures above.  Secondly, the Company recognized $146,000 of compensation expense in the fourth quarter of 2004 based on the product of the number of outstanding unvested options times the spread between their weighted average stock price and the Company stock price on October 1, 2004 times the estimated option forfeiture rate of 9.5%.  The forfeiture rate is based on the Company’s history over the past several years, but actual forfeiture effects in the future are measured and recognized in expense for any differences versus the estimate. 

Cash Flow Information
For purposes of reporting cash flows, the Company considers cash and due from banks, interest-bearing deposits and any federal funds sold to be cash and cash equivalents.

Reclassification
Certain reclassifications have been made to the 2004 and 2003 amounts to conform to the present year presentation.

New Accounting Standards
On July 14, 2005, the Financial Accounting Standards Board (“FASB”) issued an exposure draft for Accounting for Uncertain Tax Positions, an Interpretation of FAS No. 109, Accounting for Income Taxes.  The proposed interpretation would clarify the accounting for uncertain tax positions in accordance with FAS 109.  An enterprise would be required to recognize, in its financial statements, the best estimate of the impact of a tax position only if that position is probable of being sustained on audit based solely on the technical merits of the position. In evaluating whether the probable recognition threshold has been met, this proposed Interpretation would require the presumption that the tax position will be evaluated during an audit by taxing authorities. The term probable is used in this proposed Interpretation consistent with its use in FASB Statement No. 5, Accounting for Contingencies, to mean “the future event or events are likely to occur.” Individual tax positions that fail to meet the probable recognition threshold will generally result in either (a) a reduction in the deferred tax asset or an increase in a deferred tax liability or (b) an increase in a liability for income taxes payable or the reduction of an income tax refund receivable. The impact may also include both (a) and (b). This proposed Interpretation also would provide guidance on disclosure, accrual of interest and penalties, accounting in interim periods, and transition.  If approved, the Interpretation would be effective as of the end of the first fiscal year ending after December 15, 2005.   The FASB comment period ended on September 12, 2005.   The Company is waiting on the final decision related to this Interpretation by FASB and are presently unable to determine its overall impact on the Company’s consolidated financial statements or results of operations.

On May 5, 2005, the Financial Accounting Standards Board (“FASB”) issued FAS No. 154, Statement Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.  FAS 154 requires retrospective application for voluntary changes in accounting principles unless it is impracticable to do so.  FAS 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. Early application is permitted for accounting changes and corrections of errors during fiscal years beginning after June 1, 2005. The Company has evaluated the requirements of SFAS No.154 and expects the implementation will have no material effect on the Company’s consolidated financial condition or results of operations.

In December 2004, FASB issued FAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”).  FAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  FAS No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award.  The accounting provisions of FAS 123(R) are effective for annual reporting periods beginning after June 15, 2005, therefore, the Company will be required to adopt FAS 123R in the first quarter of fiscal 2006. The pro forma disclosures previously permitted under FAS 123 will no longer be an alternative to financial statement recognition. The pro forma net income and net income per share amounts (based on a fair-value method similar to the methods required under FAS 123R to measure compensation expense for employee stock incentive awards) are shown above in the section “Stock Options”.  The Company expects the implementation of FAS 123R will have less than $0.01 effect on the Company’s earnings per share in 2006.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on criteria to evaluate whether to record a loss and disclose additional information about unrealized losses relating to debt and equity securities under EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The consensus applies to investments in debt and marketable equity securities that are accounted under

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FAS 115, Accounting for Certain Investments in Debt and Equity Securities.  After many organizations, including banks, which could be impacted by this guidance, asked for clarification on the meaning of other-than-temporary impairment and its application to certain investments, the FASB postponed the implementation.  In July 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but instead issued FASB staff position (“FSP”) EITF 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, as final.  The final position supersedes several previously issued EITF topics and replaces guidance set forth in several others.  The final position, titled FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, codifies guidance set forth in EITF Topic D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value, and clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made.  The effective date of the FSP will be reporting periods beginning after December 15, 2005.  The Company has evaluated the impact of the final rule and expects the implementation of FAS 115-1 will have no material effect on the Company’s consolidated financial position or results of operations.

NOTE 2—ACQUISITIONS

On October 21, 2005, the Company acquired 60% of Millennium, a Tennessee limited liability company.  Millennium is a national insurance brokerage firm with headquarters in Nashville, Tennessee.  Millennium acts as a wholesale distributor, broker and consultant concerning life insurance products, brokers insurance, and other investments or financial products.  The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of Millennium’s operations have been included in the consolidated financial statements since the date of the purchase.  The acquisition was completed through Millennium Holding Company, Inc, a wholly-owned subsidiary of EFSC that was created to consummate the transaction.  Millennium will continue to operate under their existing trade name. 

The aggregate purchase price was $15,000,000 consisting of 249,161 shares of EFSC common stock valued at $5,249,000 and $9,750,000 in cash.  Goodwill of $10,105,000, which is expected to be deductible for tax purposes, was recorded as part of the purchase price allocation.  Intangible assets consisting of customer and trade name totaling $4,700,000 were also recorded with a weighted average useful life of approximately 5 years.

The terms of the agreement call for an additional 20% purchase in 2008 and 2010, respectively, for the remaining interests.  The consideration mix between stock and cash for subsequent payouts are at the Company’s discretion with a maximum of 70% stock.   Future payouts up to a maximum of $36 million, inclusive of the initial $15 million payout, are conditioned upon certain pre-tax income performance targets. EFSC is contractually entitled to a priority return on its investment of 23.1% (pre-tax) before additional distributions to the Millennium principals. 

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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 reflects the potential dilution of earnings per share which could occur under the treasury stock method if contracts to issue common stock, such as stock options, were exercised.  The following table presents a summary of per share data and amounts for the periods indicated.

	Years ended December 31,
(in thousands, except per share data)	2005		2004			2003
Basic
Net income, as reported	$	11,295	$	8,215		$	6,925
Weighted average common shares outstanding		10,103		9,696			9,566
Basic earnings per share	$	1.12	$	0.85		$	0.72
Diluted
Net income	$	11,295	$	8,215		$	6,925
Expense related to dilutive stock options and appreciation rights, net of tax		22		(4	)		—
	$	11,317	$	8,211		$	6,925
Weighted average common shares outstanding		10,103		9,696			9,566
Effect of dilutive stock options and restricted stock units		644		359			309
Diluted weighted average common shares outstanding		10,747		10,055			9,875
Diluted earnings per share	$	1.05	$	0.82		$	0.70

As of December 31, 2005, 2004 and 2003, 7,800, 194,994, and 257,867 options, respectively, were excluded from the earnings per share calculation because their effect was anti-dilutive.  The Company recognizes expense for stock options granted to non-employees and Stock Appreciation Rights granted to Directors of the Company. 

NOTE 4—RESTRICTIONS ON CASH AND DUE FROM BANKS

At December 31, 2005 and 2004, approximately $12.6 million and $7.1 million, respectively, of cash and due from banks represented required reserves on deposits maintained by the Bank in accordance with Federal Reserve Bank requirements. 

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NOTE 5—INVESTMENTS IN DEBT AND EQUITY SECURITIES

The amortized cost and estimated fair value of debt and equity securities are summarized below:

	2005
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available for sale securities:
U.S. Treasury securities and government agencies and corporations	$	118,357	$	14	$	(1,045	)	$	117,326
Mortgage-backed securities		13,276		12		(335	)		12,953
Municipal bonds		1,243		2		(14	)		1,231
Other securities		1,455		—		—			1,455
Federal Home Loan Bank stock		2,594		—		—			2,594
	$	136,925	$	28	$	(1,394	)	$	135,559

	2004
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available for sale securities:
U.S. Treasury securities and government agencies and corporations	$	99,505	$	3	$	(564	)	$	98,944
Mortgage-backed securities		18,610		63		(167	)		18,506
Municipal bonds		1,618		7		(9	)		1,616
Other securities		895		—		—			895
Federal Home Loan Bank stock		1,669		—		—			1,669
	$	122,297	$	73	$	(740	)	$	121,630
Held to maturity - Mortgage-backed securities	$	8	$	—	$	—		$	8

During 2005, the Company reclassified $8,000 of securities from held to maturity to available for sale.  The unrealized gain on the securities was immaterial.

The amortized cost and estimated fair value of debt and equity securities classified as available for sale at December 31, 2005, 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.

(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	43,263	$	43,183
Due after one year through five years		75,870		74,910
Due after 5 years through ten years		467		464
Due after ten years		—		—
Mortgage-backed securities		13,276		12,953
Securities with no stated maturity		4,049		4,049
	$	136,925	$	135,559

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During 2005, proceeds from sales of investments in debt and equity securities were $39,040,000, which resulted in gross gains of $12,000 and gross losses of $506,000.  During 2004, proceeds from sales of investments in debt and equity securities were $62,766,000, which resulted in gross gains of $131,000 and gross losses of $4,000.  During 2003, the Company sold investment securities with proceeds of $11,193,000, which resulted in gross gains of $78,000.  Debt and equity securities having a carrying value of $18,365,000 and $13,852,000 at December 31, 2005 and 2004, respectively, were pledged as collateral to secure public deposits and for other purposes as required by law or contract provisions.

As a member of the Federal Home Loan Bank (“FHLB”) system administered by the Federal Housing Finance Board, the Bank is required to maintain a minimum investment in the capital stock of its respective FHLB consisting of membership stock and activity based stock.   At December 31, 2005, the membership stock requirement for the Bank was 0.12% of its total assets subject to a maximum of $10 million.   The activity based stock requirement is 4.45% of the Bank’s aggregate outstanding FHLB advances.   The FHLB stock is recorded at cost, which represents redemption value.  The Bank is a member of the Federal Home Loan Bank of Des Moines.

Provided below is a summary of securities available for-sale which were in an unrealized loss position at December 31, 2005.  The unrealized losses reported for U.S. Treasury and government agencies for 12 months or more includes 13 FNMA agency notes with estimated maturities or repricings of two to three years.  The unrealized loss reported for the mortgage-backed securities for 12 months or more includes 21 securities and primarily relates to Fannie Mae (“FNMA”) or Freddie Mac (“FHLMC”) pools with estimated maturities or repricings of one to three years.  Fannie Mae or Freddie Mac guarantees the contractual cash flows of these securities.  The unrealized losses reported for municipal bonds for 12 months or more includes 5 securities.   The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature.  Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not credit quality of the issuer. 

	Securities Available for Sale
	Less than 12 months				12 months or more				Total
(in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. Treasury securities and government agencies and corporations	$	64,759	$	227	$	37,526	$	818	$	102,285	$	1,045
Mortgage-backed securities		2,641		52		8,793		283		11,434		335
Municipal bonds		184		1		752		13		936		14
	$	67,584	$	280	$	47,071	$	1,114	$	114,655	$	1,394

NOTE 6—LOANS

A summary of loans by category at December 31, 2005 and 2004 is as follows:

	December 31,
(in thousands)	2005		2004
Real Estate Loans:
Construction and land development	$	138,318	$	127,180
Farmland		7,518		5,138
1-4 Family residential		151,575		135,262
Multifamily residential		24,927		14,031
Other real estate loans		377,937		323,848
Total real estate loans	$	700,275	$	605,459
Commercial and industrial		265,488		253,594
Other		36,494		39,662
Total Loans	$	1,002,257	$	898,716
Unearned loan (fees)/costs, net		122		(211	)
Total loans, less unearned loan fees	$	1,002,379	$	898,505

The Bank grants commercial, residential, and consumer loans throughout its service areas, which consists 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.

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Following is a summary of activity for the year ended December 31, 2005 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. 

(in thousands)	Total
Balance January 1, 2005	$	16,535
New loans and advances		6,802
Payments		(6,478	)
Balance December 31, 2005	$	16,859

A summary of activity in the allowance for loan losses for the years ended December 31, 2005, 2004, and 2003 is as follows:

(in thousands)	2005			2004			2003
Balance at beginning of year	$	11,665		$	10,590		$	8,600
Provision for loan losses		1,490			2,212			3,627
Loans charged off		(644	)		(1,296	)		(1,904	)
Recoveries of loan previously charged off		479			159			267
Balance at end of year	$	12,990		$	11,665		$	10,590

A summary of impaired loans at December 31, 2005, 2004, and 2003 is as follows:

	December 31,
(in thousands)	2005		2004		2003
Nonaccrual loans	$	1,421	$	1,827	$	1,548
Restructured loans continuing to accrue interest		—		—		—
Total impaired loans	$	1,421	$	1,827	$	1,548
Allowance for losses on impaired loans	$	290	$	441	$	872
Impaired loans with no related allowance for loan losses		—		872		—
Average balance of impaired loans during the year	$	1,981	$	1,846	$	3,076

The Bank had no loans over 90 days past due and still accruing interest at December 2005, 2004, and 2003. If interest on nonaccrual loans had been accrued, such income would have been $144,000, $103,000, and $210,000, for the years ended December 31, 2005, 2004, and 2003, respectively.  The cash amount recognized, as interest income on nonaccrual loans was $109,000, $64,000, and $119,000 for the years ended December 31, 2005, 2004, and 2003, respectively.  The amount recognized as interest income on impaired loans continuing to accrue interest was $0, $0, and $38,000 for the years ended December 31, 2005, 2004, and 2003, respectively.

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NOTE 7—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In 2002, the Bank began using interest rate swap derivatives as one method to manage some of its interest rate risks from recorded financial assets and liabilities. These derivatives are utilized when they can be demonstrated to effectively hedge a designated asset or liability and such asset or liability exposes the Bank to interest rate risk. 

The Bank accounts for its derivatives under SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  These Standards require recognition of all derivatives as either assets or liabilities in the balance sheet and require measurement of those instruments at fair value through adjustments to other comprehensive income, current earnings, or both, as appropriate.

In July 2004, the Derivatives Implementation Group of the FASB issued guidance on FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, Implementation Issue No. G25 (“DIG Issue G25”).  DIG Issue G25 clarifies the FASB’s position on the ability of entities to hedge the variability in interest receipts or overall changes in cash flows on a group of prime-rate based loans.  Under the new guidance these hedge relationships are allowed the use of the first payments received technique if all other conditions of FASB Statement No. 133 are met.  The effective date of DIG Issue G25 was October 1, 2004 and was applied to all hedging relationships as of that date.  If a pre-existing cash flow hedging relationship has identified the hedged transactions in a manner inconsistent with the guidance in DIG Issue G25, the hedging relationship must be de-designated at the effective date.  Any derivative gains or losses in other comprehensive income related to the de-designated hedging relationships should be accounted for under paragraphs 31 and 32 of Statement 133.  The Company had pre-existing cash flow hedging relationships in a manner inconsistent with the guidance in DIG Issue G25 which had a $32,000 loss, net of tax, in other comprehensive income as of September 30, 2004.  The Company implemented DIG Issue G25 on October 1, 2004 and de-designated its cash flow hedges, which were inconsistent with the guidance.  These cash flow hedges were then re-designated as new cash flow hedging relationships under the new guidance of DIG Issue G25.  The implementation of DIG Issue G25 did not have a material effect on the Company’s consolidated financial position or results of operations.

The decision to enter into an interest rate swap is made after considering the asset/liability mix of the Bank, the desired asset/liability sensitivity and by interest rate levels.  Prior to entering into a hedge transaction, the Bank formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective for undertaking the various hedge transactions.

The following is a summary of the Company’s accounting policies for derivative instruments and its activities under SFAS No. 149, SFAS No. 133 and DIG Issue G25.

Cash Flow Hedges – The Bank entered into interest rate swaps to convert floating-rate loan assets to fixed rates.   The swap agreements provide for the Bank to pay a variable rate of interest equivalent to the prime rate and to receive a fixed rate of interest.  Under the swap agreements the Bank is to pay or receive interest quarterly.  Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recognized as interest income of the related asset.  The net cash flows related to cash flow hedges decreased interest income on loans by $539,000 in 2005 and increased interest income on loans by $1,163,000 and $1,796,000 during 2004 and 2003, respectively. 

Cash flow hedges are accounted for at fair value.   The effective portion of the change in the cash flow hedge’s gain or loss is reported as a component of other comprehensive income net of taxes.  The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in earnings on each quarterly measurement date.  At December 31, 2005 and 2004, $(263,000) and $(346,000), respectively, in deferred losses, net of tax, related to cash flow hedges were recorded in accumulated other comprehensive income.  All cash flow hedges were effective, therefore, no gain or loss was recorded in earnings.  The maximum term over which the Bank is hedging its exposure to the variability of future cash flows is approximately 3 months. 

Fair Value Hedges - The Bank has entered into interest rate swap agreements with the objective of converting the fixed interest rate on brokered CDs to a variable interest rate.  The swap agreements provide for the Bank to pay a variable rate of interest based on a spread to the three-month London Interbank Offer Rate (LIBOR) and to receive a fixed rate of interest equal to that of the brokered CD (hedged instrument.) Under the swap agreements the Bank is to pay or receive interest semiannually.  Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recognized as interest expense of the related liability.   The net cash flows related to fair value hedges increased interest expense on certificates of deposit by $360,000 during 2005 and decreased interest expense by $346,000 and $513,000 during 2004 and 2003, respectively. 

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Fair value hedges are accounted for at fair value.   At inception, each hedging transaction is evaluated against the eight criteria applicable to fair value hedges pursuant to paragraph 68 of SFAS No. 133.  Based on our evaluation, the swaps qualify for the “shortcut method” under SFAS No. 133; therefore, no ineffectiveness is assumed.  As a result, changes in the fair value of the swaps directly offset changes in the fair value of the underlying hedged item (i.e., brokered CDs).  All changes in fair value are measured on a quarterly basis. 

The Company paid broker placement fees by reducing the proceeds received from the issued CD. The fees did not affect the inception value of the interest rate swap.  Placement fees are capitalized and amortized into interest expense over the life of the CD in a manner similar to debt issuance costs.

The following table summarizes the Bank’s derivative instruments at December 31, 2005 and 2004.

	December 31,
(in thousands)	2005			2004
Cash Flow Hedges
Notional amount	$	70,000		$	90,000
Weighted average pay rate		7.25	%		5.25	%
Weighted average receive rate		5.39	%		5.74	%
Weighted average maturity in months		3			12
Unrealized loss related to interest rate swaps	$	(395	)	$	(511	)
Fair Value Hedges
Notional amount	$	30,000		$	40,000
Weighted average pay rate		4.42	%		2.60	%
Weighted average receive rate		2.55	%		2.34	%
Weighted average maturity in months		6			14
Unrealized loss related to interest rate swaps	$	(341	)	$	(415	)

The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties, and therefore, are not a measure of the Bank’s credit exposure through its use of these instruments.  The credit exposure represents the accounting loss the Bank would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value.  Given the fair value loss associated with the derivatives at December 31, 2005, the Bank had no credit exposure to counterparties.  At December 31, 2005 and 2004, in connection with our interest rate swap agreements we had pledged investment securities available for sale with a fair value of $2.5 million and $3.5 million, respectively.  At December 31, 2005 and 2004, we had accepted, as collateral in connection with our interest rate swap agreements, cash of $196,300.

NOTE 8—FIXED ASSETS

A summary of fixed assets at December 31, 2005 and 2004 is as follows:

	December 31,
(in thousands)	2005		2004
Land	$	1,545	$	1,543
Buildings and leasehold improvements		8,652		6,563
Furniture, fixtures and equipment		6,870		5,574
		17,067		13,680
Less accumulated depreciation and amortization		6,791		5,636
Total fixed assets	$	10,276	$	8,044

Depreciation and amortization of building, leasehold improvements, and furniture, fixtures and equipment included in noninterest expense amounted to $1,272,000, $996,000, and $1,231,000 in 2005, 2004, and 2003, respectively. 

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The Company has facilities leased under agreements that expire in various years through 2017.  The Company’s aggregate rent expense, totaled $1,602,000, $1,504,000, and $1,417,000 in 2005, 2004, and 2003, respectively.  There was no sublease rental income in 2005, 2004, or 2003.  The future aggregate minimum rental commitments (in thousands) required under the leases are as follows:

Year	Amount
2006	$	1,673
2007	$	1,642
2008	$	1,632
2009	$	1,702
2010	$	1,736
Thereafter	$	3,205
Total	$	11,590

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 9—GOODWILL AND INTANGIBLE ASSETS

The tables below presents an analysis of the goodwill and intangible activity for the years ended December 31, 2005 and 2004.  There was no change in goodwill during the year ended December 31, 2004.

(in thousands)	Goodwill
Balance at December 31, 2004	$	1,938
Goodwill from purchase of Millennium Brokerage Group		10,104
Balance at December 31, 2005	$	12,042

(in thousands)	Non-compete Intangible			Customer & Trade name Intangibles			Net Intangible
Balance at January 1, 2004	$	315		$	—		$	315
Amortization expense		(180	)		—			(180	)
Balance at December 31, 2004		135			—			135
Intangibles from purchase of Millennium Brokerage Group		—			4,700			4,700
Amortization expense		(135	)		(152	)		(287	)
Balance at December 31, 2005	$	—		$	4,548		$	4,548

The following table reflects the expected amortization schedule for the customer and trade name intangibles (in thousands) at December 31, 2005. 

Year	Amount
2006	$	912
2007		912
2008		912
2009		912
2010		899
	$	4,548

The annual impairment evaluation of the goodwill and intangible balances has not identified any potential impairment; accordingly no goodwill or intangible impairment was recorded in 2005.

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NOTE 10—MATURITY OF CERTIFICATES OF DEPOSIT

Following is a summary of certificates of deposit maturities at December 31, 2005:

(in thousands)	$100,000 and Over		Other		Total
Less than 1 year	$	151,014	$	41,408	$	192,422
Greater than 1 year and less than 2 years		60,257		19,553		79,810
Greater than 2 years and less than 3 years		17,225		3,778		21,004
Greater than 3 years and less than 4 years		343		336		679
Greater than 4 years and less than 5 years		1,000		106		1,106
	$	229,839	$	65,182	$	295,021

NOTE 11—SUBORDINATED DEBENTURES

The Corporation has four wholly owned statutory business trusts.  These trusts issued securities that were sold to third parties.  The sole purpose of the trusts was to invest the proceeds in junior subordinated debentures of the Company that have terms identical to the trust securities.  The amounts and terms of each respective issuance at December 31 were as follows:

	Amount
(in thousands)	2005		2004		Maturity Date		Call date		Interest Rate
EFSC Capital Trust I	$	4,124	$	4,124		June 2032		June 2007		Floats @ 3MO LIBOR + 3.65%
EFSC Capital Trust II		5,155		5,155		June 2034		June 2009		Floats @ 3MO LIBOR + 2.65%
EFSC Capital Trust III		11,341		11,341		December 2034		December 2009		Floats @ 3MO LIBOR + 1.97%
EFSC Capital Trust IV		10,310		—		December 2035		December 2010		Fixed for 5 years @ 6.14%(1)
Total trust preferred securities	$	30,930	$	20,620

(1) After 5 years, floats @ 3MO LIBOR + 1.44%

The subordinated debentures, which are the sole assets of the trust, are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial conditions of the Company.  The Company fully and unconditionally guarantees each trust’s securities obligations.  The trust preferred securities are included in tier 1 capital for regulatory capital purposes, subject to certain limitations.

The securities are redeemable in whole or in part on or after their respective call dates. Mandatory redemption dates may be shortened if certain conditions are met.  The accrual of interest to be paid on the subordinated debentures held by the trusts is recorded as interest expense in the Company’s consolidated financial statements. 

NOTE 12—FEDERAL HOME LOAN BANK ADVANCES

As a member of the Federal Home Loan Bank, the Bank has access to Federal Home Loan Bank advances. The Federal Home Loan Bank advances at December 31, 2005 and 2004 are collateralized by 1-4 family residential real estate loans, business loans and certain commercial real estate loans with a carrying value of $270 million and $258 million, respectively, and all stock held in the Federal Home Loan Bank of Des Moines.

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The following table summarizes the type, maturity and rate of the Company’s Federal Home Loan Bank advances at December 31:

			2005					2004
(in thousands)	Term		Outstanding Balance		Weighted Rate			Outstanding Balance		Weighted Rate
Long term non-amortized fixed advance		less than 1 year	$	1,525		4.51	%	$	3,655		4.45	%
Long term non-amortized fixed advance		1 - 2 years		1,250		4.74	%		1,525		4.51	%
Long term non-amortized fixed advance		2 - 3 years		650		4.91	%		1,250		4.74	%
Long term non-amortized fixed advance		3 - 4 years		1,050		5.40	%		650		4.91	%
Long term non-amortized fixed advance		4 - 5 years		5,800		4.48	%		1,050		5.40	%
Long term non-amortized fixed advance		5 - 10 years		17,300		4.55	%		1,100		5.44	%
Mortgage matched fixed advance		10 - 15 years		1,009		5.69	%		1,069		5.69	%
Total Federal Home Loan Bank Advances			$	28,584		4.62	%	$	10,299		4.85	%

The majority of these advances were used to match certain fixed rate loans to lock in an interest rate spread.  All of the Federal Home Loan Bank advances have fixed interest rates, and $27,575,000 and $9,230,000 at December 31, 2005 and 2004, respectively, are callable by the Company anytime, subject to prepayment penalties.  The remaining borrowings are not callable by the Company.  The Bank, which has an investment in the capital stock of the Federal Home Loan Bank, maintains a line of credit with the Federal Home Loan Bank and had availability of approximately $132 million at December 31, 2005.

