<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM 10 - Q
----------
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter ended June 30, 1996
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-20750
STERLING BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2175590
- ------------------------- --------------------------
(State of Incorporation) (IRS Employer ID Number)
15000 Northwest Freeway, Suite 200
Houston, Texas 77040
(Address of principal executive office)
713-466-8300
(Registrant's telephone number)
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 and Exchange Act
of 1934 ("Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
Yes X No
------- -------
The number of shares outstanding of each class of the registrant's capital
stock as of June 30, 1996:
Class of Stock Shares Outstanding
- ----------------------------- ------------------
Common Stock, Par Value $1.00 7,950,096
<PAGE> 2
STERLING BANCSHARES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION
No. Page No.
- --- -------
<S> <C>
Item 1. Financial Statements
The June 30, 1996 and 1995 financial statements included herein are unaudited; however,
such information reflects all adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management of the registrant, necessary to a fair statement of
the results for the interim periods.
Consolidated Balance Sheets at June 30, 1996 and 1995 and at
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings for the Six Months and Year-to-
Date Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements for the Period Ended
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Significant Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Capital Resources and Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Supplemental Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II. - OTHER INFORMATION
Item 2. - Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 19
Item 6. - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995 1994
------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks 55,652 43,756 60,075 49,759
Federal funds sold 10,000 - 5,000 10,013
Interest bearing deposits in financial institutions 1,240 258 1,135 401
Investment securities:
Available-for-sale 4,552 57,769 3,931 65,883
Held-to-maturity 148,657 118,403 163,581 126,074
------------------------------------------------
Total investment securities 153,209 176,172 167,512 191,957
Loans:
Loans held for sale 34,419 6,902 7,868 5,311
Loans held for investment 414,015 351,649 384,777 323,249
------------------------------------------------
Total loans 448,434 358,551 392,645 328,560
Allowance for credit losses (6,334) (6,236) (5,907) (5,810)
------------------------------------------------
Total loans, net 442,100 352,315 386,738 322,750
Real estate acquired by foreclosure and certain other
real estate 2,028 1,369 1,716 1,706
Premises and equipment, net 17,481 13,807 14,823 12,941
Goodwill 2,003 2,330 2,166 2,493
Accrued interest receivable and other assets 7,164 6,713 8,184 6,634
------------------------------------------------
$690,877 $596,720 $647,349 $598,654
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
Noninterest bearing 203,908 176,187 190,333 178,372
Interest bearing 262,785 191,203 237,778 214,887
Certificates of deposit and other time deposits 158,538 145,890 146,613 145,076
------------------------------------------------
Total deposits 625,231 513,280 574,724 538,335
Federal funds purchased and securities sold 3,689 28,558 12,083 8,520
under agreements to repurchase
Accrued interest payable and other liabilities 3,070 3,159 5,051 4,126
Notes payable 4,800 6,400 5,600 7,200
Senior debentures - 600 200 850
------------------------------------------------
Total liabilities 636,790 $551,997 $597,658 $559,031
================================================
Shareholders' equity:
Preferred stock, $1 par value, 1 million shares auth. 49 - 49 -
Common stock, $1 par value, 20 million shares auth. 7,951 7,849 7,859 7,818
Capital surplus 15,436 14,351 14,985 14,204
Retained earnings 30,820 23,083 27,005 19,829
Net unrealized gain (loss) on available-for-sale
securities - (560) - (2,228)
Net unrealized gain (loss) on held-to-maturity
securities transferred from available-for-sale (169) - (207) -
------------------------------------------------
Total shareholders' equity 54,087 44,723 49,691 39,623
------------------------------------------------
Total liabilities and shareholders' equity $690,877 $596,720 $647,349 $598,654
================================================
</TABLE>
See Notes to Interim Consolidated Financial Statements.