NOTE 13—OTHER BORROWINGS AND NOTES PAYABLE

A summary of other borrowings is as follows:

	December 31,
(in thousands)	2005			2004
Securities sold under repurchase agreements	$	6,650		$	3,086
Federal funds purchased		—			6,334
Other		196			196
Total other borrowings	$	6,847		$	9,616
Average balance during the year	$	6,440		$	2,896
Maximum balance outstanding at any month-end		7,674			9,616
Weighted average interest rate during the year		2.13	%		1.30	%
Weighted average interest rate at December 31		2.52	%		2.26	%

At December 31, 2005 the Company had a $15 million unsecured bank line of credit that was renewed on January 13, 2006 with an outstanding balance of $1,500,000.  The line has debt covenants, accrues interest based on LIBOR plus 125 basis points and is payable quarterly.  For the year ended December 31, 2005, the average balance and maximum month-end balance of the note payable were $30,000 and $1,500,000, respectively.

The Company also has a line with the Federal Reserve Bank of St. Louis for back-up liquidity purposes but has not drawn on the line.  As of December 31, 2005 approximately $168 million was available under this line.  This line is secured by a pledge of certain eligible loans.

NOTE 14—MINORITY INTEREST

Minority Interest on the consolidated balance sheets represents the portion of members’ equity of Millennium Brokerage Group, LLC (40%) that is not owned by the Company. 

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NOTE 15—INCOME TAXES

The components of income tax expense for the years ended December 31 are as follows:

	Years ended December 31,
(in thousands)	2005			2004		2003
Current:
Federal	$	6,572		$	3,612	$	4,049
State and local		774			267		234
Deferred		(1,034	)		210		(258	)
	$	6,312		$	4,089	$	4,025

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate of 35% in 2005 and 34% in 2004 and 2003 to income before income taxes and the amounts reflected in the consolidated statements of income is as follows:

	Years ended December 31,
(in thousands)	2005			2004			2003
Income tax expense at statutory rate	$	6,162		$	4,183		$	3,723
Increase (reduction) in income tax resulting from:
Reversal of valuation allowance		—			(241	)		—
Tax-exempt income		(380	)		(298	)		(258	)
State and local income tax expense		503			176			154
Goodwill amortization		—			—			51
Non-deductible expenses		189			159			101
Other, net		(162	)		110			254
Total income tax expense	$	6,312		$	4,089		$	4,025

A net deferred income tax asset of $6,064,000 and $4,779,000 is included in prepaid expenses and other assets in the consolidated balance sheets at December 31, 2005 and 2004, respectively.  The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows:

	Years ended December 31,
(in thousands)	2005		2004
Deferred tax assets:
Allowance for loan losses	$	4,547	$	3,966
Deferred compensation		802		625
Merchant banking investments		212		209
Unrealized losses on securities available for sale		491		240
Unrealized losses on cash flow derivative instruments		132		179
Other		216		191
Total deferred tax assets		6,400		5,410
Deferred tax liabilities:
Office equipment and leasehold improvements		336		631
Total deferred tax liabilities		336		631
Net deferred tax asset	$	6,064	$	4,779

A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized.  The Company had established a valuation allowance as of December 31, 2001.  During 2004, the Company had a $241,000 reversal of the remaining deferred tax valuation allowance related to Merchant Banking losses in 2001.  The nature and deductibility of these losses were finally determined when the Company filed its 2003 income tax returns during 2004.  Also, during 2004, the Company recognized state income tax refunds of $163,000 related to amendments of prior state income tax returns.

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NOTE 16—REGULATORY MATTERS

The Company and Bank are 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 Company and Bank must meet specific capital guidelines that involve quantitative measures of 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 Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.  Management believes, as of December 31, 2005 and 2004, that the Company and Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2005 and 2004, the Bank was categorized 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.

The Company’s and Bank’s actual capital amounts and ratios are also presented in the table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Applicable Action Provisions
(in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2005:
Total Capital (to Risk Weighted Assets)
Enterprise Financial Services Corp	$	120,528		11.55	%	$	83,462		8.00	%	$	—		—	%
Enterprise Bank & Trust		115,435		11.08			83,362		8.00			104,202		10.00
Tier I Capital (to Risk Weighted Assets)
Enterprise Financial Services Corp		107,538		10.31			41,731		4.00			—		—
Enterprise Bank & Trust		102,445		9.83			41,681		4.00			62,521		6.00
Tier I Capital (to Average Assets)
Enterprise Financial Services Corp		107,538		8.75			36,883		3.00			—		—
Enterprise Bank & Trust		102,445		8.33			36,912		3.00			61,521		5.00
As of December 31, 2004:
Total Capital (to Risk Weighted Assets)
Enterprise Financial Services Corp		103,673		11.19			74,086		8.00			—		—
Enterprise Bank & Trust		99,545		10.76			74,036		8.00			92,545		10.00
Tier I Capital (to Risk Weighted Assets)
Enterprise Financial Services Corp		92,096		9.94			37,043		4.00			—		—
Enterprise Bank & Trust		87,976		9.51			37,018		4.00			55,527		6.00
Tier I Capital (to Average Assets)
Enterprise Financial Services Corp		92,096		8.44			32,725		3.00			—		—
Enterprise Bank & Trust		87,976		8.08			32,659		3.00			54,432		5.00

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NOTE 17—COMPENSATION PLANS

The Company has adopted several incentive and nonqualified stock option plans to reward and provide long-term incentive for directors and key employees of the Company.  These plans provide for the granting of stock options, stock appreciation rights, and restricted share units, as designated by the Company’s Board of Directors.  Options have a maximum duration of ten years from the date of grant.  Options typically have a vesting schedule of between three to five years.  At December 31, 2005, 261,093 shares were available for grant under the various stock option plans.  As of December 31, 2005, there were no Stock Appreciation Rights granted.  See “Restricted Stock Units” below for information on restricted stock unit grants.

In addition, the Company adopted a Stock Appreciation Rights Plan for directors of the Company and its subsidiaries.  See “Stock Appreciation Rights” below for more information.   The Company also has a stock plan in conjunction with a solicitation and referral agreement with Moneta Group, Inc., a nationally recognized firm in the financial planning industry.  See “Moneta Plan” below for more information.

Stock Option Activity
Following is a summary of the various stock option plan transactions:

	2005				2004				2003
	Shares		Weighted Avg Exercise Price		Shares		Weighted Avg Exercise Price		Shares		Weighted Avg Exercise Price
Outstanding at beginning of year		1,299,321	$	11.07		1,510,403	$	10.75		1,284,643	$	9.90
Granted		10,462		20.41		30,500		13.70		415,962		13.28
Exercised		398,005		9.07		159,875		7.77		120,688		9.24
Forfeited		10,250		13.37		81,707		12.54		69,514		12.93
Outstanding at end of year		901,528	$	12.03		1,299,321	$	11.07		1,510,403	$	10.75
Exercisable at end of year		891,066	$	11.93		1,299,321	$	11.07		650,428	$	8.80

Following is a summary of the stock option grants outstanding at December 31, 2005:

	Options Outstanding						Options Exercisable
Exercise Price Range	Number Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Life (Years)		Number Exercisable		Weighted-Average Exercise Price
$       5.33 - $       9.92		126,055	$	8.12		4.76		126,055	$	8.12
$     10.00 - $     10.67		179,850		10.12		6.62		179,850		10.12
$     11.50 - $     12.50		150,600		11.82		5.62		150,600		11.82
$     13.05 - $     13.90		327,811		13.35		7.50		327,811		13.35
$     14.00 - $     16.00		95,750		15.01		4.70		95,750		15.01
$     18.00 - $     21.97		21,462		19.17		6.81		11,000		18.00
		901,528	$	12.03		6.32		891,066	$	11.93

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The Company has elected to continue to account for its stock options using the intrinsic-value method.  Accordingly, no compensation cost has been recognized for its stock option plans.  The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the years ended December 31:

	2005			2004			2003
Risk-free interest rate		4.49	%		4.15	%		3.94	%
Expected dividend rate		0.60	%		0.60	%		0.60	%
Expected volatility		43.70	%		44.99	%		52.57	%
Expected life (years)		10			10			10
Weighted-average grant-date fair value of options	$	11.62		$	7.80		$	8.37

For federal tax purposes, the Company receives a tax deduction upon the exercise of non-qualified stock options for the difference between the exercise price and the fair value of the stock.  The Company recognized a tax benefit of $831,000, $11,000 and $0 in 2005, 2004 and 2003, respectively, related to the exercise of non-qualified stock options as a component of paid-in capital.

Restricted Stock Units
In 2005, the Company awarded 120,300 restricted stock units to employees.  In addition, the Company awarded 6,027 restricted stock units to directors of the Company in lieu of cash compensation.  Below is a summary of the awards:

Grant Date	Shares granted		Price
January 2005		113,636	$	18.75
April 2005		2,000		19.00
May 2005		213		18.78
August 2005		1,178		23.10-24.63
October 2005		500		21.22
November 2005		8,800		22.02

Restricted share units (“RSU’s”) do not carry voting or dividend rights.  Sales of the units are restricted prior to vesting.  Most RSU’s granted are subject to continued employment and vest over five years.  RSU’s granted to the directors vested in one year on December 31, 2005.   One associate was also granted RSU’s that vested in one year on December 31, 2005.  RSU’s issued under the plan are recorded at their fair market value on the date of grant with a corresponding charge to deferred compensation.  The deferred compensation, a component of shareholders’ equity, is being amortized as compensation expense on a straight-line basis over the vesting period.  Included in employee compensation and benefits in the consolidated statements of income is compensation expense for restricted shares of $483,000 for 2005.  Other expenses in the Consolidated Statements of Income includes $117,000 for the restricted shares granted to the directors of the Company.  During 2005, 1,500 restricted shares were forfeited due to departures of associates prior to the completion of the vesting period. 

Stock Appreciation Rights
On April 1, 1999, the Company adopted a Stock Appreciation Rights (“SAR”) Plan.  This Plan replaced the previous form of cash compensation for directors of the Company and its subsidiaries and awards vest 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 Company common stock.  There were 7,800, 7,800 and 64,000 SARS outstanding at December 31, 2005, 2004 and 2003, respectively.  For the year ended December 31, 2003, the Company recognized $89,000 of expense to record the market value of the SARS.  The Company recognized a reduction to expense of $6,000 to record the market value of the SARs for the year ended December 31, 2004.  For the year ended December 31, 2005, the Company recognized $41,000 of expense to record the market value of the SARS.

Moneta Plan
In 1997, the Company entered into a solicitation and referral agreement with Moneta Group, Inc. (“Moneta”), a nationally recognized firm in the financial planning industry.  The Company renegotiated the original agreement on December 24, 2003.  Moneta had received options for banking business referrals and still receives a portion of the gross margin earned by Trust in the form of cash.  The Company recognizes the fair value of the options over the

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vesting period as expense. The Company recognized $34,000, $88,000, and $289,000 in Moneta option-related expenses during 2005, 2004 and 2003, respectively. The fair value of each option grant to Moneta was estimated on the date of grant using the Black-Scholes option pricing model.

The Company granted 10,882 options that vested immediately to Moneta on December 24, 2003 upon the closing of the new agreement.  The options were granted at $13.65 price per share, a fair value of $8.02, assuming a risk-free interest rate of 4.24%, a dividend yield of 0.60%, expected life of 10 years and volatility of 47.87%.  The Company recognized $87,274 in expense for the fair value of the options granted on December 24, 2003.  The Company granted 11,769 options on January 1, 2002 at $11.50 price per share, a fair value of $7.34, assuming a risk free interest rate of 5.20%, a dividend yield of 0.60%, vesting period for 5 years, expected life of 8 years and volatility of 59.47%.  The Company granted 11,081 options on January 1, 2001 at $10.33 price per share, a fair value of $7.77 per share, assuming a risk free interest rate of 5.20%, a dividend yield of 0.67%, vesting period for 5 years, expected life of 8 years and volatility of 39.79%.   The weighted average fair value of the options granted to Moneta was $5.51.  In 2005, 2,073 Moneta options were exercised with a weighted average price of $14.18.  There were no Moneta options forfeited in 2005 and 4,363 Moneta options were forfeited in 2004.

401(k) plans
Effective January 1, 1993, the Company adopted a 401(k) thrift plan which covers substantially all full-time employees of the Bank over the age of 21.  In addition, substantially all employees of Millennium can elect to participate in a safe-harbor 401(k) plan.  The amount charged to expense for the Company’s contributions, including Millennium, to the plans was $843,000, $476,000, and $428,000 for 2005, 2004, and 2003, respectively.

NOTE 18—LITIGATION AND OTHER CLAIMS

Except as noted below, 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.

In accordance with SFAS No. 5, Accounting for Contingencies, during 2003 the Company recognized $725,000 in expense related to a settlement of a dispute with another financial institution pursuant to an agreement signed in February of 2003.  An additional $575,000 was paid on this settlement in 2004. 

NOTE 19—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 maximum 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 consolidated balance sheets.  At December 31, 2005, no amounts have been accrued for any estimated losses for these financial instruments.

The contractual amount of off-balance-sheet financial instruments as of December 31, 2005 and 2004 is as follows:

	December 31,
(in thousands)	2005		2004
Commitments to extend credit	$	346,205	$	296,561
Standby letters of credit		28,013		20,263

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 usually 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, 2005 and 2004, approximately $10.5 million and $6.4 million, respectively, 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.

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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 issued to support contractual obligations of the Bank’s customers.  The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.  The approximate remaining term of standby letters of credit range from 1 month to 5 years at December 31, 2005.

SFAS 107, Disclosures about Fair Value of Financial Instruments, extends existing fair value disclosure for some financial instruments by requiring disclosure of the fair value of such financial instruments, both assets and liabilities recognized and not recognized in the consolidated balance sheets.

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at December 31, 2005 and 2004:

	2005						2004
(in thousands)	Carrying Amount			Estimated fair value			Carrying Amount			Estimated fair value
Balance sheet assets
Cash and due from banks	$	54,118		$	54,118		$	28,324		$	28,324
Federal Funds Sold		64,709			64,709			—			—
Interest-bearing deposits		84			84			156			156
Investments in debt and equity securities		135,559			135,559			121,638			121,639
Loans held for sale		2,761			2,761			2,376			2,376
Derivative financial instruments		(736	)		(736	)		(927	)		(927	)
Loans, net		989,389			988,645			886,840			886,250
Accrued interest receivable		5,598			5,598			4,238			4,238
Balance sheet liabilities
Deposits		1,116,244			1,116,593			939,628			939,930
Subordinated debentures		30,930			31,061			20,620			20,620
Other borrowed funds		36,931			37,195			20,165			21,694
Accrued interest payable		2,704			2,704			1,665			1,665

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, Fed Funds Sold, and Other Short-term Instruments
For cash and due from banks, federal funds purchased, interest-bearing deposits, 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, net
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 for the same remaining maturities.

Derivative Financial Instruments
The fair value of derivative financial instruments is based on quoted market prices by the counterparty and verified by the Company using public pricing information.

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 by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

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Subordinated Debentures
Fair value of floating interest rate subordinated debentures is assumed to equal carrying value.  Fair value of fixed interest rate subordinated debentures is based on market prices.

Other Borrowed Funds
Other borrowed funds include Federal Home Loan Bank advances, customer repurchase agreements federal funds purchased, and notes payable.  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 current rates on borrowed money with similar remaining maturities. The fair value of federal funds purchased, customer repurchase agreements and notes payable are assumed to be equal to their carrying amount since they have an adjustable interest rate.

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-balance 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 20—SEGMENT REPORTING

Management segregates the Company into three distinct businesses for evaluation purposes.  The three segments are Banking, Wealth Management, and Corporate and Intercompany.  The segments are evaluated separately on their individual performance, as well as, their contribution to the Company as a whole.

The majority of the Company’s assets and income result from the Banking segment.  The Bank is a full-service commercial bank with four St. Louis locations and two locations in the Kansas City region. 

The Wealth Management segment includes the Trust division of the Bank along with Millennium.  The Trust division of the Bank provides estate planning, investment management, and retirement planning as well as, consulting on management compensation, strategic planning and management succession issues.  Millennium operates life insurance advisory and brokerage operations from thirteen offices serving life agents, banks, CPA firms, property & casualty groups, and financial advisors in 49 states. 

The Corporate and Intercompany segment includes the holding company and subordinated debentures.  The Company incurs general corporate expenses and owns Enterprise Bank & Trust and a controlling ownership of Millennium. 

The financial information for each business segment reflects that information which is specifically identifiable or which is allocated based on an internal allocation method. 

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Following are the financial results for the Company’s operating segments.

	Years ended December 31, 2005
(in thousands)	Banking		Wealth Management		Corporate and Intercompany			Total
Net interest income	$	45,804	$	73	$	(1,310	)	$	44,567
Provision for loan losses		1,490		—		—			1,490
Noninterest income		2,374		6,522		68			8,964
Noninterest expense		25,242		5,644		3,548			34,434
Income (loss) before income tax expense		21,446		951		(4,790	)		17,607
Income tax expense (benefit)		7,708		342		(1,738	)		6,312
Net income (loss)	$	13,738	$	609	$	(3,052	)	$	11,295
Loans, less unearned loan fees	$	1,002,379	$	—	$	—		$	1,002,379
Goodwill		1,938		10,104		—			12,042
Deposits		1,117,110		—		(866	)		1,116,244
Borrowings		35,431		—		32,430			67,861
Total assets		1,269,212		16,253		1,502			1,286,968

	2004
	Banking		Wealth Management		Corporate and Intercompany			Total
Net interest income	$	38,011	$	80	$	(1,366	)	$	36,725
Provision for loan losses		2,212		—		—			2,212
Noninterest income		2,812		4,264		46			7,122
Noninterest expense		22,061		3,684		3,586			29,331
Income (loss) before income tax expense		16,550		660		(4,906	)		12,304
Income tax expense (benefit)		5,862		260		(2,033	)		4,089
Net income (loss)	$	10,688	$	400	$	(2,873	)	$	8,215
Loans, less unearned loan fees	$	898,505	$	—	$	—		$	898,505
Goodwill		1,938		—		—			1,938
Deposits		939,784		—		(156	)		939,628
Borrowings		19,914		—		20,870			40,784
Total assets		1,058,539		414		997			1,059,950

	2003
	Banking		Wealth Management			Corporate and Intercompany			Total
Net interest income	$	33,837	$	95		$	(1,231	)	$	32,701
Provision for loan losses		3,627		—			—			3,627
Noninterest income		6,483		3,622			(14	)		10,091
Noninterest expense		21,864		3,757			2,594			28,215
Income (loss) before income tax expense		14,829		(40	)		(3,839	)		10,950
Income tax expense (benefit)		5,455		(15	)		(1,416	)		4,025
Net income (loss)	$	9,374	$	(25	)	$	(2,423	)	$	6,925
Loans, less unearned loan fees	$	783,878	$	—		$	—		$	783,878
Goodwill		1,938		—			—			1,938
Deposits		797,722		—			(1,322	)		796,400
Borrowings		24,147		—			15,464			39,611
Total assets		905,007		428			2,292			907,726

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NOTE 21—PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

Condensed Balance Sheets

	December 31,
(in thousands)	2005		2004
Assets
Cash	$	866		143
Investment in Enterprise Bank & Trust		103,322		89,355
Investment in Millennium Holding Company		15,462		—
Other assets		6,022		4,433
Total assets	$	125,672	$	93,931
Liabilities and Shareholders’ Equity
Subordinated debentures	$	30,930		20,620
Accounts payable and other liabilities		2,137		585
Shareholders’ equity		92,605		72,726
Total liabilities and shareholders’ equity	$	125,672	$	93,931

Condensed Statements of Income

	Years ended December 31
(in thousands)	2005			2004			2003
Income:
Dividends from subsidiaries	$	—		$	—		$	2,000
Other		107			88			25
Total income		107			88			2,025
Expenses:
Interest expense-subordinated debentures		1,348			1,405			1,270
Interest expense-notes payable		1			2			—
Other expenses		3,548			3,586			2,594
Total expenses		4,897			4,993			3,864
Net loss before taxes and equity in undistributed earnings of subsidiaries		(4,790	)		(4,905	)		(1,839	)
Income tax benefit		1,738			2,033			1,415
Net loss before equity in undistributed earnings of subsidiaries		(3,052	)		(2,872	)		(424	)
Equity in undistributed earnings of subsidiaries		14,347			11,087			7,349
Net income	$	11,295		$	8,215		$	6,925

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Condensed Statements of Cash Flow

	Years Ended December 31,
(in thousands)	2005			2004			2003
Cash flows from operating activities:
Net income	$	11,295		$	8,215		$	6,925
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in settlement accrual of disputed note		—			(575	)		(725	)
Noncash compensation expense attributed to stock option grants		649			234			289
Net income of subsidiaries		(14,347	)		(11,087	)		(9,349	)
Dividends from subsidiaries		—			—			2,000
Tax benefit for nonqualified stock options		831			11			—
Other, net		(2,601	)		(640	)		1,007
Net cash (used in) provided by operating activities		(4,173	)		(3,842	)		147
Cash flows from investing activities:
Cash paid in acquisition, net of cash acquired		(8,882	)		—			—
Capital contributions to subsidiaries		—			(3,000	)		—
Net cash used in investing activities		(8,882	)		(3,000	)		—
Cash flows from financing activities:
Proceeds from notes payable		1,500			350			100
Paydowns of notes payable		(250	)		(100	)		(100	)
Proceeds from issuance of subordinated debentures		10,310			16,496			—
Paydown of subordinated debentures		—			(11,340	)		—
Cash dividends paid		(1,420	)		(971	)		(767	)
Proceeds from the exercise of common stock options		3,638			1,241			1,115
Net cash provided by financing activities		13,778			5,676			348
Net increase (decrease) in cash and cash equivalents		723			(1,166	)		495
Cash and cash equivalents, beginning of year		143			1,309			814
Cash and cash equivalents, end of year	$	866		$	143		$	1,309
Noncash transactions:
Stock issued for acquisition of business		5,249			—			—

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NOTE 22—QUARTERLY CONDENSED FINANCIAL INFORMATION (Unaudited)

The following table presents the unaudited quarterly financial information for the years ended December 31, 2005 and 2004.

	2005
(in thousands, except per share data)	4th Quarter			3rd Quarter		2nd Quarter		1st Quarter
Interest income	$	19,611		$	17,611	$	16,232	$	14,654
Interest expense		7,728			6,452		5,230		4,131
Net interest income		11,883			11,159		11,002		10,523
Provision for loan losses		70			408		226		786
Net interest income after provision for loan losses		11,813			10,751		10,776		9,737
Noninterest income		2,627			2,277		2,225		1,835
Noninterest expense		9,909			8,525		8,171		7,716
Minority interest in net income of consolidated subsidiary		(113	)		—		—		—
Income before income tax expense		4,418			4,503		4,830		3,856
Income tax expense		1,589			1,625		1,689		1,409
Net income	$	2,829		$	2,878	$	3,141	$	2,447
Earnings per common share
Basic	$	0.27		$	0.29	$	0.31	$	0.25
Diluted		0.26			0.27		0.29		0.23
	2004
(in thousands, except per share data)	4th Quarter			3rd Quarter		2nd Quarter		1st Quarter
Interest income	$	13,698		$	12,550	$	11,701	$	10,944
Interest expense		3,681			3,156		2,778		2,554
Net interest income		10,017			9,394		8,923		8,390
Provision for loan losses		775			100		740		597
Net interest income after provision for loan losses		9,242			9,294		8,183		7,793
Noninterest income		1,948			1,877		1,818		1,479
Noninterest expense		8,277			7,056		7,128		6,870
Income before income tax expense		2,913			4,115		2,873		2,402
Income tax expense		1,066			1,261		886		875
Net income	$	1,847		$	2,854	$	1,987	$	1,527
Earnings per common share
Basic	$	0.19		$	0.29	$	0.21	$	0.16
Diluted		0.18			0.28		0.20		0.15

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SIGNATURES

Pursuant to the requirements of Section 13 or 15d of the Securities Act of 1934, the undersigned Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the 7^th of March, 2006.

ENTERPRISE FINANCIAL SERVICES CORP
/s/ Kevin C. Eichner	/s/ Frank H. Sanfilippo
Kevin C. Eichner	Frank H. Sanfilippo
Chief Executive Officer	Chief Financial Officer

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 indicated on the 7^th of March, 2006.

Signatures	Title
/s/ Peter F. Benoist*
Peter F. Benoist	Chairman of the Board of Directors
/s/ James J. Murphy*
James Murphy	Lead Director
/s/ Kevin C. Eichner*
Kevin C. Eichner	Chief Executive Officer and Director
/s/ Paul R. Cahn*
Paul R. Cahn	Director
/s/ William H. Downey*
William H. Downey	Director
/s/ Lewis A. Levey*
Lewis A. Levey	Director
/s/ Robert E. Guest, Jr.*
Robert E. Guest, Jr.	Director
/s/ Richard S. Masinton*
Richard S. Masinton	Director
/s/ Paul J. McKee, Jr.*
Paul J. McKee, Jr.	Director
/s/ Birch M. Mullins*
Birch M. Mullins	Director
/s/ Robert E. Saur*
Robert E. Saur	Director
/s/ Sandra Van Trease*
Sandra Van Trease	Director
/s/ Henry D. Warshaw*
Henry D. Warshaw	Director

*Signed by Power of Attorney.

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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. 333-82087)).
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	Amendment to the Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on April 30, 2002).
3.5	Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on October 29, 2004).
4.1	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)).
4.2	Enterprise Financial Services Corp 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)).
4.3	Enterprise Financial Services Corp, Fourth Incentive Stock Option Plan (incorporated herein by reference to the Registrant’s 1998 Proxy Statement on Form 14-A).
4.4	Enterprise Financial Services Corp (formerly Commercial Guaranty Bancshares, Inc.) Employee Incentive Stock Option Plan (incorporated herein by reference to the Registrant’s Form S-8 dated July 25, 2000 (File No. 333-42204)).
4.5	Enterprise Financial Services Corp (formerly Commercial Guaranty Bancshares, Inc.) Non-Employee Organizer and Director Incentive Stock Option Plan (incorporated herein by reference to the Registrant’s Form S-8 dated July 25, 2000 (File No. 333-42204)).
4.6	Enterprise Financial Services Corp 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).
4.7.1	Indenture dated June 27, 2002 between Registrant and Wells Fargo, National Association, relating to Floating Rate Junior Subordinated Deferrable Interest Debentures due June 30, 2032, (incorporated by reference to exhibit 4.9.1 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2002).
4.7.2	Form of Floating Rate Junior Subordinated Deferrable Interest Debenture due June 30, 2032, (incorporated by reference to exhibit 4.9.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2002).
4.7.3	Amended and Restated Trust Agreement of EFSC Capital Trust I dated June 27, 2002, (incorporated by reference to exhibit 4.9.3 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2002).

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4.7.4	Trust Preferred Securities Guarantee Agreement between Registrant and Wells Fargo, National Association, dated June 27, 2002, (incorporated by reference to exhibit 4.9.4 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.)
4.8.1	Indenture dated May 11, 2004 between Registrant and Wilmington Trust Company relating to Floating Rate Junior Deferrable Interest due June 17, 2034, (incorporated  by reference to exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004).
4.8.2	Floating Rate Junior Subordinated Deferrable Interest Debenture due June 17, 2034, (incorporated by reference to exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004).
4.8.3	Amended and Restated Declaration of Trust of EFSC Capital Trust II dated May 11, 2004, (incorporated by reference to exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004).
4.8.4	Guarantee Agreement between Registrant and Wilmington Trust Company dated May 11, 2004, (incorporated by reference to exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004).
4.9.1	Indenture dated December 13, 2004 between Registrant and Wilmington Trust Company relating to Floating Rate Junior Deferrable Interest due December 15, 2034, (incorporated by reference to exhibit 4.9.1 to Registrant’s Report on Form 10-K for the period ended December 31, 2004).
4.9.2	Floating Rate Junior Subordinated Deferrable Interest Debenture due December 15, 2034, (incorporated by reference to exhibit 4.9.2 to Registrant’s Report on Form 10-K for the period ended December 31, 2004).
4.9.3	Amended and Restated Declaration of Trust of EFSC Capital Trust III dated December 13, 2004, (incorporated by reference to exhibit 4.9.3 to Registrant’s Report on Form 10-K for the period ended December 31, 2004).
4.9.4	Guarantee Agreement between Registrant and Wilmington Trust Company dated December 13, 2004, (incorporated by reference to exhibit 4.9.4 to Registrant’s Report on Form 10-K for the period ended December 31, 2004).
4.10.1(1)	Indenture dated October 11, 2005 between Registrant and Wilmington Trust Company relating to Floating Rate Junior Deferrable Interest due October 11, 2035.
4.10.2(1)	Floating Rate Junior Subordinated Deferrable Interest Debenture due October 11, 2035
4.10.3(1)	Amended and Restated Declaration of Trust of EFSC Capital Trust IV dated October 11, 2005.
4.10.4(1)	Guarantee Agreement between Registrant and Wilmington Trust Company dated October 11, 2005.
4.11	Enterprise Financial Services Corp 2002 Stock Incentive Plan (incorporated herein by reference to Appendix B of the Company’s Definitive Proxy Statement dated April 4, 2003).
4.12	Enterprise Financial Services Corp, Incentive Stock Purchase Plan (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 dated October 30, 2002 (File No. 333-100928)).
10.1	Enterprise Financial Services Corp Deferred Compensation Plan I (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2000).
10.2	Form of Key Executive Employment Agreement dated October 15, 2002 between Enterprise Financial Services Corp and James C. Wagner and Jack L. Sutherland filed on Exhibit to Registrant’s Report on Form 10-K for the year ended December 31, 2002.

74

10.3	Key Executive Employment Agreement dated September 8, 2004 between Enterprise Financial Services Corp and Stephen P. Marsh filed on Exhibit to Registrant’s Quarterly Report on Form 10-Q for the period ended September 20, 2004.
10.4	Key Executive Employment Agreement dated December 1, 2004 between Enterprise Financial Services Corp and Frank H. Sanfilippo.  Filed on Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated December 1, 2004.
10.5	Key Executive Employment Agreement dated November 14, 2005, between Enterprise Financial Services Corp and Kevin C. Eichner Filed on Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated November 14, 2005.
10.6	Key Executive Employment Agreement dated January 5, 2006, between Enterprise Financial Services Corp and Peter F. Benoist filed on Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated January 5, 2006.
10.7	Purchase Agreement dated as of October 13, 2005, by and among Enterprise Financial Services Corp., Millennium Holding Company, Inc., Millennium Brokerage Group, LLC, Millennium Holdings, LLC and the sellers filed on Exhibit 2.1 to Registrant’s Current Report on Form 8-K dated October 13, 2005.
10.8	Second Amendment and Restated Operating Agreement of Millennium Brokerage Group, LLC, dated October 21, 2005, by and between Millennium Holding Company, Inc. and Millennium Holdings, LLC filed on Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated October 13, 2005.
10.9	$15,000,000 Credit Agreement dated January 14, 2005 between Enterprise Financial Services Corp and U.S. Bank National Association filed on Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated January 14, 2005.
11.1(1)	Statement regarding computation of per share earnings.
14.1	Code of Ethics for the Principal Executive Officer and Senior Financial Officers filed on Exhibit to Registrant’s Report on Form 10-K for the year ended December 31, 2003.
21.1(1)	Subsidiaries of the Registrant.
23.1(1)	Consent of KPMG LLP.
24.1(1)	Power of Attorney
31.1(1)	Chief Executive Officer’s Certification required by Rule 13(a)-14(a).
31.2(1)	Chief Financial Officer’s Certification required by Rule 13(a)-14(a).
32.1(1)	Chief Executive Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906 of the Sarbanes-Oxley Act of 2002
32.2(1)	Chief Financial Officer Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to section § 906  of the Sarbanes-Oxley Act of 2002

⁽¹⁾ Filed herewith

75

EX-4.10.2

EXHIBIT 4.10.2

EXHIBIT A

FORM OF FIXED/FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE

[FORM OF FACE OF SECURITY]

          THIS SECURITY IS NOT A SAVINGS ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY THE UNITED STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE CORPORATION.

          THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.  NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.  THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.

          THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY

A-1

SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.  ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

          THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000.00 AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF.  ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

          THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

          IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

Fixed/Floating Rate Junior Subordinated Deferrable Interest Debenture

of

Enterprise Financial Services Corp.

October 11, 2005

          Enterprise Financial Services Corp., a Delaware corporation (the “Company” which term includes any successor Person under the Indenture hereinafter referred to), for value received promises to pay to Wilmington Trust Company, not in its individual capacity but solely as Institutional Trustee for EFSC Statutory Trust IV (the “Holder”) or registered assigns, the principal sum of ten million three hundred ten thousand dollars ($10,310,000.00) on December 15, 2035, and to pay interest on said principal sum from October 11, 2005, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 15, June 15, September 15 and December 15 of each year or if such day is not a Business Day, then the next succeeding Business Day (each such date, an “Interest Payment Date”) (it being understood that interest accrues for any such non-Business Day during the applicable Distribution Period, beginning on or after December 15, 2010), commencing on the Interest Payment Date in December 2005, at an annual rate equal to 6.14% beginning on (and including) the date of original issuance and ending on (but excluding) the Interest Payment Date in December 2010 and at an annual rate for each successive period beginning on (and including) the Interest Payment Date in December 2010, and each succeeding Interest Payment Date, and ending on (but excluding) the next succeeding Interest Payment Date (each a “Distribution Period”), equal to 3-Month LIBOR, determined as described below, plus 1.44% (the “Coupon Rate”), applied to the principal amount hereof, until the principal hereof is paid or duly provided for or made available for payment, and on any overdue principal and (without

A-2

duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest (including Additional Interest) at the Interest Rate in effect for each applicable period, compounded quarterly, from the dates such amounts are due until they are paid or made available for payment.  The amount of interest payable (i) for any Distribution Period commencing on or after the date of original issuance but before the Interest Payment Date in December 2010 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period commencing on the Interest Payment Date in December 2010 and each succeeding Distribution Period will be computed on the basis of the actual number of days in the Distribution Period concerned divided by 360.  The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment, which shall be fifteen Business Days prior to the day on which the relevant Interest Payment Date occurs.  Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a special record date.

          “3-Month LIBOR” as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Trustee in the following order of priority:  (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (“Telerate Page 3750” means the display designated as “Page 3750” on the Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks’ offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date.  If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Trustee will request four major New York City banks to provide such banks’ offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.  If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period.  If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date.  As used herein, “Determination Date” means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period.

          The Interest Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.

          All percentages resulting from any calculations on the Debentures will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

A-3

          The principal of and interest on this Debenture shall be payable at the office or agency of the Trustee (or other paying agent appointed by the Company) maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made by check mailed to the registered holder at such address as shall appear in the Debenture Register if a request for a wire transfer by such holder has not been received by the Company or by wire transfer to an account appropriately designated by the holder hereof.  Notwithstanding the foregoing, so long as the holder of this Debenture is the Institutional Trustee, the payment of the principal of and interest on this Debenture will be made in immediately available funds at such place and to such account as may be designated by the Trustee.

          So long as no Acceleration Event of Default has occurred and is continuing, the Company shall have the right, from time to time, and without causing an Event of Default, to defer payments of interest on the Debentures by extending the interest payment period on the Debentures at any time and from time to time during the term of the Debentures, for up to 20 consecutive quarterly periods (each such extended interest payment period, an “Extension Period”), during which Extension Period no interest (including Additional Interest) shall be due and payable (except any Additional Sums that may be due and payable). No Extension Period may end on a date other than an Interest Payment Date.  During an Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest will accrue at an annual rate equal to the Interest Rate in effect for such Extension Period, compounded quarterly from the date such interest would have been payable were it not for the Extension Period, to the extent permitted by law (such interest referred to herein as “Additional Interest”).  At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date; provided further, however, that during any such Extension Period, the Company shall not and shall not permit any Affiliate to engage in any of the activities or transactions described on the reverse side hereof and in the Indenture.  Prior to the termination of any Extension Period, the Company may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date.  Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Company may commence a new Extension Period, subject to the foregoing requirements.  No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest.  The Company must give the Trustee notice of its election to begin or extend an Extension Period by the close of business at least 15 Business Days prior to the Interest Payment Date with respect to which interest on the Debentures would have been payable except for the election to begin or extend such Extension Period.

          The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto.  Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes.  Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions.

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          This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee.

          The provisions of this Debenture are continued on the reverse side hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place.

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          IN WITNESS WHEREOF, the Company has duly executed this certificate.

ENTERPRISE FINANCIAL SERVICES CORP.

By

Name:

Title:

CERTIFICATE OF AUTHENTICATION

          This is one of the Debentures referred to in the within-mentioned Indenture.

WILMINGTON TRUST COMPANY, as Trustee
By:
	Authorized Officer

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[FORM OF REVERSE OF DEBENTURE]

          This Debenture is one of the fixed/floating rate junior subordinated deferrable interest debentures of the Company, all issued or to be issued under and pursuant to the Indenture dated as of October 11, 2005 (the “Indenture”), duly executed and delivered between the Company and the Trustee, to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures.  The Debentures are limited in aggregate principal amount as specified in the Indenture.

          Upon the occurrence and continuation of a Special Event prior to the Interest Payment Date in December 2010, the Company shall have the right to redeem the Debentures in whole, but not in part, at any Interest Payment Date, within 120 days following the occurrence of such Special Event, at the Special Redemption Price.

          In addition, the Company shall have the right to redeem the Debentures, in whole or in part, but in all cases in a principal amount with integral multiples of $1,000.00, on any Interest Payment Date on or after the Interest Payment Date in December 2010, at the Redemption Price.

          Prior to 10:00 a.m. New York City time on the Redemption Date or Special Redemption Date, as applicable, the Company will deposit with the Trustee or with one or more paying agents an amount of money sufficient to redeem on the Redemption Date or the Special Redemption Date, as applicable, all the Debentures so called for redemption at the appropriate Redemption Price or Special Redemption Price.

          If all, or less than all, the Debentures are to be redeemed, the Company will give the Trustee notice not less than 45 nor more than 60 days, respectively, prior to the Redemption Date or Special Redemption Date, as applicable, as to the aggregate principal amount of Debentures to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Debentures or portions thereof (in integral multiples of $1,000.00) to be redeemed.

          Notwithstanding the foregoing, any redemption of Debentures by the Company shall be subject to the receipt of any and all required regulatory approvals.

          In case an Acceleration Event of Default shall have occurred and be continuing, upon demand of the Trustee, the principal of all of the Debentures shall become due and payable in the manner, with the effect and subject to the conditions provided in the Indenture.

          The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall without the consent of the holders of each Debenture then outstanding and affected thereby (i) change the fixed maturity of any Debenture, or reduce the principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Debentures, or impair or affect the right of any Securityholder to institute suit for payment thereof or impair the right of repayment, if any, at the option of the holder, or (ii) reduce the aforesaid percentage of Debentures the holders of which are required to consent to any such supplemental indenture.

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          The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures at the time outstanding on behalf of the holders of all of the Debentures to waive (or modify any previously granted waiver of) any past default or Event of Default, and its consequences, except a default (a) in the payment of principal of, premium, if any, or interest on any of the Debentures, (b) in respect of covenants or provisions hereof or of the Indenture which cannot be modified or amended without the consent of the holder of each Debenture affected, or (c) in respect of the covenants contained in Section 3.9 of the Indenture; provided, however, that if the Debentures are held by the Trust or a trustee of such trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in Liquidation Amount of Trust Securities of the Trust shall have consented to such waiver or modification to such waiver, provided, further, that if the consent of the holder of each outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver.  Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of the Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.  Whenever any default or Event of Default hereunder shall have been waived as permitted by the Indenture, said default or Event of Default shall for all purposes of the Debentures and the Indenture be deemed to have been cured and to be not continuing.

          No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest, including Additional Interest, on this Debenture at the time and place and at the rate and in the money herein prescribed.

          The Company has agreed that if Debentures are initially issued to the Trust or a trustee of such Trust in connection with the issuance of Trust Securities by the Trust (regardless of whether Debentures continue to be held by such Trust) and (i) there shall have occurred and be continuing an Event of Default, (ii) the Company shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee, or (iii) the Company shall have given notice of its election to defer payments of interest on the Debentures by extending the interest payment period as provided herein and such Extension Period, or any extension thereof, shall be continuing, then the Company shall not, and shall not allow any Affiliate of the Company to, (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock or its Affiliates’ capital stock (other than payments of dividends or distributions to the Company) or make any guarantee payments with respect to the foregoing or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (x) and (y) above,  (1) repurchases, redemptions or other acquisitions of shares of capital stock of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, if any, (2) as a result of any exchange or conversion of any class or series of the Company’s capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Company’s capital stock or of any class or series of the Company’s indebtedness for any class or series of the Company’s capital stock, (3) the purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (4) any declaration of a dividend in connection with any stockholders’ rights plan, or the issuance of rights, stock or other property under any stockholders’ rights plan, or the redemption or repurchase of rights pursuant thereto, (5) any dividend in the form of stock, warrants, options or other rights where the

A-8

dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (6) payments under the Capital Securities Guarantee).

          The Debentures are issuable only in registered, certificated form without coupons and in minimum denominations of $100,000.00 and any multiple of $1,000.00 in excess thereof.  As provided in the Indenture and subject to the transfer restrictions and limitations as may be contained herein and therein from time to time, this Debenture is transferable by the holder hereof on the Debenture Register of the Company.  Upon due presentment for registration of transfer of any Debenture at the Principal Office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.2 of the Indenture, the Company shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in the name of the transferee or transferees a new Debenture for a like aggregate principal amount.  All Debentures presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to, the Company and the Trustee or the Authenticating Agent duly executed by the holder or his attorney duly authorized in writing.  No service charge shall be made for any exchange or registration of transfer of Debentures, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in connection therewith.

          Prior to due presentment for registration of transfer of any Debenture, the Company, the Trustee, any Authenticating Agent, any paying agent, any transfer agent and any Debenture registrar may deem the Person in whose name such Debenture shall be registered upon the Debenture Register to be, and may treat him as, the absolute owner of such Debenture (whether or not such Debenture shall be overdue) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Debenture and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Debenture registrar shall be affected by any notice to the contrary.  All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debenture.

          No recourse for the payment of the principal of or premium, if any, or interest on any Debenture, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or in any supplemental indenture, or in any such Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, officer or director, as such, past, present or future, of the Company or of any successor Person of the Company, either directly or through the Company or any successor Person of the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of the Indenture and the issue of the Debentures.

          Capitalized terms used and not defined in this Debenture shall have the meanings assigned in the Indenture dated as of the date of original issuance of this Debenture between the Trustee and the Company.

          THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.

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EXHIBIT 4.10.2

EXHIBIT B

FORM OF CERTIFICATE TO TRUSTEE

          Pursuant to Section 3.5 of the Indenture between Enterprise Financial Services Corp., as the Company (the “Company”), and Wilmington Trust Company, as Trustee, dated as of October 11, 2005 (the “Indenture”), the undersigned hereby certifies as follows:

1.	In my capacity as an officer of the Company, I would normally have knowledge of any default by the Company during the last fiscal year in the performance of any covenants of the Company contained in the Indenture.
2.	[To my knowledge, the Company is not in default in the performance of any covenants contained in the Indenture.
	or, alternatively:
	I am aware of the default(s) in the performance of covenants in the Indentures, as specified below.]

          Capitalized terms used herein, and not otherwise defined herein, have the respective meanings ascribed thereto in the Indenture.

          IN WITNESS WHEREOF, the undersigned has executed this Certificate.

Date:
	Name:
	Title:

B-1

EX-4.10.3

EXHIBIT 4.10.3

AMENDED AND RESTATED DECLARATION OF TRUST

by and among

WILMINGTON TRUST COMPANY,
as Delaware Trustee,

WILMINGTON TRUST COMPANY,
as Institutional Trustee,

ENTERPRISE FINANCIAL SERVICES CORP.,
as Sponsor,

and

FRANK SANFILIPPO and DEBORAH BARSTOW,
as Administrators,

Dated as of October 11, 2005

TABLE OF CONTENTS

			Page
ARTICLE I INTERPRETATION AND DEFINITIONS			1
	Section 1.1.	Definitions	1
ARTICLE II ORGANIZATION			8
	Section 2.1.	Name	8
	Section 2.2.	Office	8
	Section 2.3.	Purpose	8
	Section 2.4.	Authority	8
	Section 2.5.	Title to Property of the Trust	8
	Section 2.6.	Powers and Duties of the Trustees and the Administrators	8
	Section 2.7.	Prohibition of Actions by the Trust and the Institutional Trustee	12
	Section 2.8.	Powers and Duties of the Institutional Trustee	12
	Section 2.9.	Certain Duties and Responsibilities of the Trustees and Administrators	14
	Section 2.10.	Certain Rights of Institutional Trustee	15
	Section 2.11.	Delaware Trustee	17
	Section 2.12.	Execution of Documents	17
	Section 2.13.	Not Responsible for Recitals or Issuance of Securities	17
	Section 2.14.	Duration of Trust	17
	Section 2.15.	Mergers	17
ARTICLE III SPONSOR			19
	Section 3.1.	Sponsor’s Purchase of Common Securities	19
	Section 3.2.	Responsibilities of the Sponsor	19
	Section 3.3.	Expenses	19
	Section 3.4.	Right to Proceed	20
ARTICLE IV INSTITUTIONAL TRUSTEE AND ADMINISTRATORS			20
	Section 4.1.	Number of Trustees	20
	Section 4.2.	Delaware Trustee; Eligibility	20
	Section 4.3.	Institutional Trustee; Eligibility	20
	Section 4.4.	Administrators	21
	Section 4.5.	Appointment, Removal and Resignation of Trustees and Administrators	21
	Section 4.6.	Vacancies Among Trustees	23
	Section 4.7.	Effect of Vacancies	23
	Section 4.8.	Meetings of the Trustees and the Administrators	23
	Section 4.9.	Delegation of Power	23
	Section 4.10.	Conversion, Consolidation or Succession to Business	23
ARTICLE V DISTRIBUTIONS			24
	Section 5.1.	Distributions	24
ARTICLE VI ISSUANCE OF SECURITIES			24
	Section 6.1.	General Provisions Regarding Securities	24
	Section 6.2.	Paying Agent, Transfer Agent and Registrar	25
	Section 6.3.	Form and Dating	25
	Section 6.4.	Mutilated, Destroyed, Lost or Stolen Certificates.	25
	Section 6.5.	Temporary Securities	26

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	Section 6.6.	Cancellation	26
	Section 6.7.	Rights of Holders; Waivers of Past Defaults	26
ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST			28
	Section 7.1.	Dissolution and Termination of Trust	28
ARTICLE VIII TRANSFER OF INTERESTS			28
	Section 8.1.	General	28
	Section 8.2.	Transfer Procedures and Restrictions	29
	Section 8.3.	Deemed Security Holders	31
ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS			31
	Section 9.1.	Liability	31
	Section 9.2.	Exculpation	32
	Section 9.3.	Fiduciary Duty	32
	Section 9.4.	Indemnification	33
	Section 9.5.	Outside Businesses	35
	Section 9.6.	Compensation; Fee	35
ARTICLE X ACCOUNTING			35
	Section 10.1.	Fiscal Year	35
	Section 10.2.	Certain Accounting Matters	35
	Section 10.3.	Banking	36
	Section 10.4.	Withholding	36
ARTICLE XI AMENDMENTS AND MEETINGS			36
	Section 11.1.	Amendments	36
	Section 11.2.	Meetings of the Holders of Securities; Action by Written Consent	38
ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE TRUSTEE			39
	Section 12.1.	Representations and Warranties of Institutional Trustee	39
	Section 12.2.	Representations of the Delaware Trustee	39
ARTICLE XIII MISCELLANEOUS			40
	Section 13.1.	Notices	40
	Section 13.2.	Governing Law	41
	Section 13.3.	Intention of the Parties	41
	Section 13.4.	Headings	41
	Section 13.5.	Successors and Assigns	42
	Section 13.6.	Partial Enforceability	42
	Section 13.7.	Counterparts	42
Annex I		Terms of Securities
Exhibit A-1		Form of Capital Security Certificate
Exhibit A-2		Form of Common Security Certificate
Exhibit B		Specimen of Initial Debenture
Exhibit C		Placement Agreement

ii

AMENDED AND RESTATED

DECLARATION OF TRUST

OF

EFSC STATUTORY TRUST IV

October 11, 2005

          AMENDED AND RESTATED DECLARATION OF TRUST (“Declaration”) dated and effective as of October 11, 2005, by the Trustees (as defined herein), the Administrators (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial interests in the Trust (as defined herein) to be issued pursuant to this Declaration;

          WHEREAS, the Trustees, the Administrators and the Sponsor established EFSC Statutory Trust IV (the “Trust”), a statutory trust under the Statutory Trust Act (as defined herein) pursuant to a Declaration of Trust dated as of September 22, 2005 (the “Original Declaration”), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on September 22, 2005, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain debentures of the Debenture Issuer (as defined herein);

          WHEREAS, as of the date hereof, no interests in the Trust have been issued; and

          WHEREAS, the Trustees, the Administrators and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration;

          NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory trust under the Statutory Trust Act and that this Declaration constitutes the governing instrument of such statutory trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration.  The parties hereto hereby agree as follows:

ARTICLE I

INTERPRETATION AND DEFINITIONS

          Section 1.1.      Definitions.