3
<PAGE> 4
STERLING BANCSHARES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees:
Taxable $ 10,250 $ 8,860 $20,070 $17,008
Tax-exempt - 23 - 46
Federal funds sold 206 - 310 36
Deposits in financial institutions 130 18 150 23
Investment securities:
Taxable 2,057 2,432 4,266 4,939
Tax-exempt 284 291 566 579
----------------------------------------------
Total interest income 12,927 11,624 25,362 22,631
Interest expense:
Demand and savings deposits 2,005 1,095 3,873 2,558
Certificates and other time deposits 1,899 1,938 3,740 3,318
Federal funds purchased and repurchase agreements 96 497 225 766
Debentures and notes payable 91 160 221 328
----------------------------------------------
Total interest expense 4,091 3,690 8,059 6,970
NET INTEREST INCOME 8,836 7,934 17,303 15,661
Provision for credit losses 520 231 1,033 517
----------------------------------------------
NET INTEREST INCOME AFTER PROVISION 8,316 7,703 16,270 15,144
Noninterest income:
Customer service fees 1,217 1,263 2,526 2,494
Other 632 648 1,253 1,194
----------------------------------------------
Total noninterest income 1,849 1,911 3,779 3,688
Noninterest expenses:
Salaries and employee benefits 4,067 3,802 8,023 7,374
Net occupancy expense 558 512 1,097 1,099
Losses (gains) and carrying costs of real estate
acquired by foreclosure 56 30 102 2
FDIC assessment - 281 1 569
Equipment expense 360 544 681 1,077
Legal and professional fees 132 47 235 197
Data processing 208 155 456 370
Telephone 186 117 332 248
Supplies 136 176 252 362
Other 848 860 1,700 1,560
----------------------------------------------
Total noninterest expenses 6,551 6,524 12,879 12,858
EARNINGS BEFORE INCOME TAXES 3,614 3,090 7,170 5,974
Provision for income taxes 1,083 972 2,236 1,872
----------------------------------------------
NET EARNINGS $ 2,531 $ 2,118 $ 4,934 $ 4,102
==============================================
</TABLE>
See Notes to Interim Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCSHARES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
-----------------------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,934 $ 4,102
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Amortization and accretion of premiums and discounts on investment securities, net 125 213
Provision for credit losses 1,033 517
(Gain) loss on sale of premises and equipment (6) -
(Gain) loss on sale of real estate acquired by foreclosure (3) (42)
Depreciation and amortization 1,192 1,174
Writedown of real estate acquired by foreclosure 34 120
Increase in accrued interest receivable and other assets 1,000 210
Decrease in accrued interest payable and other liabilities (1,981) (2,115)
-----------------------
Total adjustments 1,394 77
-----------------------
Net cash provided by operating activities 6,328 4,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity and paydowns of held-to-maturity investment securities 14,857 8,266
Purchase of held-to-maturity investment securities - (774)
Proceeds from maturity and paydowns of available-for-sale investment securities - 10,692
Purchase of available-for-sale investment securities (621) (85)
Net increase in loans (56,462) (29,978)
Proceeds from sale of real estate acquired by foreclosure 418 155
Capital additions to real estate acquired by foreclosure (23) -
Net (increase) decrease in interest-bearing deposits in financial institutions (105) 143
Proceeds from sale of premises and equipment 20 -
Purchase of premises and equipment (4,372) (1,877)
Net cash used in investing activities ----------------------
(46,288) (13,458)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 50,507 (25,055)
Net (decrease) increase in repurchase agreements/funds purchased (8,394) 20,038
Repayments of notes payable (800) (800)
Proceeds from issuance of common stock 532 166
Dividends paid (1,108) (836)
Repayment of senior debentures (200) (250)
----------------------
Net cash provided by (used in) financing activities 40,537 (6,737)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 577 (16,016)
CASH AND CASH EQUIVALENTS:
Beginning of period $65,075 $59,772
----------------------
End of period $65,652 $43,756
======================
</TABLE>
See Notes to Interim Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCSHARES, INC., AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
(1) Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring items) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K of Sterling Bancshares, Inc. (the "Company"), for
the year ended December 31, 1995.
(2) Earnings per Share
Earnings per share is computed by dividing net earnings by the weighted average
number of common shares and common share equivalents outstanding during the
period. Dilutive common stock options have been included in the calculations.
The weighted average shares used in the calculation of fully diluted earnings
per share for the quarter ended June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Three Months Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
1996 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Common shares (See below) 7,922,234 7,902,332 7,832,400
Common share equivalents (See below) 241,176 247,423 150,870
---------- ---------- ----------
8,163,410 8,149,755 7,983,270
========== ========== ==========
Net earnings $2,531,820 $4,934,355 $4,102,639
Earnings per share (See below) $ 0.31 $ 0.61 $ 0.51
</TABLE>
Note: Common shares, common share equivalents, and earnings per share for
1995 have been adjusted to reflect a three-for-two stock split effective
February 14, 1996. See discussion item (3) below for additional
information regarding the stock split.
(3) Capital Stock
Common Stock
The Company plans to pay quarterly dividends at the annual rate of $0.28 per
share during 1996. Dividends of $0.07 per share for the first and second
quarters were paid February 14, 1996, and May 10, 1996. The third quarter
dividend, also $0.07 per share, was declared July 15, 1996, and paid on August
8, 1996, to shareholders of record July 29, 1996.