          Unless the context otherwise requires:

          (a)          Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;

          (b)          a term defined anywhere in this Declaration has the same meaning throughout;

          (c)          all references to “the Declaration” or “this Declaration” are to this Declaration as modified, supplemented or amended from time to time;

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          (d)          all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; and

          (e)          a reference to the singular includes the plural and vice versa.

          “Acceleration Event of Default” has the meaning set forth in the Indenture.

          “Additional Interest” has the meaning set forth in the Indenture.

          “Administrative Action” has the meaning set forth in paragraph 4(a) of Annex I.

          “Administrators” means each of Frank Sanfilippo and Deborah Barstow, solely in such Person’s capacity as Administrator of the Trust created and continued hereunder and not in such Person’s individual capacity, or such Administrator’s successor in interest in such capacity, or any successor appointed as herein provided.

          “Affiliate” has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder.

          “Authorized Officer” of a Person means any Person that is authorized to bind such Person.

          “Bankruptcy Event” means, with respect to any Person:

          (a)          a court having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or

          (b)          such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of such Person of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due.

          “Business Day” means any day other than Saturday, Sunday or any other day on which banking institutions in New York City or Wilmington, Delaware are permitted or required by any applicable law or executive order to close.

          “Capital Securities” has the meaning set forth in paragraph 1(a) of Annex I.

          “Capital Security Certificate” means a definitive Certificate in fully registered form representing a Capital Security substantially in the form of Exhibit A-1.

          “Capital Treatment Event” has the meaning set forth in paragraph 4(a) of Annex I.

          “Certificate” means any certificate evidencing Securities.

          “Closing Date” has the meaning set forth in the Placement Agreement.

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          “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation.

          “Common Securities” has the meaning set forth in paragraph 1(b) of Annex I.

          “Common Security Certificate” means a definitive Certificate in fully registered form representing a Common Security substantially in the form of Exhibit A-2.

          “Company Indemnified Person” means (a) any Administrator; (b) any Affiliate of any Administrator; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrator; or (d) any officer, employee or agent of the Trust or its Affiliates.

          “Comparable Treasury Issue” has the meaning set forth in paragraph 4(a) of Annex I.

          “Comparable Treasury Price” has the meaning set forth in paragraph 4(a) of Annex I.

          “Corporate Trust Office” means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Declaration is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware  19890-1600, Attn: Corporate Trust Administration.

          “Coupon Rate” has the meaning set forth in paragraph 2(a) of Annex I.

          “Covered Person” means: (a) any Administrator, officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) any of the Trust’s Affiliates; and (b) any Holder
of Securities.

          “Creditor” has the meaning set forth in Section 3.3.

          “Debenture Issuer” means Enterprise Financial Services Corp., a Delaware corporation, in its
capacity as issuer of the Debentures under the Indenture.

          “Debenture Trustee” means Wilmington Trust Company, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee.

          “Debentures” means the Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures
due 2035 to be issued by the Debenture Issuer under the Indenture.

          “Defaulted Interest” has the meaning set forth in the Indenture.

          “Delaware Trustee” has the meaning set forth in Section 4.2.

          “Determination Date” has the meaning set forth in paragraph 4(a) of Annex I.

          “Direct Action” has the meaning set forth in Section 2.8(d).

          “Distribution” means a distribution payable to Holders of Securities in accordance with Section 5.1.

          “Distribution Payment Date” has the meaning set forth in paragraph 2(b) of Annex I.

          “Distribution Period” means (i) with respect to the Distribution paid on the first Distribution Payment Date, the period beginning on (and including) the date of original issuance and ending on (but

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excluding) the Distribution Payment Date in December 2005 and (ii) thereafter, with respect to a Distribution paid on each successive Distribution Payment Date, the period beginning on (and including) the preceding Distribution Payment Date and ending on (but excluding) such current Distribution Payment Date.

          “Distribution Rate” means, for the Distribution Period beginning on (and including) the date of original issuance and ending on (but excluding) the Distribution Payment Date in December 2010, the rate per annum of 6.14%, and for each Distribution Period beginning on or after the Distribution Payment Date in December 2010, the Coupon Rate for such Distribution Period.

          “Event of Default” means any one of the following events (whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

          (a)           the occurrence of an Indenture Event of Default; or

          (b)           default by the Trust in the payment of any Redemption Price or Special Redemption Price of any Security when it becomes due and payable; or

          (c)           default in the performance, or breach, in any material respect, of any covenant or warranty of the Institutional Trustee in this Declaration (other than those specified in clause (a) or (b) above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail to the Institutional Trustee and to the Sponsor by the Holders of at least 25% in aggregate liquidation amount of the outstanding Capital Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

          (d)           the occurrence of a Bankruptcy Event with respect to the Institutional Trustee if a successor Institutional Trustee has not been appointed within 90 days thereof.

          “Extension Period” has the meaning set forth in paragraph 2(b) of Annex I.

          “Federal Reserve” has the meaning set forth in paragraph 3 of Annex I.

          “Fiduciary Indemnified Person” shall mean each of the Institutional Trustee (including in its individual capacity), the Delaware Trustee (including in its individual capacity), any Affiliate of the Institutional Trustee or Delaware Trustee and any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee or Delaware Trustee.

          “Fiscal Year” has the meaning set forth in Section 10.1.

          “Fixed Rate Period Remaining Life” has the meaning set forth in paragraph 4(a) of Annex I.

          “Guarantee” means the guarantee agreement to be dated as of the Closing Date, of the Sponsor in respect of the Capital Securities.

          “Holder” means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Statutory Trust Act.

          “Indemnified Person” means a Company Indemnified Person or a Fiduciary Indemnified Person.

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          “Indenture” means the Indenture dated as of the Closing Date, between the Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued, as such Indenture and any supplemental indenture may be amended, supplemented or otherwise modified from time to time.

          “Indenture Event of Default” means an “Event of Default” as defined in the Indenture.

          “Institutional Trustee” means the Trustee meeting the eligibility requirements set forth in Section  4.3.

          “Interest” means any interest due on the Debentures including any Additional Interest and Defaulted Interest.

          “Investment Company” means an investment company as defined in the Investment Company Act.

          “Investment Company Act” means the Investment Company Act of 1940, as amended from time to time, or any successor legislation.

          “Investment Company Event” has the meaning set forth in paragraph 4(a) of Annex I.

          “Liquidation” has the meaning set forth in paragraph 3 of Annex I.

          “Liquidation Distribution” has the meaning set forth in paragraph 3 of Annex I.

          “Majority in liquidation amount of the Securities” means Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class.

          “Maturity Date” has the meaning set forth in paragraph 4(a) of Annex I.

          “Officers’ Certificates” means, with respect to any Person, a certificate signed by two Authorized Officers of such Person.  Any Officers’ Certificate delivered with respect to compliance with a condition or covenant providing for it in this Declaration shall include:

          (a)           a statement that each officer signing the Certificate has read the covenant or condition and the definitions relating thereto;

          (b)          a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate;

          (c)          a statement that each such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and

          (d)          a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.

          “OTS” has the meaning set forth in paragraph 3 of Annex I.

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          “Paying Agent” has the meaning specified in Section 6.2.

          “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.

          “Placement Agreement” means the Placement Agreement relating to the offering and sale of Capital Securities in the form of Exhibit C.

          “Primary Treasury Dealer” has the meaning set forth in paragraph 4(a) of Annex I.

          “Property Account” has the meaning set forth in Section 2.8(c).

          “Pro Rata” has the meaning set forth in paragraph 8 of Annex I.

          “Quorum” means a majority of the Administrators or, if there are only two Administrators, both  of them.

          “Quotation Agent” has the meaning set forth in paragraph 4(a) of Annex I.

          “Redemption Date” has the meaning set forth in paragraph 4(a) of Annex I.

          “Redemption/Distribution Notice” has the meaning set forth in paragraph 4(e) of Annex I.

          “Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I.

          “Reference Treasury Dealer” has the meaning set forth in paragraph 4(a) of Annex I.

          “Reference Treasury Dealer Quotations” has the meaning set forth in paragraph 4(a) of Annex I.

          “Registrar” has the meaning set forth in Section 6.2.

          “Relevant Trustee” has the meaning set forth in Section 4.5(a).

          “Responsible Officer” means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject.

          “Restricted Securities Legend” has the meaning set forth in Section 8.2(b).

          “Rule 3a-5” means Rule 3a-5 under the Investment Company Act.

          “Rule 3a-7” means Rule 3a-7 under the Investment Company Act.

          “Securities” means the Common Securities and the Capital Securities.

          “Securities Act” means the Securities Act of 1933, as amended from time to time, or any successor legislation.

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          “Special Event” has the meaning set forth in paragraph 4(a) of Annex I.

          “Special Redemption Date” has the meaning set forth in paragraph 4(a) of Annex I.

          “Special Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I.

          “Sponsor” means Enterprise Financial Services Corp., a Delaware corporation, or any successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the Trust.

          “Statutory Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. §§ 3801, et seq. as may be amended from time to time.

          “Successor Entity” has the meaning set forth in Section 2.15(b).

          “Successor Delaware Trustee” has the meaning set forth in Section 4.5(e).

          “Successor Institutional Trustee” has the meaning set forth in Section 4.5(b).

          “Successor Securities” has the meaning set forth in Section 2.15(b)

          “Super Majority” has the meaning set forth in paragraph 5(b) of Annex I.

          “Tax Event” has the meaning set forth in paragraph 4(a) of Annex I.

          “10% in liquidation amount of the Securities” means Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class.

          “3-Month LIBOR” has the meaning set forth in paragraph 4(a) of Annex I.

          “Transfer Agent” has the meaning set forth in Section 6.2.

          “Treasury Rate” has the meaning set forth in paragraph 4(a) of Annex I.

          “Treasury Regulations” means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

          “Trust Property” means (a) the Debentures, (b) any cash on deposit in, or owing to, the Property Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Institutional Trustee pursuant to the trusts of this Declaration.

          “Trustee” or “Trustees” means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder.

          “U.S. Person” means a United States Person as defined in Section 7701(a)(30) of the Code.

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ARTICLE II

ORGANIZATION

          Section 2.1.     Name. The Trust is named “EFSC Statutory Trust IV,” as such name may be modified from time to time by the Administrators following written notice to the Holders of the Securities. The Trust’s activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrators.

          Section 2.2.     Office. The address of the principal office of the Trust is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware  19890-1600.  On at least 10 Business Days written notice to the Holders of the Securities, the Administrators may designate another principal office, which shall be in a state of the United States or in the District of Columbia.

          Section 2.3.     Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell the Securities representing undivided beneficial interests in the assets of the Trust, (b) to invest the gross proceeds from such sale to acquire the Debentures, (c) to facilitate direct investment in the assets of the Trust through issuance of the Common Securities and the Capital Securities and (d) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto.  The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust.

          Section 2.4.     Authority. Except as specifically provided in this Declaration, the Institutional Trustee shall have exclusive and complete authority to carry out the purposes of the Trust.  An action taken by a Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust.  In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust.  Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration.  The Administrators shall have only those ministerial duties set forth herein with respect to accomplishing the purposes of the Trust and are not intended to be trustees or fiduciaries with respect to the Trust or the Holders.  The Institutional Trustee shall have the right, but shall not be obligated except as provided in Section 2.6, to perform those duties assigned to the Administrators.

          Section 2.5.     Title to Property of the Trust. Except as provided in Section 2.8 with respect to the Debentures and the Property Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust.  The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust.

          Section 2.6.     Powers and Duties of the Trustees and the Administrators.

          (a)          The Trustees and the Administrators shall conduct the affairs of the Trust in accordance with the terms of this Declaration.  Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Trustees and the Administrators shall have the authority to enter into all transactions and agreements determined by the Institutional Trustee to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees or the Administrators, as the case may be, under this Declaration, and to perform all acts in furtherance thereof, including without limitation, the following:

              (i)          Each Administrator shall have the power and authority to act on behalf of the Trust with respect to the following matters:

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             (A)  the issuance and sale of the Securities;

             (B)  to cause the Trust to enter into, and to execute and deliver on behalf of the Trust, such agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including agreements with the Paying Agent;

             (C)  ensuring compliance with the Securities Act, applicable state securities or blue sky laws;

             (D)  the sending of notices (other than notices of default), and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration;

             (E)  the consent to the appointment of a Paying Agent, Transfer Agent and Registrar in accordance with this Declaration, which consent shall not be unreasonably withheld or delayed;

             (F)  execution and delivery of the Securities in accordance with this Declaration;

             (G)  execution and delivery of closing certificates pursuant to the Placement Agreement and the application for a taxpayer identification number;

             (H)  unless otherwise determined by the Holders of a Majority in liquidation amount of the Securities or as otherwise required by the Statutory Trust Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrators) any documents that the Administrators have the power to execute pursuant to this Declaration;

             (I)  the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder);

             (J)  to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; and

             (K)  to duly prepare and file all applicable tax returns and tax information reports that are required to be filed with respect to the Trust on behalf of the Trust.

               (ii)        As among the Trustees and the Administrators, the Institutional Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters:

             (A)  the establishment of the Property Account;

             (B)  the receipt of the Debentures;

             (C)  the collection of interest, principal and any other payments made in respect of the Debentures in the Property Account;

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             (D)  the distribution through the Paying Agent of amounts owed to the Holders in respect of the Securities;

             (E)  the exercise of all of the rights, powers and privileges of a holder of the Debentures;

             (F)  the sending of notices of default and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration;

             (G)  the distribution of the Trust Property in accordance with the terms of this Declaration;

             (H)  to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;

             (I)  after any Event of Default (provided that such Event of Default is not by or with respect to the Institutional Trustee) the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration and protect and conserve the Trust Property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); and

             (J)  to take all action that may be necessary for the preservation and the continuation of the Trust’s valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Delaware.

             (iii)       The Institutional Trustee shall have the power and authority to act on behalf of the Trust with respect to any of the duties, liabilities, powers or the authority of the Administrators set forth in Section 2.6(a)(i)(D), (E) and (F) herein but shall not have a duty to do any such act unless specifically requested to do so in writing by the Sponsor, and shall then be fully protected in acting pursuant to such written request; and in the event of a conflict between the action of the Administrators and the action of the Institutional Trustee, the action of the Institutional Trustee shall prevail.

          (b)          So long as this Declaration remains in effect, the Trust (or the Trustees or Administrators acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, neither the Trustees nor the Administrators may cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein, (iii) take any action that would reasonably be expected (x) to cause the Trust to fail or cease to qualify as a “grantor trust” for United States federal income tax purposes or (y) to require the trust to register as an Investment Company under the Investment Company Act, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a lien on any of the Trust Property. The Institutional Trustee shall, at the sole cost and expense of the Trust, defend all claims and demands of all Persons at any time claiming any lien on any of the Trust Property adverse to the interest of the Trust or the Holders in their capacity as Holders.

          (c)          In connection with the issuance and sale of the Capital Securities, the Sponsor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the

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following (and any actions taken by the Sponsor in furtherance of the following prior to the date of this Declaration are hereby ratified and confirmed in all respects):

              (i)          the taking of any action necessary to obtain an exemption from the Securities Act;

              (ii)        the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Administrators of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States in connection with the sale of the Capital Securities;

              (iii)       the negotiation of the terms of, and the execution and delivery of, the Placement Agreement providing for the sale of the Capital Securities; and

              (iv)        the taking of any other actions necessary or desirable to carry out any of the foregoing activities.

          (d)         Notwithstanding anything herein to the contrary, the Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not (i) be deemed to be an Investment Company required to be registered under the Investment Company Act, and (ii) fail to be classified as a “grantor trust” for United States federal income tax purposes.  The Administrators and the Holders of a Majority in liquidation amount of the Common Securities shall not take any action inconsistent with the treatment of the Debentures as indebtedness of the Debenture Issuer for United States federal income tax purposes. In this connection, the Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized to take any action, not inconsistent with applicable laws, the Certificate of Trust or this Declaration, as amended from time to time, that each of the Administrators and the Holders of a Majority in liquidation amount of the Common Securities determines in their discretion to be necessary or desirable for such purposes.

          (e)          All expenses incurred by the Administrators or the Trustees pursuant to this Section 2.6 shall be reimbursed by the Sponsor, and the Trustees and the Administrators shall have no obligations with respect to such expenses (for purposes of clarification, this Section 2.6(e) does not contemplate the payment by the Sponsor of acceptance or annual administration fees owing to the Trustees under this Declaration or the fees and expenses of the Trustees’ counsel in connection with the closing of the transactions contemplated by this Declaration).

          (f)          The assets of the Trust shall consist of the Trust Property.

          (g)          Legal title to all Trust Property shall be vested at all times in the Institutional Trustee (in its capacity as such) and shall be held and administered by the Institutional Trustee and the Administrators for the benefit of the Trust in accordance with this Declaration.

          (h)          If the Institutional Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Declaration and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Institutional Trustee or to such Holder, then and in every such case the Sponsor, the Institutional Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter

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all rights and remedies of the Institutional Trustee and the Holders shall continue as though no such proceeding had been instituted.

          Section 2.7.     Prohibition of Actions by the Trust and the Institutional Trustee.

          (a)          The Trust shall not, and the Institutional Trustee shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration.  In particular, the Trust shall not and the Institutional Trustee shall cause the Trust not to:

             (i)          invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of the Securities pursuant to the terms of this Declaration and of the Securities;

             (ii)         acquire any assets other than as expressly provided herein;

             (iii)        possess Trust Property for other than a Trust purpose;

             (iv)        make any loans or incur any indebtedness other than loans represented by the Debentures;

             (v)         possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever other than as expressly provided herein;

             (vi)        issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities;

             (vii)       carry on any “trade or business” as that phrase is used in the Code; or

             (viii)     other than as provided in this Declaration (including Annex I), (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received a written opinion of counsel to the effect that such modification will not cause the Trust to cease to be classified as a “grantor trust” for United States federal income tax purposes.

          Section 2.8.     Powers and Duties of the Institutional Trustee.

          (a)          The legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Trust and the Holders of the Securities.  The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 4.5. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered.

          (b)          The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Administrators or to the Delaware Trustee.

          (c)          The Institutional Trustee shall:

              (i)          establish and maintain a segregated non-interest bearing trust account (the “Property Account”) in the name of and under the exclusive control of the Institutional Trustee,

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and maintained in the Institutional Trustee’s trust department, on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Property Account and make payments, or cause the Paying Agent to make payments, to the Holders of the Capital Securities and Holders of the Common Securities from the Property Account in accordance with Section 5.1.  Funds in the Property Account shall be held uninvested until disbursed in accordance with this Declaration;

              (ii)         engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and

              (iii)        upon written notice of distribution issued by the Administrators in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain circumstances pursuant to the terms of the Securities.

          (d)          The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort to legal action with respect to, or otherwise adjust claims or demands of or against, the Trust which arises out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or arises out of the Institutional Trustee’s duties and obligations under this Declaration; provided, however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of the Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder (a “Direct Action”) on or after the respective due date specified in the Debentures.  In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of the Capital Securities to the extent of any payment made by the Debenture Issuer to such Holder of the Capital Securities in such Direct Action; provided, however, that no Holder of the Common Securities may exercise such right of subrogation so long as an Event of Default with respect to the Capital Securities has occurred and is continuing.

          (e)          The Institutional Trustee shall continue to serve as a Trustee until either:          

              (i)          the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of the Securities pursuant to the terms of the Securities and this Declaration; or

              (ii)         a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 4.5.

          (f)          The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a Holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Institutional Trustee may, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to this Declaration (including Annex I) and the terms of the Securities.

          The Institutional Trustee must exercise the powers set forth in this Section 2.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 2.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 2.3.

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          Section 2.9.     Certain Duties and Responsibilities of the Trustees and Administrators.

          (a)          The Institutional Trustee, before the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee.  In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 6.7), the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

          (b)          The duties and responsibilities of the Trustees and the Administrators shall be as provided by this Declaration.  Notwithstanding the foregoing, no provision of this Declaration shall require any Trustee or Administrator to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers if it shall have reasonable grounds to believe that repayment of such funds or adequate protection against such risk of liability is not reasonably assured to it.  Whether or not therein expressly so provided, every provision of this Declaration relating to the conduct or affecting the liability of or affording protection to the Trustees or Administrators shall be subject to the provisions of this Article.  Nothing in this Declaration shall be construed to relieve an Administrator or a Trustee from liability for its own negligent act, its own negligent failure to act, or its own willful misconduct.  To the extent that, at law or in equity, a Trustee or an Administrator has duties and liabilities relating to the Trust or to the Holders, such Trustee or such Administrator shall not be liable to the Trust or to any Holder for such Trustee’s or such Administrator’s good faith reliance on the provisions of this Declaration.  The provisions of this Declaration, to the extent that they restrict the duties and liabilities of the Administrators or the Trustee otherwise existing at law or in equity, are agreed by the Sponsor and the Holders to replace such other duties and liabilities of the Administrators or the Trustees.

          (c)          All payments made by the Institutional Trustee or a Paying Agent in respect of the Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Institutional Trustee or a Paying Agent to make payments in accordance with the terms hereof.  Each Holder, by its acceptance of a Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees and the Administrators are not personally liable to it for any amount distributable in respect of any Security or for any other liability in respect of any Security.  This Section 2.9(c) does not limit the liability of the Trustees expressly set forth elsewhere in this Declaration.

          (d)          The Institutional Trustee shall not be liable for its own acts or omissions hereunder except as a result of its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

              (i)          the Institutional Trustee shall not be liable for any error of judgment made in good faith by an Authorized Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts;

              (ii)         the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities or the Common Securities, as applicable, relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration;

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	(iii)        the Institutional Trustee’s sole duty with respect to the custody, safekeeping and physical preservation of the Debentures and the Property Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its fiduciary accounts generally, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration;
	(iv)        the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor; and money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Property Account maintained by the Institutional Trustee pursuant to Section 2.8(c)(i) and except to the extent otherwise required by law; and
	(v)         the Institutional Trustee shall not be responsible for monitoring the compliance by the Administrators or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Administrators or the Sponsor.
	Section 2.10.     Certain Rights of Institutional Trustee. Subject to the provisions of Section 2.9.
(a)          the Institutional Trustee may conclusively rely and shall fully be protected in acting or refraining from acting in good faith upon any resolution, opinion of counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties;
(b)          if (i) in performing its duties under this Declaration, the Institutional Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any other provisions contained herein, or (iii) the Institutional Trustee is unsure of the application of any provision of this Declaration, then, except as to any matter as to which the Holders of Capital Securities are entitled to vote under the terms of this Declaration, the Institutional Trustee may deliver a notice to the Sponsor requesting the Sponsor’s written instructions as to the course of action to be taken and the Institutional Trustee shall take such action, or refrain from taking such action, as the Institutional Trustee shall be instructed in writing, in which event the Institutional Trustee shall have no liability except for its own negligence or willful misconduct;
(c)          any direction or act of the Sponsor or the Administrators contemplated by this Declaration shall be sufficiently evidenced by an Officers’ Certificate;
(d)          whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before undertaking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may request and conclusively rely upon an Officers’ Certificate as to factual matters which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrators;
(e)          the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof;

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          (f)          the Institutional Trustee may consult with counsel of its selection (which counsel may be counsel to the Sponsor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction;

          (g)          the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any of the Holders pursuant to this Declaration, unless such Holders shall have offered to the Institutional Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; provided, that nothing contained in this Section 2.10(g) shall be taken to relieve the Institutional Trustee, subject to Section 2.9(b), upon the occurrence of an Event of Default (that has not been cured or waived pursuant to Section 6.7), to exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs;

          (h)          the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Institutional Trustee may make such further inquiry or investigation into such facts or matters as it may see fit;

          (i)          the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of or for the supervision of, any such agent or attorney appointed with due care by it hereunder;

          (j)          whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Institutional Trustee (i) may request instructions from the Holders of the Capital Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Capital Securities as would be entitled to direct the Institutional Trustee under the terms of the Capital Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be fully protected in acting in accordance with such instructions;

          (k)          except as otherwise expressly provided in this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration;

          (l)          when the Institutional Trustee incurs expenses or renders services in connection with a Bankruptcy Event, such expenses including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally;

          (m)          the Institutional Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Institutional Trustee obtains actual knowledge of such event or the Institutional Trustee receives written notice of such event from any Holder, the Sponsor or the Debenture Trustee;

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          (n)          any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee’s or its agent’s taking such action; and

          (o)          no provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty.

          Section 2.11.     Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 4.1, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of any of the Trustees or the Administrators described in this Declaration (except as may be required under the Statutory Trust Act).  Except as set forth in Section 4.1, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of § 3807 of the Statutory Trust Act.

          Section 2.12.     Execution of Documents. Unless otherwise determined in writing by the Institutional Trustee, and except as otherwise required by the Statutory Trust Act, the Institutional Trustee, or any one or more of the Administrators, as the case may be, is authorized to execute on behalf of the Trust any documents that the Trustees or the Administrators, as the case may be, have the power and authority to execute pursuant to Section 2.6.

          Section 2.13.     Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness.  The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof.  The Trustees make no representations as to the validity or sufficiency of this Declaration, the Debentures or the Securities.

          Section 2.14.     Duration of Trust. The Trust, unless earlier dissolved pursuant to the provisions of Article VII hereof, shall be in existence for 35 years from the Closing Date.

          Section 2.15. Mergers.

          (a)          The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 2.15(b) and (c) and except in connection with the liquidation of the Trust and the distribution of the Debentures to Holders of Securities pursuant to Section 7.1(a)(iv) of the Declaration or Section 4 of Annex I.

          (b)          The Trust may, with the consent of the Institutional Trustee and without the consent of the Holders of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any state; provided that:

              (i)          if the Trust is not the surviving entity, such successor entity (the “Successor Entity”) either:

                            (A)  expressly assumes all of the obligations of the Trust under the Securities; or

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             (B)  substitutes for the Securities other securities having substantially the same terms as the Securities (the “Successor Securities”) so that the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon Liquidation, redemption and otherwise;

              (ii)         the Sponsor expressly appoints a trustee of the Successor Entity that possesses substantially the same powers and duties as the Institutional Trustee as the Holder of the Debentures;

              (iii)        such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect;

              (iv)        the Institutional Trustee receives written confirmation from Moody’s Investor Services, Inc. and any other nationally recognized statistical rating organization that rates securities issued by the initial purchaser of the Capital Securities that it will not reduce or withdraw the rating of any such securities because of such merger, conversion, consolidation, amalgamation or replacement;

              (v)         such Successor Entity has a purpose substantially identical to that of the Trust;

              (vi)        prior to such merger, consolidation, amalgamation or replacement, the Trust has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that:

             (A)  such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect;

              (B)  following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and

              (C) following such merger, consolidation, amalgamation or replacement, the Trust (or the Successor Entity) will continue to be classified as a “grantor trust” for United States federal income tax purposes;

	(vii)       the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Guarantee;
	(viii)      the Sponsor owns 100% of the common securities of any Successor Entity; and
	(ix)        prior to such merger, consolidation, amalgamation or replacement, the Institutional Trustee shall have received an Officers’ Certificate of the Administrators and an opinion of counsel, each to the effect that all conditions precedent under this Section 2.15(b) to such transaction have been satisfied.
(c)          Notwithstanding Section 2.15(b), the Trust shall not, except with the consent of Holders of 100% in aggregate liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes.

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ARTICLE III

SPONSOR

          Section 3.1.     Sponsor’s Purchase of Common Securities. On the Closing Date, the Sponsor will purchase all of the Common Securities issued by the Trust in an amount at least equal to 3% of the capital of the Trust, at the same time as the Capital Securities are sold.

          Section 3.2.     Responsibilities of the Sponsor. In connection with the issue and sale of the Capital Securities, the Sponsor shall have the exclusive right and responsibility to engage in, or direct the Administrators to engage in, the following activities:

          (a)          to determine the States in which to take appropriate action to qualify the Trust or to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States, to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which it was created; and

          (b)          to negotiate the terms of and/or execute on behalf of the Trust, the Placement Agreement and other related agreements providing for the sale of the Capital Securities.

          Section 3.3.     Expenses. In connection with the offering, sale and issuance of the Debentures to the Trust and in connection with the sale of the Securities by the Trust, the Sponsor, in its capacity as Debenture Issuer, shall:

          (a)           pay all reasonable costs and expenses owing to the Debenture Trustee pursuant to Section 6.6 of the Indenture;

          (b)          be responsible for and shall pay all debts and obligations (other than with respect to the Securities) and all costs and expenses of the Trust, the offering, sale and issuance of the Securities (including fees to the placement agents in connection therewith), the costs and expenses (including reasonable counsel fees and expenses) of the Institutional Trustee and the Administrators, the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, Paying Agents, Registrars, Transfer Agents, duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets and the enforcement by the Institutional Trustee of the rights of the Holders (for purposes of clarification, this Section 3.3(b) does not contemplate the payment by the Sponsor of acceptance or annual administration fees owing to the Trustees pursuant to the services to be provided by the Trustees under this Declaration or the fees and expenses of the Trustees’ counsel in connection with the closing of the transactions contemplated by this Declaration); and

          (c)          pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust.

          The Sponsor’s obligations under this Section 3.3 shall be for the benefit of, and shall be enforceable by, any Person to whom such debts, obligations, costs, expenses and taxes are owed (a

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“Creditor”) whether or not such Creditor has received notice hereof.  Any such Creditor may enforce the Sponsor’s obligations under this Section 3.3 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor.  The Sponsor agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 3.3.

          Section 3.4.     Right to Proceed. The Sponsor acknowledges the rights of Holders to institute a Direct Action as set forth in Section 2.8(d) hereto.

ARTICLE IV

INSTITUTIONAL TRUSTEE AND ADMINISTRATORS

          Section 4.1.     Number of Trustees. The number of Trustees shall initially be two, and;

          (a)          at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and

          (b)          after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holder of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holder of the Common Securities; provided, however, that there shall be a Delaware Trustee if required by Section 4.2; and there shall always be one Trustee who shall be the Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements, in which case Section 2.11 shall have no application to such entity in its capacity as Institutional Trustee.

          Section 4.2.     Delaware Trustee; Eligibility.

(a)          If required by the Statutory Trust Act, one Trustee (the “Delaware Trustee”) shall be:

               (i)          a natural person at least 21 years of age who is a resident of the State of Delaware; or

               (ii)          if not a natural person, an entity which is organized under the laws of the United States or any state thereof or the District of Columbia, has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, including § 3807 of the Statutory Trust Act.

(b)          The initial Delaware Trustee shall be Wilmington Trust Company.

Section 4.3.          Institutional Trustee; Eligibility.

(a)          There shall at all times be one Trustee which shall:

               (i)          not be an Affiliate of the Sponsor;

               (ii)         not offer or provide credit or credit enhancement to the Trust; and

               (iii)        be a banking corporation or trust company organized and doing business under the laws of the United States of America or any state thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000.00), and subject to supervision or examination by Federal, state, or District of Columbia authority.  If such corporation publishes

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reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.3(a)(iii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

          (b)          If at any time the Institutional Trustee shall cease to be eligible to so act under Section 4.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 4.5.

          (c)          If the Institutional Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act of 1939, as amended, the Institutional Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to this Declaration.

          (d)          The initial Institutional Trustee shall be Wilmington Trust Company.

          Section 4.4.     Administrators. Each Administrator shall be a U.S. Person, 21 years of age or older and authorized to bind the Sponsor.  The initial Administrators shall be Frank Sanfilippo and Deborah Barstow.  There shall at all times be at least one Administrator.  Except where a requirement for action by a specific number of Administrators is expressly set forth in this Declaration and except with respect to any action the taking of which is the subject of a meeting of the Administrators, any action required or permitted to be taken by the Administrators may be taken by, and any power of the Administrators may be exercised by, or with the consent of, any one such Administrator.

          Section 4. 5.    Appointment, Removal and Resignation of Trustees and Administrators.

          (a)          No resignation or removal of any Trustee (the “Relevant Trustee”) and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of this Section 4.5.

          (b)          Subject to Section 4.5(a), a Relevant Trustee may resign at any time by giving written notice thereof to the Holders of the Securities and by appointing a successor Relevant Trustee.  Upon the resignation of the Institutional Trustee, the Institutional Trustee shall appoint a successor by requesting from at least three Persons meeting the eligibility requirements their expenses and charges to serve as the successor Institutional Trustee on a form provided by the Administrators, and selecting the Person who agrees to the lowest expense and charges (the “Successor Institutional Trustee”).  If the instrument of acceptance by the successor Relevant Trustee required by this Section 4.5 shall not have been delivered to the Relevant Trustee within 60 days after the giving of such notice of resignation or delivery of the instrument of removal, the Relevant Trustee may petition, at the expense of the Trust, any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Relevant Trustee. The Institutional Trustee shall have no liability for the selection of such successor pursuant to this Section 4.5.

          (c)          Unless an Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by an act of the Holders of a Majority in liquidation amount of the Common Securities. If any Trustee shall be so removed, the Holders of the Common Securities, by act of the Holders of a Majority in liquidation amount of the Common Securities delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee, and such successor Trustee shall comply with the applicable requirements of this Section 4.5.  If an Event of Default shall have occurred and be continuing, the Institutional Trustee or the Delaware Trustee, or both of them, may be removed by the act of the Holders of a Majority in liquidation amount of the Capital Securities, delivered to the Relevant Trustee

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(in its individual capacity and on behalf of the Trust).  If any Trustee shall be so removed, the Holders of Capital Securities, by act of the Holders of a Majority in liquidation amount of the Capital Securities then outstanding delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of this Section 4.5.  If no successor Relevant Trustee shall have been so appointed by the Holders of a Majority in liquidation amount of the Capital Securities and accepted appointment in the manner required by this Section 4.5 within 30 days after delivery of an instrument of removal, the Relevant Trustee or any Holder who has been a Holder of the Securities for at least six months may, on behalf of himself and all others similarly situated, petition any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee.  Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Relevant Trustee or Trustees.

          (d)          The Institutional Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Holders and to the Sponsor.  Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Institutional Trustee.

          (e)          Notwithstanding the foregoing or any other provision of this Declaration, in the event a Delaware Trustee who is a natural person dies or is adjudged by a court to have become incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by the Institutional Trustee following the procedures in this Section 4.5 (with the successor being a Person who satisfies the eligibility requirement for a Delaware Trustee set forth in this Declaration) (the “Successor Delaware Trustee”).

          (f)          In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Securities and the Trust and (b) shall add to or change any of the provisions of this Declaration as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee, such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Securities and the Trust subject to the payment of all unpaid fees, expenses and indemnities of such retiring Relevant Trustee.

          (g)          No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be.

          (h)          The Holders of the Capital Securities will have no right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Holders of the Common Securities.

          (i)          Any successor Delaware Trustee shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware identifying the name and principal place of business of such Delaware Trustee in the State of Delaware.

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          Section 4.6.     Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not educed pursuant to Section 4.1, a vacancy shall occur.  A resolution certifying the existence of such vacancy by the Trustees or, if there are more than two, a majority of the Trustees, shall be conclusive evidence of the existence of such vacancy.  The vacancy shall be filled with a Trustee appointed in accordance with Section 4.5.

          Section 4.7.     Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust or terminate this Declaration.  Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled by the appointment of a Trustee in accordance with Section 4.5, the Institutional Trustee shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration.

          Section 4.8.     Meetings of the Trustees and the Administrators. Meetings of the Administrators shall be held from time to time upon the call of an Administrator. Regular meetings of the Administrators may be held in person in the United States or by telephone, at a place (if applicable) and time fixed by resolution of the Administrators.  Notice of any in-person meetings of the Trustees with the Administrators or meetings of the Administrators shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Trustees with the Administrators or meetings of the Administrators or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting.  The presence (whether in person or by telephone) of a Trustee or an Administrator, as the case may be, at a meeting shall constitute a waiver of notice of such meeting except where the Trustee or an Administrator, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any activity on the grounds that the meeting has not been lawfully called or convened.  Unless provided otherwise in this Declaration, any action of the Trustees or the Administrators, as the case may be, may be taken at a meeting by vote of a majority of the Trustees or the Administrators present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Trustees or the Administrators.  Meetings of the Trustees and the Administrators together shall be held from time to time upon the call of any Trustee or an Administrator.

          Section 4.9.     Delegation of Power.

          (a)          Any Administrator may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 that is a U.S. Person his or her power for the purpose of executing any documents contemplated in Section 2.6; and

          (b)          the Administrators shall have power to delegate from time to time to such of their number the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrators or otherwise as the Administrators may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein.

          Section 4.10.     Conversion, Consolidation or Succession to Business. Any Person into which the Institutional Trustee or the Delaware Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee shall be the successor of the Institutional Trustee or the Delaware Trustee hereunder, provided such Person shall

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be otherwise qualified and eligible under this Article and, provided, further, that such Person shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware as contemplated in Section 4.5(i).

ARTICLE V

DISTRIBUTIONS

          Section 5.1.     Distributions. Holders shall receive Distributions in accordance with the applicable terms of the relevant Holder’s Securities. Distributions shall be made on the Capital Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of Interest or any principal on the Debentures held by the Institutional Trustee, the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a “Distribution”) of such amounts to Holders.

ARTICLE VI

ISSUANCE OF SECURITIES

          Section 6.1.     General Provisions Regarding Securities.

          (a)          The Administrators shall, on behalf of the Trust, issue one series of capital securities substantially in the form of Exhibit A-1 representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I and one series of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I.  The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities.  The Capital Securities rank pari passu to, and payment thereon shall be made Pro Rata with, the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities as set forth in Annex I.

          (b)          The Certificates shall be signed on behalf of the Trust by one or more Administrators. Such signature shall be the facsimile or manual signature of any Administrator.  In case any Administrator of the Trust who shall have signed any of the Securities shall cease to be such Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Administrator, and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be an Administrator of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such an Administrator.  A Capital Security shall not be valid until authenticated by the facsimile or manual signature of an Authorized Officer of the Institutional Trustee.  Such signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration.  Upon written order of the Trust signed by one Administrator, the Institutional Trustee shall authenticate the Capital Securities for original issue. The Institutional Trustee may appoint an authenticating agent that is a U.S. Person acceptable to the Trust to authenticate the Capital Securities.  A Common Security need not be so authenticated.

          (c)          The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust.

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          (d)          Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and, except as provided in Section 9.1(b) with respect to the Common Securities, non-assessable.

          (e)          Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration and the Guarantee.

          Section 6.2.     Paying Agent, Transfer Agent and Registrar. The Trust shall maintain in Wilmington, Delaware, an office or agency where the Capital Securities may be presented for payment (“Paying Agent”), and an office or agency where Securities may be presented for registration of transfer or exchange (the “Transfer Agent”). The Trust shall keep or cause to be kept at such office or agency a register for the purpose of registering Securities, transfers and exchanges of Securities, such register to be held by a registrar (the “Registrar”).  The Administrators may appoint the Paying Agent, the Registrar and the Transfer Agent and may appoint one or more additional Paying Agents or one or more co-Registrars, or one or more co-Transfer Agents in such other locations as it shall determine.  The term “Paying Agent” includes any additional paying agent, the term “Registrar” includes any additional registrar or co-Registrar and the term “Transfer Agent” includes any additional transfer agent.  The Administrators may change any Paying Agent, Transfer Agent or Registrar at any time without prior notice to any Holder. The Administrators shall notify the Institutional Trustee of the name and address of any Paying Agent, Transfer Agent and Registrar not a party to this Declaration.  The Administrators hereby initially appoint the Institutional Trustee to act as Paying Agent, Transfer Agent and Registrar for the Capital Securities and the Common Securities.  The Institutional Trustee or any of its Affiliates in the United States may act as Paying Agent, Transfer Agent or Registrar.

          Section 6.3.     Form and Dating. The Capital Securities and the Institutional Trustee’s certificate of authentication thereon shall be substantially in the form of Exhibit A-1, and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration.  Certificates may be typed, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as conclusively evidenced by their execution thereof.  The Securities may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Sponsor).  The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing.  Each Capital Security shall be dated on or before the date of its authentication.  The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Institutional Trustee, the Delaware Trustee, the Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby.  Capital Securities will be issued only in blocks having a stated liquidation amount of not less than $100,000.00 and any multiple of $1,000.00 in excess thereof.

          The Capital Securities are being offered and sold by the Trust pursuant to the Placement Agreement in definitive, registered form without coupons and with the Restricted Securities Legend.

          Section 6.4.     Mutilated, Destroyed, Lost or Stolen Certificates.

          If:

          (a)          any mutilated Certificates should be surrendered to the Registrar, or if the Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate; and

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          (b)          there shall be delivered to the Registrar, the Administrators and the Institutional Trustee such security or indemnity as may be required by them to keep each of them harmless;

then, in the absence of notice that such Certificate shall have been acquired by a protected purchaser, an Administrator on behalf of the Trust shall execute (and in the case of a Capital Security Certificate, the Institutional Trustee shall authenticate) and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination.  In connection with the issuance of any new Certificate under this Section 6.4, the Registrar or the Administrators may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time.

          Section 6.5.     Temporary Securities. Until definitive Securities are ready for delivery, the Administrators may prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, temporary Securities.  Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Administrators consider appropriate for temporary Securities. Without unreasonable delay, the Administrators shall prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, definitive Securities in exchange for temporary Securities.

          Section 6.6.     Cancellation. The Administrators at any time may deliver Securities to the Institutional Trustee for cancellation.  The Registrar shall forward to the Institutional Trustee any Securities surrendered to it for registration of transfer, redemption or payment.  The Institutional Trustee shall promptly cancel all Securities surrendered for registration of transfer, payment, replacement or cancellation and shall dispose of such canceled Securities as the Administrators direct.  The Administrators may not issue new Securities to replace Securities that have been paid or that have been delivered to the Institutional Trustee for cancellation.

          Section 6.7.     Rights of Holders; Waivers of Past Defaults.

          (a)          The legal title to the Trust Property is vested exclusively in the Institutional Trustee (in its capacity as such) in accordance with Section 2.5, and the Holders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below.  The Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration.  The Securities shall have no preemptive or similar rights.

          (b)          For so long as any Capital Securities remain outstanding, if upon an Acceleration Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of a Majority in liquidation amount of the Capital Securities then outstanding shall have the right to make such declaration by a notice in writing to the Institutional Trustee, the Sponsor and the Debenture Trustee.

          At any time after a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as provided in the Indenture, if the Institutional Trustee, subject to the provisions hereof, fails to annul any such declaration and waive such default, the Holders of a Majority in liquidation amount of the Capital Securities, by written notice to the Institutional Trustee, the Sponsor and the Debenture Trustee, may rescind and annul such declaration and its consequences if:

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              (i)          the Debenture Issuer has paid or deposited with the Debenture Trustee a sum sufficient to pay

             (A)  all overdue installments of interest on all of the Debentures,

             (B)  any accrued Additional Interest on all of the Debentures,

             (C)  the principal of (and premium, if any, on) any Debentures that have become due otherwise than by such declaration of acceleration and interest and Additional Interest thereon at the rate borne by the Debentures, and

             (D)  all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee and the Institutional Trustee, their agents and counsel; and

              (ii)          all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures that has become due solely by such acceleration, have been cured or waived as provided in Section 5.7 of the Indenture.

          The Holders of at least a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default under the Indenture or any Indenture Event of Default, except a default or Indenture Event of Default in the payment of principal or interest on the Debentures (unless such default or Indenture Event of Default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default under the Indenture or an Indenture Event of Default in respect of a covenant or provision that under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture.  No such rescission shall affect any subsequent default or impair any right consequent thereon.

          Upon receipt by the Institutional Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of any part of the Capital Securities, a record date shall be established for determining Holders of outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Institutional Trustee receives such notice.  The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day that is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.7.

          (c)          Except as otherwise provided in paragraphs (a) and (b) of this Section 6.7, the Holders of at least a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

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ARTICLE VII

DISSOLUTION AND TERMINATION OF TRUST

          Section 7.1.     Dissolution and Termination of Trust.

(a)          The Trust shall dissolve on the first to occur of:

              (i)          unless earlier dissolved, on December 15, 2040, the expiration of the term of the Trust;

              (ii)        upon a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer;

              (iii)        upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof;

              (iv)        upon the distribution of the Debentures to the Holders of the Securities, upon exercise of the right of the Holder of all of the outstanding Common Securities to dissolve the Trust as provided in Annex I hereto;

              (v)         upon the entry of a decree of judicial dissolution of the Holder of the Common Securities, the Sponsor, the Trust or the Debenture Issuer;

              (vi)        when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; or

              (vii)       before the issuance of any Securities, with the consent of all of the Trustees and the Sponsor.

(b)          As soon as is practicable after the occurrence of an event referred to in Section 7.1(a), and after satisfaction of liabilities to creditors of the Trust as required by applicable law, including of the Statutory Trust Act, and subject to the terms set forth in Annex I, the Institutional Trustee shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Delaware.

(c)          The provisions of Section 2.9 and Article IX shall survive the termination of the Trust.

ARTICLE VIII

TRANSFER OF INTERESTS

          Section 8.1.     General.

          (a)          Subject to Section 8.1(c), where Capital Securities are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal number of Capital Securities represented by different certificates, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met.  To permit registrations of transfer and exchanges, the Trust shall issue and the Institutional Trustee shall authenticate Capital Securities at the Registrar’s request.

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          (b)          Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities and for so long as the Securities remain outstanding, and to the fullest extent permitted by applicable law, the Sponsor shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Sponsor, in its capacity as Debenture Issuer, under the Indenture that is a U.S. Person may succeed to the Sponsor’s ownership of the Common Securities.

          (c)          Capital Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities.  To the fullest extent permitted by applicable law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void and will be deemed to be of no legal effect whatsoever and any such transferee shall be deemed not to be the holder of such Capital Securities for any purpose, including but not limited to the receipt of Distributions on such Capital Securities, and such transferee shall be deemed to have no interest whatsoever in such Capital Securities.

          (d)          The Registrar shall provide for the registration of Securities and of transfers of Securities, which will be effected without charge but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other governmental charges that may be imposed in relation to it.  Upon surrender for registration of transfer of any Securities, the Registrar shall cause one or more new Securities of the same tenor to be issued in the name of the designated transferee or transferees. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holder’s attorney duly authorized in writing.  Each Security surrendered for registration of transfer shall be canceled by the Institutional Trustee pursuant to Section 6.6.  A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security.  By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration.

          (e)          The Trust shall not be required (i) to issue, register the transfer of, or exchange any Securities during a period beginning at the opening of business fifteen days before the day of any selection of Securities for redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Securities to be redeemed, or (ii) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.

          Section 8.2.     Transfer Procedures and Restrictions.

          (a)          The Capital Securities shall bear the Restricted Securities Legend, which shall not be removed unless there is delivered to the Trust such satisfactory evidence, which may include an opinion of counsel satisfactory to the Institutional Trustee, as may be reasonably required by the Trust, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of the Securities Act.  Upon provision of such satisfactory evidence, the Institutional Trustee, at the written direction of the Trust, shall authenticate and deliver Capital Securities that do not bear the legend.

          (b)          Except as permitted by Section 8.2(a), each Capital Security shall bear a legend (the “Restricted Securities Legend”) in substantially the following form and a Capital Security shall not be transferred except in compliance with such legend, unless otherwise determined by the Sponsor, upon the advice of counsel expert in securities law, in accordance with applicable law:

              THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.

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NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.  THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE SPONSOR OR THE TRUST, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE SPONSOR’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST. HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

              THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.  ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT

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EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

              THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000.00 (100 SECURITIES) AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

              THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

          (c)          To permit registrations of transfers and exchanges, the Trust shall execute and the Institutional Trustee shall authenticate Capital Securities at the Registrar’s request.

          (d)          Registrations of transfers or exchanges will be effected without charge, but only upon payment (with such indemnity as the Registrar or the Sponsor may require) in respect of any tax or other governmental charge that may be imposed in relation to it.

          (e)          All Capital Securities issued upon any registration of transfer or exchange pursuant to the terms of this Declaration shall evidence the same security and shall be entitled to the same benefits under this Declaration as the Capital Securities surrendered upon such registration of transfer or exchange.

          Section 8.3.     Deemed Security Holders. The Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar shall have actual or other notice thereof.

ARTICLE IX

LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, INSTITUTIONAL TRUSTEE OR OTHERS

          Section 9.1.     Liability.

          (a)          Except as expressly set forth in this Declaration, the Guarantee and the terms of the Securities, the Sponsor shall not be:

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              (i)          personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; or

              (ii)         required to pay to the Trust or to any Holder of the Securities any deficit upon dissolution of the Trust or otherwise.

          (b)          The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust’s assets.

          (c)          Pursuant to the Statutory Trust Act, the Holders of the Capital Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware.

          Section 9.2.     Exculpation.

          (a)          No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person’s negligence or willful misconduct with respect to such acts or omissions.

          (b)          An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person’s professional or expert competence and, if selected by such Indemnified Person, has been selected by such Indemnified Person with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid.

          Section 9.3.          Fiduciary Duty.

          (a)          To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration.  The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of the Indemnified Person.

          (b)          Whenever in this Declaration an Indemnified Person is permitted or required to make a decision:

              (i)          in its “discretion” or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or

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              (ii)          in its “good faith” or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law.

          Section 9.4.     Indemnification.

          (a)          The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified 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 (other than an action by or in the right of the Trust) arising out of or in connection with the acceptance or administration of this Declaration by reason of the fact that he is or was an Indemnified Person against expenses (including reasonable attorneys’ fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

          (b)          The Sponsor shall indemnify, to the full extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor arising out of or in connection with the acceptance or administration of this Declaration by reason of the fact that he is or was an Indemnified Person against expenses (including reasonable attorneys’ fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust; provided, however, that no such indemnification shall be made in respect of any claim, issue or matter as to which such Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

          (c)          To the extent that an Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 9.4, or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys’ fees and expenses) actually and reasonably incurred by him in connection therewith.

          (d)          Any indemnification of an Administrator under paragraphs (a) and (b) of this Section 9.4 (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (i) by the Administrators by a majority vote of a Quorum consisting of such Administrators who were not parties to such action, suit or proceeding, (ii) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion, or (iii) by the Common Security Holder of the Trust.

          (e)          To the fullest extent permitted by law, expenses (including reasonable attorneys’ fees and expenses) incurred by an Indemnified Person in defending a civil, criminal, administrative or

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investigative action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 9.4 shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Sponsor as authorized in this Section 9.4. Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (i) by the Administrators by a majority vote of a Quorum of disinterested Administrators, (ii) if such a Quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion or (iii) by the Common Security Holder of the Trust, that, based upon the facts known to the Administrators, counsel or the Common Security Holder at the time such determination is made, such Indemnified Person acted in bad faith or in a manner that such Indemnified Person did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrators, independent legal counsel or the Common Security Holder reasonably determine that such Indemnified Person deliberately breached his duty to the Trust or its Common or Capital Security Holders.

          (f)          The Trustees, at the sole cost and expense of the Sponsor, retain the right to representation by counsel of their own choosing in any action, suit or any other proceeding for which they are indemnified under paragraphs (a) and (b) of this Section 9.4, without affecting their right to indemnification hereunder or waiving any rights afforded to it under this Declaration or applicable law.

          (g)          The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 9.4 shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Capital Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 9.4 shall be deemed to be provided by a contract between the Sponsor and each Indemnified Person who serves in such capacity at any time while this Section 9.4 is in effect.  Any repeal or modification of this Section 9.4 shall not affect any rights or obligations then existing.

          (h)          The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who is or was an Indemnified Person 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 Sponsor would have the power to indemnify him against such liability under the provisions of this Section 9.4.

          (i)          For purposes of this Section 9.4, references to “the Trust” shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 9.4 with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued.

          (j)          The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 9.4 shall, unless otherwise provided when authorized or ratified, (i) continue as to a Person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person; and (ii) survive the termination or expiration of this Declaration or the earlier removal or resignation of an Indemnified Person.

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          Section 9.5.     Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper.  None of any Covered Person, the Sponsor, the Delaware Trustee or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity.  Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates.

          Section 9.6.     Compensation; Fee. The Sponsor agrees:

          (a)          to pay to the Trustees from time to time such compensation for all services rendered by them hereunder as the parties shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and

          (b)          except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Declaration (including the reasonable compensation and the expenses and disbursements of their respective agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct.

          For purposes of clarification, this Section 9.6 does not contemplate the payment by the Sponsor of acceptance or annual administration fees owing to the Trustees under this Declaration or the fees and expenses of the Trustees’ counsel in connection with the closing of the transactions contemplated by this Declaration.

          The provisions of this Section 9.6 shall survive the dissolution of the Trust and the termination of this Declaration and the removal or resignation of any Trustee.

          No Trustee may claim any lien or charge on any property of the Trust as a result of any amount due pursuant to this Section 9.6.

ARTICLE X

ACCOUNTING

          Section 10.1.     Fiscal Year. The fiscal year (“Fiscal Year”) of the Trust shall be the calendar year, or such other year as is required by the Code.

          Section 10.2.     Certain Accounting Matters.

          (a)          At all times during the existence of the Trust, the Administrators shall keep, or cause to be kept at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations section 301.7701-7, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust.  The books of account shall be maintained, at the

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Sponsor’s expense, in accordance with generally accepted accounting principles, consistently applied. The books of account and the records of the Trust shall be examined by and reported upon (either separately or as part of the Sponsor’s regularly prepared consolidated financial report) as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Administrators.

          (b)          The Administrators shall cause to be duly prepared and delivered to each of the Holders of Securities Form 1099 or such other annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations.  Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrators shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust.

          (c)          The Administrators, at the Sponsor’s expense, shall cause to be duly prepared at the principal office of the Sponsor in the United States, as ‘United States’ is defined in Section 7701(a)(9) of the Code (or at the principal office of the Trust if the Sponsor has no such principal office in the United States), and filed an annual United States federal income tax return on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrators on behalf of the Trust with any state or local taxing authority.

          Section 10.3.     Banking. The Trust shall maintain in the United States, as defined for purposes of Treasury Regulations section 301.7701-7, one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Institutional Trustee shall be made directly to the Property Account and no other funds of the Trust shall be deposited in the Property Account.  The sole signatories for such accounts (including the Property Account) shall be designated by the Institutional Trustee.

          Section 10.4.     Withholding. The Institutional Trustee or any Paying Agent and the Administrators shall comply with all withholding requirements under United States federal, state and local law.  The Institutional Trustee or any Paying Agent shall request, and each Holder shall provide to the Institutional Trustee or any Paying Agent, such forms or certificates as are necessary to establish an exemption from withholding with respect to the Holder, and any representations and forms as shall reasonably be requested by the Institutional Trustee or any Paying Agent to assist it in determining the extent of, and in fulfilling, its withholding obligations.  The Administrators shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions.  To the extent that the Institutional Trustee or any Paying Agent is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder.  In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction.  If the amount required to be withheld was not withheld from actual Distributions made, the Institutional Trustee or any Paying Agent may reduce subsequent Distributions by the amount of such withholding.

ARTICLE XI

AMENDMENTS AND MEETINGS

          Section 11.1.     Amendments.

          (a)          Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed (i) by

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the Institutional Trustee, or (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, by the Delaware Trustee.

          (b)          Notwithstanding any other provision of this Article XI, an amendment may be made, and any such purported amendment shall be valid and effective only if:

               (i)          the Institutional Trustee shall have first received

              (A)  an Officers’ Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and

               (B)  an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and

               (ii)         the result of such amendment would not be to

              (A) cause the Trust to cease to be classified for purposes of United States federal income taxation as a grantor trust; or

              (B) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act.

          (c)          Except as provided in Section 11.1(d), (e) or (h), no amendment shall be made, and any such purported amendment shall be void and ineffective, unless the Holders of a Majority in liquidation amount of the Capital Securities shall have consented to such amendment.

          (d)          In addition to and notwithstanding any other provision in this Declaration, without the consent of each affected Holder, this Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or change any conversion or exchange provisions or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date.

          (e)          Sections 9.1(b) and 9.1(c) and this Section 11.1 shall not be amended without the consent of all of the Holders of the Securities.

          (f)          Article III shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities.

          (g)          The rights of the Holders of the Capital Securities under Article IV to appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Capital Securities.

          (h)          This Declaration may be amended by the Institutional Trustee and the Holders of a Majority in liquidation amount of the Common Securities without the consent of the Holders of the Capital Securities to:

               (i)          cure any ambiguity;

               (ii)          correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration;

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          (iii)          add to the covenants, restrictions or obligations of the Sponsor; or

          (iv)          modify, eliminate or add to any provision of this Declaration to such extent as may be necessary to ensure that the Trust will be classified for United States federal income tax purposes at all times as a grantor trust and will not be required to register as an Investment Company (including without limitation to conform to any change in Rule 3a-5, Rule 3a-7 or any other applicable rule under the Investment Company Act or written change in interpretation or application thereof by any legislative body, court, government agency or regulatory authority) which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders of Securities;

          provided, however, that no such modification, elimination or addition referred to in clauses (i), (ii), (iii) or (iv) shall adversely affect in any material respect the powers, preferences or special rights of Holders of Capital Securities.

          Section 11.2.      Meetings of the Holders of Securities; Action by Written Consent.

          (a)           Meetings of the Holders of any class of Securities may be called at any time by the Administrators (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration or the terms of the Securities. The Administrators shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities.  Such direction shall be given by delivering to the Administrators one or more calls in a writing stating that the signing Holders of the Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of the Securities calling a meeting shall specify in writing the Certificates held by the Holders of the Securities exercising the right to call a meeting and only those Securities represented by such Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met.

          (b)           Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of the Securities:

               (i)           notice of any such meeting shall be given to all the Holders of the Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of the Securities is permitted or required under this Declaration, such vote, consent or approval may be given at a meeting of the Holders of the Securities.  Any action that may be taken at a meeting of the Holders of the Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of the Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of the Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of the Securities entitled to vote who have not consented in writing.  The Administrators may specify that any written ballot submitted to the Holders of the Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrators;

               (ii)           each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy.  Every proxy shall be revocable at the pleasure of the Holder of the Securities executing it.  Except as otherwise

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provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; each meeting of the Holders of the Securities shall be conducted by the Administrators or by such other Person that the Administrators may designate; and

               (iii)           unless the Statutory Trust Act, this Declaration, or the terms of the Securities otherwise provides, the Administrators, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of the Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote; provided, however, that each meeting shall be conducted in the United States (as that term is defined in Treasury Regulations section 301.7701-7).

ARTICLE XII

REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND THE DELAWARE TRUSTEE

          Section 12.1.      Representations and Warranties of Institutional Trustee. The initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Institutional Trustee’s acceptance of its appointment as Institutional Trustee, that:

          (a)           the Institutional Trustee is a Delaware banking corporation with trust powers, duly organized and validly existing under the laws of the State of Delaware with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration;

          (b)           the execution, delivery and performance by the Institutional Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee.  This Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law);

          (c)           the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and

          (d)           no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority is required for the execution, delivery or performance by the Institutional Trustee of this Declaration.

          Section 12.2.      Representations of the Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee’s acceptance of its appointment as Delaware Trustee that:

          (a)           if it is not a natural person, the Delaware Trustee is duly organized, validly existing and in good standing under the laws of the State of Delaware;

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          (b)           if it is not a natural person, the execution, delivery and performance by the Delaware Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee.  This Declaration has been duly executed and delivered by the Delaware Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors’ rights generally and to general principles of equity and the discretion of the court (regardless of whether considered in a proceeding in equity or at law);

          (c)           if it is not a natural person, the execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee;

          (d)           it has trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration;

          (e)           no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority governing the trust powers of the Delaware Trustee is required for the execution, delivery or performance by the Delaware Trustee of this Declaration; and

          (f)           the Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, it is an entity which has its principal place of business in the State of Delaware and, in either case, a Person that satisfies for the Trust the requirements of Section 3807 of the Statutory Trust Act.

ARTICLE XIII

MISCELLANEOUS

          Section 13.1.      Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied (which telecopy shall be followed by notice delivered or mailed by first class mail) or mailed by first class mail, as follows:

          (a)           if given to the Trust, in care of the Administrators at the Trust’s mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities):

EFSC Statutory Trust IV

c/o Enterprise Financial Services Corp.

150 North Meramec Avenue, Suite 300

St. Louis, Missouri  63105

Attention: Frank Sanfilippo

Telecopy:  314-812-1576

          (b)           if given to the Delaware Trustee, at the Delaware Trustee’s mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities):

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware  19890-1600

Attention: Corporate Trust Administration

Telecopy:  302-636-4140

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          (c)           if given to the Institutional Trustee, at the Institutional Trustee’s mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities):

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware  19890-1600

Attention: Corporate Trust Administration

Telecopy:  302-636-4140

          (d)           if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust):

Enterprise Financial Services Corp.

150 North Meramec Avenue, Suite 300

St. Louis, Missouri  63105

Attention: Frank Sanfilippo

Telecopy:  314-812-1576

          (e)           if given to any other Holder, at the address set forth on the books and records of the Trust.

          All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.

          Section 13.2.      Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the law of the State of Delaware and all rights and remedies shall be governed by such laws without regard to the principles of conflict of laws of the State of Delaware or any other jurisdiction that would call for the application of the law of any jurisdiction other than the State of Delaware; provided, however, that there shall not be applicable to the Trust, the Trustees or this Declaration any provision of the laws (statutory or common) of the State of Delaware pertaining to trusts that relate to or regulate, in a manner inconsistent with the terms hereof (a) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (b) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (c) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (d) fees or other sums payable to trustees, officers, agents or employees of a trust, (e) the allocation of receipts and expenditures to income or principal, or (f) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets.

          Section 13.3.     Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties.

          Section 13.4.     Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof.

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          Section 13.5.      Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed.

          Section 13.6.      Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby.

          Section 13.7.      Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and Administrators to any of such counterpart signature pages.  All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.

Signatures appear on the following page

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          IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written.

WILMINGTON TRUST COMPANY, as Delaware Trustee
By:
Name:
Title:
WILMINGTON TRUST COMPANY, as Institutional Trustee
By:
Name:
Title:
ENTERPRISE FINANCIAL SERVICES CORP., as Sponsor
By:
Name:
Title:
ADMINISTRATORS OF EFSC STATUTORY TRUST IV
By:
	Administrator
By:
	Administrator

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ANNEX I

TERMS OF SECURITIES

                    Pursuant to Section 6.1 of the Amended and Restated Declaration of Trust, dated as of October 11, 2005 (as amended from time to time, the “Declaration”), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration):

          1.        Designation and Number.

                    (a)           10,000 Fixed/Floating Rate Capital Securities of EFSC Statutory Trust IV (the “Trust”), with an aggregate stated liquidation amount with respect to the assets of the Trust of ten million dollars ($10,000,000.00) and a stated liquidation amount with respect to the assets of the Trust of $1,000.00 per Capital Security, are hereby designated for the purposes of identification only as the “Capital Securities”. The Capital Security Certificates evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice.

                    (b)           310 Fixed/Floating Rate Common Securities of the Trust (the “Common Securities”) will be evidenced by Common Security Certificates substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice.

          2.     Distributions.

                  (a)           Distributions will be payable on each Security for the Distribution Period beginning on (and including) the date of original issuance and ending on (but excluding) the Distribution Payment Date in December 2010 at a rate per annum of 6.14% and shall bear interest for each successive Distribution Period beginning on (and including) the Distribution Payment Date in December 2010, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date at a rate per annum equal to the 3-Month LIBOR, determined as described below, plus 1.44% (the “Coupon Rate”), applied to the stated liquidation amount thereof, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee.  Distributions in arrears will bear interest thereon compounded quarterly at the applicable Distribution Rate (to the extent permitted by law).  Distributions, as used herein, include cash distributions and any such compounded distributions unless otherwise noted.  A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of the Distribution payable (i) for any Distribution Period commencing on or after the date of original issuance but before the Distribution Payment Date in December 2010 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period commencing on the Distribution Payment Date in December 2010 and each succeeding Distribution Period will be calculated by applying the Distribution Rate to the stated liquidation amount outstanding at the commencement of the Distribution Period on the basis of the actual number of days in the Distribution Period concerned divided by 360.  All percentages resulting from any calculations on the Capital Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

I-1

                    (b)           Distributions on the Securities will be cumulative, will accrue from the date of original issuance, and will be payable, subject to extension of distribution payment periods as described herein, quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, or if such day is not a Business Day, then the next succeeding Business Day (each a “Distribution Payment Date”) (it being understood that interest accrues for any such non-Business Day during the applicable Distribution Period, beginning on or after December 15, 2010), commencing on the Distribution Payment Date in December 2005 when, as and if available for payment.  The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures, so long as no Acceleration Event of Default has occurred and is continuing, by deferring the payment of interest on the Debentures for up to 20 consecutive quarterly periods (each an “Extension Period”) at any time and from time to time, subject to the conditions described below, during which Extension Period no interest shall be due and payable. During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest will accrue at an annual rate equal to the Distribution Rate in effect for each such Extension Period, compounded quarterly from the date such interest would have been payable were it not for the Extension Period, to the extent permitted by law (such interest referred to herein as “Additional Interest”). No Extension Period may end on a date other than a Distribution Payment Date.  At the end of any such Extension Period, the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date and provided further, however, that during any such Extension Period, the Debenture Issuer and its Affiliates shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Debenture Issuer’s or its Affiliates’ capital stock (other than payments of dividends or distributions to the Debenture Issuer) or make any guarantee payments with respect to the foregoing, or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Debenture Issuer or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (i) and (ii) above, (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Debenture Issuer in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Debenture Issuer (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Debenture Issuer’s capital stock (or any capital stock of a subsidiary of the Debenture Issuer) for any class or series of the Debenture Issuer’s capital stock or of any class or series of the Debenture Issuer’s indebtedness for any class or series of the Debenture Issuer’s capital stock, (c) the purchase of fractional interests in shares of the Debenture Issuer’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders’ rights plan, or the issuance of rights, stock or other property under any stockholders’ rights plan, or the redemption or repurchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (f)  payments under the Capital Securities Guarantee). Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date.  Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements.  No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest.  During any Extension Period, Distributions

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on the Securities shall be deferred for a period equal to the Extension Period.  If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date.  Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust.  The Trust’s funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer.  The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.

                    (c)           Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates.  The relevant record dates shall be fifteen days before the relevant Distribution Payment Date.  Distributions payable on any Securities that are not punctually paid on any Distribution Payment Date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, as the case may be, when due (taking into account any Extension Period), will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture.

                    (d)           In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities.

          3.        Liquidation Distribution Upon Dissolution. In the event of the voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a “Liquidation”) other than in connection with a redemption of the Debentures, the Holders of the Securities will be entitled to receive out of the assets of the Trust available for distribution to Holders of the Securities, after satisfaction of liabilities to creditors of the Trust (to the extent not satisfied by the Debenture Issuer), distributions equal to the aggregate of the stated liquidation amount of $1,000.00 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”), unless in connection with such Liquidation, the Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Distribution Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, and having the same record date as, such Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with the Statutory Trust Act, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities.

          The Sponsor, as the Holder of all of the Common Securities, has the right at any time to dissolve the Trust (including, without limitation, upon the occurrence of a Special Event), subject to the receipt by the Debenture Issuer of prior approval from the Board of Governors of the Federal Reserve System, or its designated district bank, as applicable, and any successor federal agency that is primarily responsible for regulating the activities of the Sponsor (the “Federal Reserve”), if the Sponsor is a bank holding company, or from the Office of Thrift Supervision and any successor federal agency that is primarily responsible for regulating the activities of Sponsor, (the “OTS”) if the Sponsor is a savings and loan holding company, in either case if then required under applicable capital guidelines or policies of the Federal Reserve or OTS, as applicable, and, after satisfaction of liabilities to creditors of the Trust, cause the Debentures to be distributed to the Holders of the Securities on a Pro Rata basis in accordance with the aggregate stated liquidation amount thereof.

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          If a Liquidation of the Trust occurs as described in clause (i), (ii), (iii) or (v) in Section 7.1(a) of the Declaration, the Trust shall be liquidated by the Institutional Trustee as expeditiously as it determines to be possible by distributing, after satisfaction of liabilities to creditors of the Trust, to the Holders of the Securities, the Debentures on a Pro Rata basis to the extent not satisfied by the Debenture Issuer, unless such distribution is determined by the Institutional Trustee not to be practical, in which event such Holders will be entitled to receive out of the assets of the Trust available for distribution to the Holders, after satisfaction of liabilities of creditors of the Trust to the extent not satisfied by the Debenture Issuer, an amount equal to the Liquidation Distribution.  An early Liquidation of the Trust pursuant to clause (iv) of Section 7.1(a) of the Declaration shall occur if the Institutional Trustee determines that such Liquidation is possible by distributing, after satisfaction of liabilities to creditors of the Trust, to the Holders of the Securities on a Pro Rata basis, the Debentures, and such distribution occurs.

          If, upon any such Liquidation the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on such Capital Securities shall be paid to the Holders of the Trust Securities on a Pro Rata basis, except that if an Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities with regard to such distributions.

          After the date for any distribution of the Debentures upon dissolution of the Trust (i) the Securities of the Trust will be deemed to be no longer outstanding, (ii) upon surrender of a Holder’s Securities certificate, such Holder of the Securities will receive a certificate representing the Debentures to be delivered upon such distribution, (iii) any certificates representing the Securities still outstanding will be deemed to represent undivided beneficial interests in such of the Debentures as have an aggregate principal amount equal to the aggregate stated liquidation amount with an interest rate identical to the Distribution Rate of, and bearing accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissuance (and until such certificates are so surrendered, no payments of interest or principal shall be made to Holders of Securities in respect of any payments due and payable under the Debentures; provided, however that such failure to pay shall not be deemed to be an Event of Default and shall not entitle the Holder to the benefits of the Guarantee), and (iv) all rights of Holders of Securities under the Declaration shall cease, except the right of such Holders to receive Debentures upon surrender of certificates representing such Securities.

          4.        Redemption and Distribution.

                    (a)           The Debentures will mature on December 15, 2035.  The Debentures may be redeemed by the Debenture Issuer, in whole or in part, at any Distribution Payment Date on or after the Distribution Payment Date in December 2010, at the Redemption Price. In addition, the Debentures may be redeemed by the Debenture Issuer at the Special Redemption Price, in whole but not in part, at any Distribution Payment Date, upon the occurrence and continuation of a Special Event within 120 days following the occurrence of such Special Event at the Special Redemption Price, upon not less than 30 nor more than 60 days’ notice to holders of such Debentures so long as such Special Event is continuing. In each case, the right of the Debenture Issuer to redeem the Debentures is subject to the Debenture Issuer having received prior approval from the Federal Reserve (if the Debenture Issuer is a bank holding company) or prior approval from the OTS (if the Debenture Issuer is a savings and loan holding company), in each case if then required under applicable capital guidelines or policies of the applicable federal agency.  The Sponsor shall appoint a Quotation Agent, which shall be a designee of the Institutional Trustee, for the purpose of performing the services contemplated in or by reference in, the definition of Special Redemption Price.  Any error in the calculation of the Special Redemption Price by the Quotation Agent or the Debenture Trustee may be corrected at any time by notice delivered to the Sponsor and the holders of the Capital Securities.  Subject to the corrective rights set forth above, all

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certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions relating to the payment and calculation of the Special Redemption Price on the Debentures or the Capital Securities by the Debenture Trustee, the Quotation Agent or the Institutional Trustee, as the case may be, shall (in the absence of willful default, bad faith or manifest error) be final, conclusive and binding on the holders of the Debentures and the Capital Securities, the Trust and the Sponsor, and no liability shall attach (except as provided above) to the Debenture Trustee, the Quotation Agent or the Institutional Trustee in connection with the exercise or non-exercise by any of them of their respective powers, duties and discretion.

          “3-Month LIBOR” means the London interbank offered interest rate for three-month, U.S. dollar deposits determined by the Debenture Trustee in the following order of priority:

          (1)           the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (as defined below).  “Telerate Page 3750” means the display designated as “Page 3750” on the Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits;

          (2)           if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks’ offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date.  If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations;

          (3)           if fewer than two such quotations are provided as requested in clause (2) above, the Debenture Trustee will request four major New York City banks to provide such banks’ offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.  If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and

          (4)           if fewer than two such quotations are provided as requested in clause (3) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period.

          If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date.

          The Distribution Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.

          “Capital Treatment Event” means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of any amendment to, or change (including any announced prospective change) in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is

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announced on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that the Sponsor will not, within 90 days of the date of such opinion, be entitled to treat an amount equal to the aggregate liquidation amount of the Capital Securities as “Tier 1 Capital” (or its then equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Sponsor (or if the Sponsor is not a bank holding company, such guidelines applied to the Sponsor as if the Sponsor were subject to such guidelines); provided, however, that the inability of the Sponsor to treat all or any portion of the liquidation amount of the Capital Securities as Tier l Capital shall not constitute the basis for a Capital Treatment Event, if such inability results from the Sponsor having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve or OTS, as applicable, may now or hereafter accord Tier 1 Capital treatment in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines; provided further, however, that the distribution of Debentures in connection with the Liquidation of the Trust shall not in and of itself constitute a Capital Treatment Event unless such Liquidation shall have occurred in connection with a Tax Event or an Investment Company Event.

          “Comparable Treasury Issue” means with respect to any Special Redemption Date the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the Fixed Rate Period Remaining Life that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Fixed Rate Period Remaining Life.  If no United States Treasury security has a maturity which is within a period from 3 months before to 3 months after the Distribution Payment Date in December 2010, the two most closely corresponding United States Treasury securities as selected by the Quotation Agent shall be used as the Comparable Treasury Issue, and the Treasury Rate shall be interpolated and extrapolated on a straight-line basis, rounding to the nearest month using such securities.

          “Comparable Treasury Price” means (a) the average of 5 Reference Treasury Dealer Quotations for such Special Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (b) if the Quotation Agent obtains fewer than 5 such Reference Treasury Dealer Quotations, the average of all such Quotations.

          “Determination Date” means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the particular Distribution Period for which a Coupon Rate is being determined.

          “Fixed Rate Period Remaining Life” means, with respect to any Debenture, the period from the Special Redemption Date for such Debenture to the Distribution Payment Date in December 2010.

          “Investment Company Event” means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or written change (including any announced prospective change) in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or, within 90 days of the date of such opinion, will be considered an Investment Company that is required to be registered under the Investment Company Act which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Debentures.

          “Maturity Date” means December 15, 2035.

          “Primary Treasury Dealer” shall mean either a primary United States Government securities dealer or an entity of nationally recognized standing in matters pertaining to the quotation of treasury securities that is reasonably acceptable to the Sponsor and the Institutional Trustee.

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          “Quotation Agent” means a designee of the Institutional Trustee who shall be a Primary Treasury Dealer.

          “Redemption Date” shall mean the date fixed for the redemption of Capital Securities, which shall be any Distribution Payment Date on or after the Distribution Payment Date in December 2010.

          “Redemption Price” means 100% of the principal amount of the Debentures being redeemed, plus accrued and unpaid Interest on such Debentures to the Redemption Date.

          “Reference Treasury Dealer” means (i) the Quotation Agent and (ii) any other Primary Treasury Dealer selected by the Debenture Trustee after consultation with the Debenture Issuer.

          “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Special Redemption Date, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

          “Special Event” means a Tax Event, an Investment Company Event or a Capital Treatment Event.

          “Special Redemption Date” means a date on which a Special Event redemption occurs, which shall be a Distribution Payment Date.

          “Special Redemption Price” means (a) if the Special Redemption Date occurs before the Distribution Payment Date in December 2010, the greater of (i) 107.5% of the principal amount of the Debentures, plus accrued and unpaid Interest on the Debentures to the Special Redemption Date, or (ii) as determined by the Quotation Agent, (A) the sum of the present values of the scheduled payments of principal and Interest on the Debentures during the Fixed Rate Period Remaining Life of the Debentures (assuming the Debentures matured on December 15, 2010) discounted to the Special Redemption Date on a quarterly basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus  (B) accrued and unpaid Interest on the Debentures to such Special Redemption Date, or (b) if the Special Redemption Date occurs on or after the Distribution Payment Date in December 2010, 100% of the principal amount of the Debentures being redeemed, plus accrued and unpaid Interest on such Debentures to the Special Redemption Date.

          “Tax Event” means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to or change (including any announced prospective change) in the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement (including any private letter ruling, technical advice memorandum, field service advice, regulatory procedure, notice or announcement including any notice or announcement of intent to adopt such procedures or regulations) (an “Administrative Action”) or judicial decision interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Debenture Issuer or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Debenture Issuer on the Debentures is not, or within 90 days of the date of such opinion, will not be, deductible by the Debenture Issuer, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges.

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          “Treasury Rate” means (i) the yield, under the heading which represents the average for the week immediately prior to the date of calculation, appearing in the most recently published statistical release designated H.15 (519) or any successor publication which is published weekly by the Federal Reserve and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Fixed Rate Period Remaining Life (if no maturity is within three months before or after the Fixed Rate Period Remaining Life, yields for the two published maturities most closely corresponding to the Fixed Rate Period Remaining Life shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Special Redemption Date.  The Treasury Rate shall be calculated by the Quotation Agent on the third Business Day preceding the Special Redemption Date.

                    (b)           Upon the repayment in full at maturity or redemption in whole or in part of the Debentures (other than following the distribution of the Debentures to the Holders of the Securities), the proceeds from such repayment or payment shall concurrently be applied to redeem Pro Rata at the applicable Redemption Price or Special Redemption Price, as applicable, Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed; provided, however, that holders of such Securities shall be given not less than 30 nor more than 60 days’ notice of such redemption (other than at the scheduled maturity of the Debentures).

                    (c)           If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will be redeemed Pro Rata from each Holder of Capital Securities.

                    (d)           The Trust may not redeem fewer than all the outstanding Capital Securities unless all accrued and unpaid Distributions have been paid on all Capital Securities for all quarterly Distribution periods terminating on or before the date of redemption.

                    (e)           Redemption or Distribution Procedures.

                        (i)           Notice of any redemption of, or notice of distribution of the Debentures in exchange for, the Securities (a “Redemption/Distribution Notice”) will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of such Securities at the address of each such Holder appearing on the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder.

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                        (ii)           If the Securities are to be redeemed and the Trust gives a Redemption/ Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this paragraph 4 (which notice will be irrevocable), then, provided that the Institutional Trustee has a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant Redemption Price or Special Redemption Price, as applicable, to the Holders of such Securities by check mailed to the address of each such Holder appearing on the books and records of the Trust on the Redemption Date.  If a Redemption/Distribution Notice shall have been given and funds deposited as required then immediately prior to the close of business on the date of such deposit Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the applicable Redemption Price or Special Redemption Price specified in paragraph 4(a), but without interest on such Redemption Price or Special Redemption Price.  If payment of the Redemption Price or Special Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Trust or by the Debenture Issuer as guarantor pursuant to the Guarantee, Distributions on such Securities will continue to accrue at the Distribution Rate from the original Redemption Date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price or Special Redemption Price.  In the event of any redemption of the Capital Securities issued by the Trust in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business fifteen days before any selection for redemption of the Capital Securities and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Capital Securities to be so redeemed or (ii) register the transfer of or exchange any Capital Securities so selected for redemption, in whole or in part, except for the unredeemed portion of any Capital Securities being redeemed in part.

                        (iii)           Redemption/Distribution Notices shall be sent by the Administrators on behalf of the Trust to (A) in respect of the Capital Securities, the Holders thereof and (B) in respect of the Common Securities, the Holder thereof.

                        (iv)           Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), and provided that the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement.

          5.        Voting Rights - Capital Securities.

                    (a)           Except as provided under paragraphs 5(b) and 7 and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. The Administrators are required to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of at least 10% in liquidation amount of the Capital Securities.

                    (b)           Subject to the requirements of obtaining a tax opinion by the Institutional Trustee in certain circumstances set forth in the last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Capital Securities, voting separately as a class, have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture as the holder of the Debentures, (ii) waive any past default that is waivable under the

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Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required; provided, however, that, where a consent or action under the Indenture would require the consent or act of the holders of greater than a simple majority in aggregate principal amount of Debentures (a “Super Majority”) affected thereby, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Capital Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of a Majority in liquidation amount of such Capital Securities have so directed the Institutional Trustee, to the fullest extent permitted by law, a Holder of the Capital Securities may institute a legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustee’s rights under the Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date the interest or principal is payable (or in the case of redemption, the Redemption Date or the Special Redemption Date, as applicable), then a Holder of record of the Capital Securities may directly institute a proceeding for enforcement of payment, on or after the respective due dates specified in the Debentures, to such Holder directly of the principal of or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder. The Institutional Trustee shall notify all Holders of the Capital Securities of any default actually known to the Institutional Trustee with respect to the Debentures unless (x) such default has been cured prior to the giving of such notice or (y) the Institutional Trustee determines in good faith that the withholding of such notice is in the interest of the Holders of such Capital Securities, except where the default relates to the payment of principal of or interest on any of the Debentures. Such notice shall state that such Indenture Event of Default also constitutes an Event of Default hereunder. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes.

          In the event the consent of the Institutional Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Institutional Trustee shall request the direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super-Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities outstanding which the relevant Super-Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not take any such action in accordance with the directions of the Holders of the Securities unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes.

          A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Event of Default hereunder. Any required approval or direction of Holders of the Capital Securities may be given at a separate meeting of Holders of the Capital Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Institutional Trustee will cause a notice of any meeting at which Holders of the Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of the Capital Securities. Each such notice will include a statement setting forth the following

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information (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities.

          Notwithstanding that Holders of the Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not entitle the Holder thereof to vote or consent and shall, for purposes of such vote or consent, be treated as if such Capital Securities were not outstanding.

          In no event will Holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Sponsor as the Holder of all of the Common Securities of the Trust.  Under certain circumstances as more fully described in the Declaration, Holders of Capital Securities have the right to vote to appoint, remove or replace the Institutional Trustee and the Delaware Trustee.

          6.        Voting Rights - Common Securities.

                    (a)           Except as provided under paragraphs 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Common Securities will have no voting rights.

                    (b)           The Holders of the Common Securities are entitled, in accordance with Article IV of the Declaration, to vote to appoint, remove or replace any Administrators.

                    (c)           Subject to Section 6.7 of the Declaration and only after each Event of Default (if any) with respect to the Capital Securities has been cured, waived, or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that is waivable under the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; provided, however, that, where a consent or action under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Notwithstanding this paragraph 6(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action described in (i), (ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights, to the fullest extent permitted by law, under the Declaration, any Holder of the Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee’s rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person.

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          Any approval or direction of Holders of the Common Securities may be given at a separate meeting of Holders of the Common Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent.  The Administrators will cause a notice of any meeting at which Holders of the Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of the Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents.

          No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities.

          7.        Amendments to Declaration and Indenture.

                    (a)           In addition to any requirements under Section 11.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Trustees, Sponsor or Administrators otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the Liquidation of the Trust, other than as described in Section 7.1 of the Declaration, then the Holders of outstanding Securities, voting together as a single class, will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in liquidation amount of the Securities, affected thereby; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities.

                    (b)           In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification, or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding.

                    (c)           Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an Investment Company which is required to be registered under the Investment Company Act.

                    (d)           Notwithstanding any provision of the Declaration, the right of any Holder of the Capital Securities to receive payment of distributions and other payments upon redemption or otherwise, on or after their respective due dates, or to institute a suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. For the protection and enforcement of the foregoing provision, each and every Holder of the Capital Securities shall be entitled to such relief as can be given either at law or equity.

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          8.        Pro Rata.  A reference in these terms of the Securities to any payment, distribution or treatment as being “Pro Rata” shall mean pro rata to each Holder of the Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities then outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities Pro Rata according to the aggregate liquidation amount of the Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of the Common Securities Pro Rata according to the aggregate liquidation amount of the Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding.

          9.        Ranking. The Capital Securities rank pari passu with and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to receive payment of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of the Holders of the Capital Securities with the result that no payment of any Distribution on, or Redemption Price (or Special Redemption Price) of, any Common Security, and no other payment on account of redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all outstanding Capital Securities for all distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price (or Special Redemption Price) the full amount of such Redemption Price (or Special Redemption Price) on all outstanding Capital Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Institutional Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price (or Special Redemption Price) of, the Capital Securities then due and payable.

          10.      Acceptance of Guarantee and Indenture. Each Holder of the Capital Securities and the Common Securities, by the acceptance of such Securities, agrees to the provisions of the Guarantee, including the subordination provisions therein and to the provisions of the Indenture.

          11.      No Preemptive Rights. The Holders of the Securities shall have no preemptive or similar rights to subscribe for any additional securities.

          12.      Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business.

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EXHIBIT A-1

FORM OF CAPITAL SECURITY CERTIFICATE

[FORM OF FACE OF SECURITY]

          THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.  NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.  THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY  (A) TO THE SPONSOR OR THE TRUST, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE SPONSOR’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST.  HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

          THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.  ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE

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MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

          THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000.00 (100 SECURITIES) AND MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

          THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

          IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE DECLARATION TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

Certificate Number P-1	10,000 Capital Securities
[CUSIP NO. [_______] **To be inserted at the request of a subsequent transferee]

October 11, 2005

Certificate Evidencing Fixed/Floating Rate Capital Securities

of

EFSC Statutory Trust IV

(liquidation amount $1,000.00 per Capital Security)

          EFSC Statutory Trust IV, a statutory trust created under the laws of the State of Delaware (the “Trust”), hereby certifies that First Tennessee Bank National Association is the registered owner of capital securities of the Trust representing undivided beneficial interests in the assets of the Trust, (liquidation amount $1,000.00 per capital security) (the “Capital Securities”). Subject to the Declaration (as defined below), the Capital Securities are transferable on the books and records of the Trust in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The Capital Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of October 11, 2005, among Frank Sanfilippo and Deborah Barstow, as Administrators, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Institutional Trustee, Enterprise Financial Services Corp., as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Capital Securities as set forth in Annex I to such amended and restated declaration as the same may be amended from time to time (the “Declaration”).  Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business.

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          Upon receipt of this Security, the Holder is bound by the Declaration and is entitled to the  benefits thereunder.

          By acceptance of this Security, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures.

          This Capital Security is governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.

Signatures appear on following page

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          IN WITNESS WHEREOF, the Trust has duly executed this certificate

EFSC STATUTORY TRUST IV
By:
Name:
Title:	Administrator

CERTIFICATE OF AUTHENTICATION

          This is one of the Capital Securities referred to in the within-mentioned Declaration.

WILMINGTON TRUST COMPANY,
as the Institutional Trustee
By:
	Authorized Officer

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[FORM OF REVERSE OF CAPITAL SECURITY]

          Distributions payable on each Capital Security will be payable at an annual rate equal to 6.14% beginning on (and including) the date of original issuance and ending on (but excluding) the Distribution Payment Date in December 2010 and at an annual rate for each successive period beginning on (and including) the Distribution Payment Date in December 2010, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date (each a “Distribution Period”), equal to 3-Month LIBOR, determined as described below, plus 1.44% (the “Coupon Rate”), applied to the stated liquidation amount of $1,000.00 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears will bear interest thereon compounded quarterly at the Distribution Rate (to the extent permitted by applicable law). The term “Distributions” as used herein includes cash distributions and any such compounded distributions unless otherwise noted.  A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor.  As used herein, “Determination Date” means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period.  The amount of the Distribution payable (i) for any Distribution Period commencing on or after the date of original issuance but before the Distribution Payment Date in December 2010 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period commencing on the Distribution Payment Date in December 2010 and each succeeding Distribution Period will be calculated by applying the Distribution Rate to the stated liquidation amount outstanding at the commencement of the Distribution Period on the basis of the actual number of days in the Distribution Period concerned divided by 360.

          “3-Month LIBOR” as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority:  (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (“Telerate Page 3750” means the display designated as “Page 3750” on the Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks’ offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date.  If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks’ offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.  If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period.  If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date.

          The Distribution Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.

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          All percentages resulting from any calculations on the Capital Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

          Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year or if any such day is not a Business Day, then the next succeeding Business Day (each such day, a “Distribution Payment Date”) (it being understood that interest accrues for any such non-Business Day during the applicable Distribution Period, beginning on or after December 15, 2010), commencing on the Distribution Payment Date in December 2005.  The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures, so long as no Acceleration Event of Default has occurred and is continuing, by extending the interest payment period for up to 20 consecutive quarterly periods (each an “Extension Period”) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable.  During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest will accrue at an annual rate equal to the Distribution Rate in effect for each such Extension Period, compounded quarterly from the date such interest would have been payable were it not for the Extension Period, to the extent permitted by law (such interest referred to herein as “Additional Interest”). No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date.  Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements.  No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest.  During any Extension Period, Distributions on the Capital Securities shall be deferred for a period equal to the Extension Period.  If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust.  The Trust’s funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer.  The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.

          The Capital Securities shall be redeemable as provided in the Declaration.

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ASSIGNMENT

          FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate  to:

_______________________________________________________________________

(Insert assignee’s social security or tax identification number) _____________________

_______________________________________________________________________

_______________________________________________________________________

(Insert address and zip code of assignee) and irrevocably appoints

_______________________________________________________________________

          agent to transfer this Capital Security Certificate on the books of the Trust.  The agent may substitute another to act for him or her.

          Date: _________________________

          Signature: _____________________

          (Sign exactly as your name appears on the other side of this Capital Security Certificate)

          Signature Guarantee:¹

¹  Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

A-1-7

EXHIBIT A-2

FORM OF COMMON SECURITY CERTIFICATE

          THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION.

          THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH SECTION 8.1 OF THE DECLARATION.

Certificate Number C-1 310 Common Securities

October 11, 2005

Certificate Evidencing Fixed/Floating Rate Common Securities

of

EFSC Statutory Trust IV

          EFSC Statutory Trust IV, a statutory trust created under the laws of the State of Delaware (the “Trust”), hereby certifies that Enterprise Financial Services Corp. (the “Holder”) is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust (the “Common Securities”).  The Common Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of October 11, 2005, among Frank Sanfilippo and Deborah Barstow, as Administrators, Wilmington Trust Company, as Delaware Trustee, Wilmington Trust Company, as Institutional Trustee, Enterprise Financial Services Corp., as Sponsor, and the holders from time to time of undivided beneficial interest in the assets of the Trust including the designation of the terms of the Common Securities as set forth in Annex I to such amended and restated declaration, as the same may be amended from time to time (the “Declaration”).  Capitalized terms used herein but not defined shall have the meaning given them in the Declaration.  The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business.

          As set forth in the Declaration, when an Event of Default has occurred and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon Liquidation, redemption or otherwise are subordinated to the rights of payment of Holders of the Capital Securities.

          Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder.

          By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of undivided beneficial ownership in the Debentures.

          This Common Security is governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.

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                    IN WITNESS WHEREOF, the Trust has duly executed this certificate.

EFSC STATUTORY TRUST IV
By:
Name:
Title:	Administrator

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[FORM OF REVERSE OF COMMON SECURITY]

          Distributions payable on each Common Security will be payable at an annual rate equal to 6.14% beginning on (and including) the date of original issuance and ending on (but excluding) the Distribution Payment Date in December 2010 and at an annual rate for each successive period beginning on (and including) the Distribution Payment Date in December 2010, and each succeeding Distribution Payment Date, and ending on (but excluding) the next succeeding Distribution Payment Date (each a “Distribution Period”), equal to 3-Month LIBOR, determined as described below, plus 1.44% (the “Coupon Rate”), applied to the stated liquidation amount of $1,000.00 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears will bear interest thereon compounded quarterly at the Distribution Rate (to the extent permitted by applicable law). The term “Distributions” as used herein includes cash distributions and any such compounded distributions unless otherwise noted.  A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor.  As used herein, “Determination Date” means the date that is two London Banking Days (i.e., a business day in which dealings in deposits in U.S. dollars are transacted in the London interbank market) preceding the commencement of the relevant Distribution Period.  The amount of the Distribution payable (i) for any Distribution Period commencing on or after the date of original issuance but before the Distribution Payment Date in December 2010 will be computed on the basis of a 360-day year of twelve 30-day months, and (ii) for the Distribution Period commencing on the Distribution Payment Date in December 2010 and each succeeding Distribution Period will be calculated by applying the Distribution Rate to the stated liquidation amount outstanding at the commencement of the Distribution Period on the basis of the actual number of days in the Distribution Period concerned divided by 360.

          “3-Month LIBOR” as used herein, means the London interbank offered interest rate for three-month U.S. dollar deposits determined by the Debenture Trustee in the following order of priority:  (i) the rate (expressed as a percentage per annum) for U.S. dollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date (“Telerate Page 3750” means the display designated as “Page 3750” on the Moneyline Telerate Service or such other page as may replace Page 3750 on that service or such other service or services as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot be identified on the related Determination Date, the Debenture Trustee will request the principal London offices of four leading banks in the London interbank market to provide such banks’ offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for U.S. dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date.  If at least two quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; (iii) if fewer than two such quotations are provided as requested in clause (ii) above, the Debenture Trustee will request four major New York City banks to provide such banks’ offered quotations (expressed as percentages per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination Date.  If at least two such quotations are provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and (iv) if fewer than two such quotations are provided as requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR determined with respect to the Distribution Period immediately preceding such current Distribution Period.  If the rate for U.S. dollar deposits having a three-month maturity that initially appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date is superseded on the Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination Date, then the corrected rate as so substituted on the applicable page will be the applicable 3-Month LIBOR for such Determination Date.

          The Distribution Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.

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          All percentages resulting from any calculations on the Common Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward)).

          Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year or if any such day is not a Business Day, then the next succeeding Business Day (each such day, a “Distribution Payment Date”) (it being understood that interest accrues for any such non-Business Day during the applicable Distribution Period, beginning on or after December 15, 2010), commencing on the Distribution Payment Date in December 2005. The Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures, so long as no Acceleration Event of Default has occurred and is continuing, by extending the interest payment period for up to 20 consecutive quarterly periods (each an “Extension Period”) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable.  During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest will accrue at an annual rate equal to the Distribution Rate in effect for each such Extension Period, compounded quarterly from the date such interest would have been payable were it not for the Extension Period, to the extent permitted by law (such interest referred to herein as “Additional Interest”). No Extension Period may end on a date other than a Distribution Payment Date.  At the end of any such Extension Period, the Debenture Issuer shall pay all interest then accrued and unpaid on the Debentures (together with Additional Interest thereon); provided, however, that no Extension Period may extend beyond the Maturity Date.  Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all accrued and unpaid interest and Additional Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Additional Interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest.  During any Extension Period, Distributions on the Common Securities shall be deferred for a period equal to the Extension Period.  If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds available for the payment of such distributions in the Property Account of the Trust. The Trust’s funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer.

          The Common Securities shall be redeemable as provided in the Declaration.

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ASSIGNMENT

          FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to:

_________________________________________________________________

(Insert assignee’s social security or tax identification number) _______________

_________________________________________________________________

_________________________________________________________________

(Insert address and zip code of assignee) and irrevocably appoints

_________________________________________________________________

____________________________________________________________________agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her.

Date: ________________________

Signature:_____________________

(Sign exactly as your name appears on the other side of this Common Security Certificate)

Signature:_____________________

(Sign exactly as your name appears on the other side of this Common Security Certificate)

          Signature Guarantee²

²  Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

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EXHIBIT B

SPECIMEN OF INITIAL DEBENTURE

(See Document No. 17)

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EXHIBIT C

PLACEMENT AGREEMENT

(See Document No. 1)

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EX-4.10.4

EXHIBIT 4.10.4

GUARANTEE AGREEMENT

by and between

ENTERPRISE FINANCIAL SERVICES CORP.

and

WILMINGTON TRUST COMPANY

Dated as of October 11, 2005

GUARANTEE AGREEMENT

          This GUARANTEE AGREEMENT (this “Guarantee”), dated as of October 11, 2005, is executed and delivered by Enterprise Financial Services Corp., a Delaware corporation (the “Guarantor”), and Wilmington Trust Company, a Delaware banking corporation, as trustee (the “Guarantee Trustee”), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of EFSC Statutory Trust IV, a Delaware statutory trust (the “Issuer”).

          WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the “Declaration”), dated as of the date hereof among Wilmington Trust Company, not in its individual capacity but solely as institutional trustee, the administrators of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof those undivided beneficial interests, having an aggregate liquidation amount of $10,000,000.00 (the “Capital Securities”); and

          WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee, to pay to the Holders of Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; 

          NOW, THEREFORE, in consideration of the purchase by each Holder of the Capital Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of the Holders.

ARTICLE I

DEFINITIONS AND INTERPRETATION

          Section 1.1     Definitions and Interpretation. In this Guarantee, unless the context otherwise requires:

          (a)          capitalized terms used in this Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;

          (b)          a term defined anywhere in this Guarantee has the same meaning throughout;

          (c)          all references to “the Guarantee” or “this Guarantee” are to this Guarantee as modified, supplemented or amended from time to time;

          (d)          all references in this Guarantee to “Articles” or “Sections” are to Articles or Sections of this Guarantee, unless otherwise specified;

          (e)          terms defined in the Declaration as at the date of execution of this Guarantee have the same meanings when used in this Guarantee, unless otherwise defined in this Guarantee or unless the context otherwise requires; and

          (f)          a reference to the singular includes the plural and vice versa.

          “Affiliate” has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.

          “Beneficiaries” means any Person to whom the Issuer is or hereafter becomes indebted or liable.

          “Capital Securities” has the meaning set forth in the recitals to this Guarantee.

          “Common Securities” means the common securities issued by the Issuer to the Guarantor pursuant to the Declaration.

          “Corporate Trust Office” means the office of the Guarantee Trustee at which the corporate trust business of the Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Guarantee is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware  19890-1600, Attention:  Corporate Trust Administration.

          “Covered Person” means any Holder of Capital Securities.

          “Debentures” means the debt securities of the Guarantor designated the Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due 2035 held by the Institutional Trustee (as defined in the Declaration) of the Issuer.

          “Declaration Event of Default” means an “Event of Default” as defined in the Declaration.

          “Event of Default” has the meaning set forth in Section 2.4(a).

          “Guarantee Payments” means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer:  (i) any accrued and unpaid Distributions (as defined in the Declaration) which are required to be paid on such Capital Securities to the extent the Issuer shall have funds available therefor, (ii) the Redemption Price to the extent the Issuer has funds available therefor, with respect to any Capital Securities called for redemption by the Issuer, (iii) the Special Redemption Price to the extent the Issuer has funds available therefor, with respect to Capital Securities redeemed upon the occurrence of a Special Event, and (iv) upon a voluntary or involuntary liquidation, dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders of the Capital Securities in exchange therefor as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer shall have funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the “Liquidation Distribution”).

          “Guarantee Trustee” means Wilmington Trust Company, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee and thereafter means each such Successor Guarantee Trustee.

          “Guarantor” means Enterprise Financial Services Corp. and each of its successors and assigns.

          “Holder” means any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the Holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, “Holder” shall not include the Guarantor or any Affiliate of the Guarantor.

          “Indemnified Person” means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Guarantee Trustee.

          “Indenture” means the Indenture dated as of the date hereof between the Guarantor and Wilmington Trust Company, not in its individual capacity but solely as trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued to the institutional trustee of the Issuer.

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          “Issuer” has the meaning set forth in the opening paragraph to this Guarantee.

          “Liquidation Distribution” has the meaning set forth in the definition of “Guarantee Payments” herein.

          “Majority in liquidation amount of the Capital Securities” means Holder(s) of outstanding Capital Securities, voting together as a class, but separately from the holders of Common Securities, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all Capital Securities then outstanding.

          “Obligations” means any costs, expenses or liabilities (but not including liabilities related to taxes) of the Issuer other than obligations of the Issuer to pay to holders of any Trust Securities the amounts due such holders pursuant to the terms of the Trust Securities.

          “Officer’s Certificate” means, with respect to any Person, a certificate signed by one Authorized Officer of such Person. Any Officer’s Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee shall include:

          (a)          a statement that the officer signing the Officer’s Certificate has read the covenant or condition and the definitions relating thereto;

          (b)          a brief statement of the nature and scope of the examination or investigation undertaken by the officer in rendering the Officer’s Certificate;

          (c)          a statement that the officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and

          (d)          a statement as to whether, in the opinion of the officer, such condition or covenant has been complied with.

          “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.

          “Redemption Price” has the meaning set forth in the Indenture.

          “Responsible Officer” means, with respect to the Guarantee Trustee, any officer within the Corporate Trust Office of the Guarantee Trustee including any Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject.

          “Special Event” has the meaning set forth in the Indenture.

          “Special Redemption Price” has the meaning set forth in the Indenture.

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          “Successor Guarantee Trustee” means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 3.1.

          “Trust Securities” means the Common Securities and the Capital Securities.

ARTICLE II

POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE

          Section 2.1.     Powers and Duties of the Guarantee Trustee.

          (a)          This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders of the Capital Securities, and the Guarantee Trustee shall not transfer this Guarantee to any Person except a Holder of Capital Securities exercising his or her rights pursuant to Section 4.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee.  The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee.

          (b)          If an Event of Default actually known to a Responsible Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders of the Capital Securities.

          (c)          The Guarantee Trustee, before the occurrence of any Event of Default and after curing all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee, and no implied covenants shall be read into this Guarantee against the Guarantee Trustee.  In case an Event of Default has occurred (that has not been waived pursuant to Section 2.4) and is actually known to a Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

          (d)          No provision of this Guarantee shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(i)          prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
	(A)          the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Guarantee Trustee; and
	(B)          in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee; but in the

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	case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee;
(ii)         the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that such Responsible Officer of the Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii)        the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or relating to the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee; and
(iv)        no provision of this Guarantee shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds is not reasonably assured to it under the terms of this Guarantee or security and indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk or liability is not reasonably assured to it.
Section 2.2.     Certain Rights of Guarantee Trustee.
(a)      Subject to the provisions of Section 2.1:
(i)          The Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.
(ii)         Any direction or act of the Guarantor contemplated by this Guarantee shall be sufficiently evidenced by an Officer’s Certificate.
(iii)        Whenever, in the administration of this Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer’s Certificate of the Guarantor which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv)        The Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any re-recording, refiling or re-registration thereof).
(v)         The Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any

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of its Affiliates and may include any of its employees.  The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee from any court of competent jurisdiction.

          (vi)        The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity, reasonably satisfactory to the Guarantee Trustee, against the costs, expenses (including attorneys’ fees and expenses and the expenses of the Guarantee Trustee’s agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided, however, that nothing contained in this Section 2.2(a)(vi) shall relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee.

          (vii)      The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.

          (viii)     The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

          (ix)       Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Capital Securities, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action.  No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee, both of which shall be conclusively evidenced by the Guarantee Trustee’s or its agent’s taking such action.

          (x)       Whenever in the administration of this Guarantee the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Capital Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions.

          (xi)       The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Guarantee.

          (b)          No provision of this Guarantee shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty.

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          Section 2.3.     Not Responsible for Recitals or Issuance of Guarantee. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness.  The Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee.

          Section 2.4.     Events of Default; Waiver.

          (a)          An Event of Default under this Guarantee will occur upon the failure of the Guarantor to perform any of its payment or other obligations hereunder.

          (b)          The Holders of a Majority in liquidation amount of the Capital Securities may, voting or consenting as a class, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and shall be deemed to have been cured, for every purpose of this Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

          Section 2.5.     Events of Default; Notice.

          (a)          The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Capital Securities and the Guarantor, notices of all Events of Default actually known to a Responsible Officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, however, that the Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Capital Securities.

          (b)          The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice from the Guarantor or a Holder of the Capital Securities (except in the case of a payment default), or a Responsible Officer of the Guarantee Trustee charged with the administration of this Guarantee shall have obtained actual knowledge thereof.

ARTICLE III

GUARANTEE TRUSTEE

          Section 3.1.     Guarantee Trustee; Eligibility.

          (a)          There shall at all times be a Guarantee Trustee which shall:

          (i)          not be an Affiliate of the Guarantor, and

          (ii)         be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or Person authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 3.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

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          (b)          If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 3.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 3.2(c).

          (c)          If the Guarantee Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee shall either eliminate such interest or resign to the extent and in the manner provided by, and subject to this Guarantee.

          Section 3.2.     Appointment, Removal and Resignation of Guarantee Trustee.

          (a)          Subject to Section 3.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event of Default.

          (b)          The Guarantee Trustee shall not be removed in accordance with Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor.

          (c)          The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation.  The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by an instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee.

          (d)          If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 3.2 within 60 days after delivery of an instrument of removal or resignation, the Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee.  Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.

          (e)          No Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Guarantee Trustee.

          (f)          Upon termination of this Guarantee or removal or resignation of the Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such termination, removal or resignation.

8

ARTICLE IV

GUARANTEE

          Section 4.1.     Guarantee.

          (a)          The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense (except the defense of payment by the Issuer), right of set-off or counterclaim that the Issuer may have or assert.  The Guarantor’s obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders.

          (b)          The Guarantor hereby also agrees to assume any and all Obligations of the Issuer and in the event any such Obligation is not so assumed, subject to the terms and conditions hereof, the Guarantor hereby irrevocably and unconditionally guarantees to each Beneficiary the full payment, when and as due, of any and all Obligations to such Beneficiaries.  This Guarantee is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof.

          Section 4.2.     Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.

          Section 4.3.     Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:

          (a)          the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer;

          (b)          the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of or in connection with, the Capital Securities (other than an extension of time for payment of Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);

          (c)          any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind;

          (d)          the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer;

9

	(e)	any invalidity of, or defect or deficiency in, the Capital Securities;
	(f)	the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g)       any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 4.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.

          There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.

          Section 4.4.    Rights of Holders.

          (a)          The Holders of a Majority in liquidation amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee; provided, however, that (subject to Section 2.1) the Guarantee Trustee shall have the right to decline to follow any such direction if the Guarantee Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if the Guarantee Trustee in good faith by its board of directors or trustees, executive committees or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceedings so directed would involve the Guarantee Trustee in personal liability.

          (b)          Any Holder of Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Guarantee Trustee’s rights under this Guarantee, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person.  The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer, the Guarantee Trustee or any other Person before so proceeding directly against the Guarantor.

          Section 4.5.    Guarantee of Payment. This Guarantee creates a guarantee of payment and not of collection.

          Section 4.6.    Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Capital Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to any such payment, any amounts are due and unpaid under this Guarantee.  If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.

          Section 4.7.     Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 4.3 hereof.

          Section 4.8.     Enforcement by a Beneficiary. A Beneficiary may enforce the obligations of the Guarantor contained in Section 4.1(b) directly against the Guarantor and the Guarantor waives any right or remedy to require that any action be brought against the Issuer or any other person or entity

10

before proceeding against the Guarantor.  The Guarantor shall be subrogated to all rights (if any) of any Beneficiary against the Issuer in respect of any amounts paid to the Beneficiaries by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if at the time of any such payment, and after giving effect to such payment, any amounts are due and unpaid under this Guarantee.

ARTICLE V

LIMITATION OF TRANSACTIONS; SUBORDINATION

          Section 5.1.     Limitation of Transactions. So long as any Capital Securities remain outstanding, if (a) there shall have occurred and be continuing an Event of Default or a Declaration Event of Default or (b) the Guarantor shall have selected an Extension Period as provided in the Declaration and such period, or any extension thereof, shall have commenced and be continuing, then the Guarantor shall not and shall not permit any Affiliate to (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Guarantor’s or such Affiliate’s capital stock (other than payments of dividends or distributions to the Guarantor) or make any guarantee payments with respect to the foregoing or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor or any Affiliate that rank pari passu in all respects with or junior in interest to the Debentures (other than, with respect to clauses (x) and (y) above, (i) repurchases, redemptions or other acquisitions of shares of capital stock of the Guarantor in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase plan or in connection with the issuance of capital stock of the Guarantor (or securities convertible into or exercisable for such capital stock) as consideration in an acquisition transaction entered into prior to the occurrence of the Event of Default, Declaration Event of Default or Extension Period, as applicable, (ii) as a result of any exchange or conversion of any class or series of the Guarantor’s capital stock (or any capital stock of a subsidiary of the Guarantor) for any class or series of the Guarantor’s capital stock or of any class or series of the Guarantor’s indebtedness for any class or series of the Guarantor’s capital stock, (iii) the purchase of fractional interests in shares of the Guarantor’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) any declaration of a dividend in connection with any stockholders’ rights plan, or the issuance of rights, stock or other property under any stockholders’ rights plan, or the redemption or repurchase of rights pursuant thereto, (v) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (vi) payments under this Guarantee).

          Section 5.2.     Ranking. This Guarantee will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the Indenture) of the Guarantor.  By their acceptance thereof, each Holder of Capital Securities agrees to the foregoing provisions of this Guarantee and the other terms set forth herein.

          The right of the Guarantor to participate in any distribution of assets of any of its subsidiaries upon any such subsidiary’s liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent the Guarantor may itself be recognized as a creditor of that subsidiary.  Accordingly, the Guarantor’s obligations under this Guarantee will be effectively

11

subordinated to all existing and future liabilities of the Guarantor’s subsidiaries, and claimants should look only to the assets of the Guarantor for payments hereunder.  This Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Guarantor, including Senior Indebtedness of the Guarantor, under any indenture that the Guarantor may enter into in the future or otherwise.

ARTICLE VI

TERMINATION

          Section 6.1.     Termination.  This Guarantee shall terminate as to the Capital Securities (i) upon full payment of the Redemption Price or Special Redemption Price of all Capital Securities then outstanding, (ii) upon the distribution of all of the Debentures to the Holders of all of the Capital Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon dissolution of the Issuer. This Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Capital Securities must restore payment of any sums paid under the Capital Securities or under this Guarantee.

ARTICLE VII

INDEMNIFICATION

          Section 7.1.     Exculpation.

          (a)          No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person’s negligence or willful misconduct with respect to such acts or omissions.

          (b)          An Indemnified Person shall be fully protected in relying in good faith upon the records of the Issuer or the Guarantor and upon such information, opinions, reports or statements presented to the Issuer or the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person’s professional or expert competence and who, if selected by such Indemnified Person, has been selected with reasonable care by such Indemnified Person, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Capital Securities might properly be paid.

          Section 7.2.     Indemnification.

          (a)          The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or willful misconduct on the part of the Indemnified Person, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including, but not limited to, the costs and expenses (including reasonable legal fees and expenses) of the Indemnified Person defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of the Indemnified Person’s powers or duties hereunder.  The obligation to indemnify as set forth in this Section 7.2 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.

12

          (b)          Promptly after receipt by an Indemnified Person under this Section 7.2 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against the Guarantor under this Section 7.2, notify the Guarantor in writing of the commencement thereof; but the failure so to notify the Guarantor (i) will not relieve the Guarantor from liability under paragraph (a) above unless and to the extent that the Guarantor did not otherwise learn of such action and such failure results in the forfeiture by the Guarantor of substantial rights and defenses and (ii) will not, in any event, relieve the Guarantor from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraph (a) above.  The Guarantor shall be entitled to appoint counsel of the Guarantor’s choice at the Guarantor’s expense to represent the Indemnified Person in any action for which indemnification is sought (in which case the Guarantor shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Indemnified Person or Persons except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding the Guarantor’s election to appoint counsel to represent the Guarantor in an action, the Indemnified Person shall have the right to employ separate counsel (including local counsel), and the Guarantor shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the Guarantor to represent the Indemnified Person would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Guarantor and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Person(s) which are different from or additional to those available to the Guarantor, (iii) the Guarantor shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action or (iv) the Guarantor shall authorize the Indemnified Person to employ separate counsel at the expense of the Guarantor.  The Guarantor will not, without the prior written consent of the Indemnified Persons, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Persons are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Person from all liability arising out of such claim, action, suit or proceeding.

          Section 7.3.     Compensation; Reimbursement of Expenses.   The Guarantor agrees:

          (a)          to pay to the Guarantee Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree to from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and

          (b)          except as otherwise expressly provided herein, to reimburse the Guarantee Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provision of this Guarantee (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct.

          For purposes of clarification, this Section 7.3 does not contemplate the payment by the Guarantor of acceptance or annual administration fees owing to the Guarantee Trustee for services to be provided by the Guarantee Trustee under this Guarantee or the fees and expenses of the Guarantee Trustee’s counsel in connection with the closing of the transactions contemplated by this Guarantee.  The provisions of this Section 7.3 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.

13

ARTICLE VIII

MISCELLANEOUS

          Section 8.1.     Successors and Assigns. All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding.  Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor’s assets to another entity, in each case, to the extent permitted under the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Capital Securities.

          Section 8.2.     Amendments. Except with respect to any changes that do not adversely affect the rights of Holders of the Capital Securities in any material respect (in which case no consent of Holders will be required), this Guarantee may be amended only with the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities.  The provisions of the Declaration with respect to amendments thereof apply to the giving of such approval.

          Section 8.3.     Notices. All notices provided for in this Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows:

          (a)          If given to the Guarantee Trustee, at the Guarantee Trustee’s mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Holders of the Capital Securities and the Guarantor):

Wilmington Trust Company

Rodney Square North

1100 North Market Street

Wilmington, Delaware  19890-1600

Attention: Corporate Trust Administration

Telecopy:  302-636-4140

          (b)          If given to the Guarantor, at the Guarantor’s mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Capital Securities and to the Guarantee Trustee):

Enterprise Financial Services Corp.

150 North Meramec Avenue, Suite 300

St. Louis, Missouri  63105

Attention: Frank Sanfilippo

Telecopy:  314-812-1576

          (c)          If given to any Holder of the Capital Securities, at the address set forth on the books and records of the Issuer.

          All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.

14

          Section 8.4.     Benefit. This Guarantee is solely for the benefit of the Beneficiaries and, subject to Section 2.1(a), is not separately transferable from the Capital Securities.

          Section 8.5.     Governing Law. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

          Section 8.6.     Counterparts. This Guarantee may be executed in one or more counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument.

          Section 8.7.     Separability. In case one or more of the provisions contained in this Guarantee shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Guarantee, but this Guarantee shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.

Signatures appear on the following page

15

THIS GUARANTEE is executed as of the day and year first above written.

ENTERPRISE FINANCIAL SERVICES CORP., as
Guarantor

By:

Name:

Title:

WILMINGTON TRUST COMPANY,
 as Guarantee Trustee

By:

Name:

Title:

16

EX-11.1

EXHIBIT 11.1

STATEMENT REGARDING COMPUTATION OF PER EARNINGS SHARE

	Basic EPS number of shares		Diluted EPS number of shares		Net Income		Basic EPS		Diluted EPS
12 months ended December 31, 2003		9,566,059		9,875,141	$	6,925,219	$	0.72	$	0.70
12 months ended December 31, 2004		9,695,500		10,054,691	$	8,214,527	$	0.85	$	0.82
12 months ended December 31, 2005		10,103,074		10,747,097	$	11,295,368	$	1.12	$	1.05

12 months ended December 31, 2003	Basic				Diluted
Average Shares Outstanding		9,566,059				9,566,059
Options - Plan 2				13,200
Average Option Price			$	5.88
Total Exercise Cost			$	77,616
Shares Repurchased				5,836
Net Shares from Option - Plan 2						7,364
Options - Plan 3				401,144
Average Option Price			$	6.94
Total Exercise Cost			$	2,783,939
Shares Repurchased				209,319
Net Shares from Option - Plan 3						191,825
Options - Plan 4				542,500
Average Option Price			$	12.13
Total Exercise Cost			$	6,580,525
Shares Repurchased				494,776
Net Shares from Option - Plan 4						47,724
Options - Plan 5				327,057
Average Option Price			$	11.85
Total Exercise Cost			$	3,875,625
Shares Repurchased				291,400
Net Shares from Option - Plan 5						35,657
Options - EFA Non-qualified				90,236
Average Option Price			$	10.13
Total Exercise Cost			$	914,091
Shares Repurchased				68,729
Net Shares from Option - EFA Non-qualified						21,507
Options - CGB Qualified				17,568
Average Option Price			$	10.73
Total Exercise Cost			$	188,505
Shares Repurchased				14,173
Net Shares from Option - CGB Qualified						3,395
Options - CGB Non-qualified				10,816
Average Option Price			$	11.32
Total Exercise Cost			$	122,437
Shares Repurchased				9,206
Net Shares from Option - CGB Non-qualified						1,610
Options - Moneta				186,496
Average Option Price			$	12.43
Total Exercise Cost			$	2,318,145
Shares Repurchased				174,297
Net Shares from Option - Moneta						0
Stock Appreciation Rights				65,916
Average Stock Appreciation Rights Price			$	11.91
Total Exercise Cost			$	785,060
Shares Repurchased				59,027
Net Shares from Stock Appreciation Rights						0
Additional Grant (July 1)				5,455
				13.65
			$	74,459
				5,598
Gross Shares		9,566,059				9,875,141
Price			$	13.30

Moneta options and Stock Appreciation Rights are anti-dilutive due to the impact of adjusting net income for the expense associated with each plan during the year.

12 months ended December 31, 2004	Basic				Diluted
Average Shares Outstanding		9,695,500				9,695,500
Options - Plan 2				13,200
Average Option Price			$	5.88
Total Exercise Cost			$	77,616
Shares Repurchased				5,287
Net Shares from Option - Plan 2						7,913
Options - Plan 3				316,913
Average Option Price			$	7.43
Total Exercise Cost			$	2,354,664
Shares Repurchased				160,399
Net Shares from Option - Plan 3						156,514
Options - Plan 4				546,413
Average Option Price			$	12.30
Total Exercise Cost			$	6,720,880
Shares Repurchased				457,826
Net Shares from Option - Plan 4						88,587
Options - Plan 5 - Omnibus				450,853
Average Option Price			$	12.25
Total Exercise Cost			$	5,522,949
Shares Repurchased				376,223
Net Shares from Option - Plan 5						74,630
Options - EFA Non-qualified				86,571
Average Option Price			$	10.10
Total Exercise Cost			$	874,367
Shares Repurchased				59,562
Net Shares from Option - EFA Non-qualified						27,009
Options - CGB Qualified				498
Average Option Price			$	11.67
Total Exercise Cost			$	5,812
Shares Repurchased				396
Net Shares from Option - CGB Qualified						102
Options - Moneta				194,994
Average Option Price			$	12.48
Total Exercise Cost			$	2,433,525
Shares Repurchased				165,771
Net Shares from Option - Moneta						0
Stock Appreciation Rights				22,930
Average Stock Appreciation Rights Price			$	11.84
Total Exercise Cost			$	271,491
Shares Repurchased				18,494
Net Shares from Stock Appreciation Rights						4,436
Gross Shares		9,695,500				10,054,691
Average Market Price			$	14.68

Moneta options are anti-dilutive due to the impact of adjusting net income for the expense associated with the plan during the year.

12 months ended December 31, 2005	Basic				Diluted
Average Shares Outstanding		10,103,074				10,103,074
Options - Plan 2				9,150
Average Option Price			$	6.11
Total Exercise Cost			$	55,907
Shares Repurchased				2,652
Net Shares from Option - Plan 2						6,498
Options - Plan 3				158,873
Average Option Price			$	8.71
Total Exercise Cost			$	1,383,784
Shares Repurchased				65,644
Net Shares from Option - Plan 3						93,229
Options - Plan 4				436,330
Average Option Price			$	12.37
Total Exercise Cost			$	5,397,402
Shares Repurchased				256,044
Net Shares from Option - Plan 4						180,286
Options - Plan 5 - Omnibus				399,830
Average Option Price			$	12.13
Total Exercise Cost			$	4,849,938
Shares Repurchased				230,073
Net Shares from Option - Plan 5						169,757
Options - EFA Non-qualified				18,904
Average Option Price			$	10.00
Total Exercise Cost			$	189,040
Shares Repurchased				8,968
Net Shares from Option - EFA Non-qualified						9,936
Options - Moneta				189,256
Average Option Price			$	12.43
Total Exercise Cost			$	2,352,452
Shares Repurchased				111,596
Net Shares from Option - Moneta						77,660
Stock Appreciation Rights				7,800
Average Stock Appreciation Rights Price			$	11.53
Total Exercise Cost			$	89,934
Shares Repurchased				4,266
Net Shares from Stock Appreciation Rights						0
Restricted Share Units						106,657
Gross Shares		10,103,074				10,747,097
Average Market Price			$	21.08

Stock Appreciation Rights are anti-dilutive due to the impact of adjusting net income for the expense associated with the plan during the year.

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Company	State of Organization
Enterprise Financial Services Corp	Delaware
Enterprise Bank & Trust	Missouri
Charford, Inc.	Missouri
EFSC Capital Trust I	Delaware
EFSC Capital Trust II	Delaware
EFSC Capital Trust III	Delaware
EFSC Capital Trust IV	Delaware
Enterprise Real Estate Mortgage Company, LLC	Missouri
Enterprise IHC, LLC	Missouri
Millennium Holding Company, Inc.	Missouri
Millennium Brokerage Group, LLC	Tennessee

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Enterprise Financial Services Corp:

We consent to the incorporation by reference in the registration statements on Form S-8 of Enterprise Financial Services Corp of our reports dated March 1, 2006, with respect to the consolidated balance sheets of Enterprise Financial Services Corp as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of Enterprise Financial Services Corp.

St. Louis, Missouri
March 7, 2006

/s/ KPMG LLP

EX-24.1

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned members of the Board of Directors and Executive Officers of Enterprise Financial Services Corp, a Delaware corporation (the “Company”) hereby appoint Frank H. Sanfilippo or Kevin C. Eichner as their Attorney-in-Fact for the purpose of signing the Company’s Securities Exchange Commission Form 10-K (and any and all Amendments thereto) for the year ended December 31, 2005.

Dated: January 25, 2006

Signatures	Title
/s/ Peter F. Benoist	Executive Vice President and Chairman of the Board of Directors
Peter F. Benoist
/s/ James J. Murphy	Lead Director
James Murphy
/s/ Kevin C. Eichner	Chief Executive Officer and Director
Kevin C. Eichner
/s/ Paul R. Cahn	Director
Paul R. Cahn
/s/ William H. Downey	Director
William H. Downey
/s/ Lewis A. Levey	Director
Lewis A. Levey
/s/ Robert E. Guest, Jr.	Director
Robert E. Guest, Jr.
/s/ Paul J. McKee, Jr.	Director
Paul J. McKee, Jr.
/s/ Richard S. Masinton	Director
Richard S. Masinton
/s/ Birch M. Mullins	Director
Birch M. Mullins
/s/ Robert E. Saur	Director
Robert E. Saur
/s/ Sandra Van Trease	Director
Sandra Van Trease
/s/ Henry D. Warshaw	Director
Henry D. Warshaw

EX-31.1

EXHIBIT 31.1

CERTIFICATION

 I, Kevin C. Eichner, certify that:

1. I have reviewed this annual report on Form 10-K of Enterprise Financial Services Corp;

2.  Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and retained weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control.

Date: March 7, 2006

/s/ Kevin C. Eichner

Kevin C. Eichner,

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Frank H. Sanfilippo, certify that:

1. I have reviewed this annual report on Form 10-K of Enterprise Financial Services Corp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and retained weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control.

Date: March 7, 2006

/s/ Frank H. Sanfilippo

Frank H. Sanfilippo,

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Enterprise Financial Services Corp (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin C. Eichner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as enacted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kevin C. Eichner

Kevin C. Eichner

Chief Executive Officer

March 7, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Enterprise Financial Services Corp (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Frank H. Sanfilippo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as enacted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frank H. Sanfilippo

Frank H. Sanfilippo

Chief Financial Officer

March 7, 2006