As of June 30, 1996, an additional 509,148 shares of common stock were issuable
(without regard to vesting restrictions) upon exercise of the Company's
outstanding employee stock options under the 1994 Stock Incentive Plan and the
1984 Stock Option Plan, and pursuant to outstanding subscriptions under the
Company's 1994 Employee Stock Purchase Plan.
6
<PAGE> 7
The Company's Non-Employee Director Compensation Plan provides, subject to an
annual possibility of modification by the Company, that payment of outside
directors will be effected by issuance of shares of the Company's stock in lieu
of cash fees. Accordingly, in April 1996 the Company issued 11,250 shares as
payment in full of outside director fees for director and committee services
during the period April 1996 through March 1997, inclusive. The Company
expects to continue a policy of such payments during future periods.
Preferred Stock
The Company's Board of Directors has approved issuance of three series of the
Company's Convertible Preferred Stock. Each of the three series is to be
issued in conjunction with the opening of one of three new offices of Sterling
Bank (see "Significant Developments" on page 8 of this Form 10-Q). The
convertibility ratio of the Convertible Preferred Stock to Common Stock will
depend upon the performance of the new office in reaching certain defined
deposit goals. The shares will be offered pursuant to Private Placement
Memoranda to qualified investors who are bona fide Texas residents approved by
the executive officer of the respective new banking offices, and who are either
residents or businesspersons in the neighboring community. The intent of the
Company is to create a common interest between management of the new offices
and members of the neighboring community, and to promote acceptance of the new
banking office by its nearby businesses. Accordingly, 49,500 shares of Series
A stock were sold to 29 investors in the Company's new Cypress office during a
subscription period that ended October 20, 1995. The subscription period for
Series B shares, related to the Company's new Upper Kirby office, began May 1,
1996, and will terminate September 15, 1996. No more than 150,000 shares of
Series B Convertible Preferred Stock will be issued; and none will be issued
prior to the termination date of the offering. Similarly, Series C shares will
be offered for sale to potential investors in the new Cypress Station office
which is scheduled to open in late 1996 or early 1997.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
Sterling Bank Begins Mortgage Company Relationship
Pending regulatory approval, the Company's banking subsidiary, Sterling Bank
(the "Bank"), has announced its plan to acquire a minority interest in Charter
Mortgage Company, an originator of single family residential mortgage loans
headquartered in Houston. As part of the transaction, Charter Mortgage Company
has changed its name to Sterling Capital Mortgage Company ("SCMC") effective
July 22, 1996. SCMC has offices in most large Texas housing markets, including
Houston, Dallas-Fort Worth, Austin and El Paso, as well as an office in
Phoenix, Arizona.
Beginning in June, the Bank entered into a Temporary Mortgage Loan Purchasing
Program with SCMC. Under the program, the Bank provides SCMC the funds needed
to close the single family residential loans it originates, provided such loans
have been pre-sold to qualified investors. Upon receipt of permanent funding
from the investors, the Bank will receive interest income for each mortgage
loan for the period it is temporarily owned by the Bank based upon the mortgage
rate of each such loan, in addition to repayment of principal.
Three New Offices Under Development
The Bank continues its planned expansion of banking services in the greater
Houston market. The first of three new community banking offices, the Cypress
office, opened in September 1995 near the intersection of Jones and Grant Roads
in the northwest part of the greater Houston area. A second new banking office
opened August 12, 1996, at the intersection of Westheimer Road and Kirby Drive
in the Upper Kirby district of Houston. The Bank intends to open a third new
office in the Cypress Station area of north Houston near the intersection of
Interstate Highway 45 and FM 1960 by late 1996 or early 1997. The Bank has
hired two employees, including an executive officer for the location, and has
purchased a site, with construction expected to begin in August.
Convertible Preferred Stock Series B Offered
On July 17, 1995, the Company's Board of Directors authorized issuance of three
new series of Convertible Preferred Stock (designated as Series A, Series B,
and Series C) to be offered to persons the Company believes will be beneficial
to the development and support of the three new banking offices discussed
above. In conjunction with the opening of the new Upper Kirby office expected
in July, the Series B shares were offered in a Confidential Private Placement
Memorandum to qualified investors beginning May 1, 1996. The offering is
scheduled to terminate September 15, 1996. Additional information regarding
the offering and the new offices is discussed under Preferred Stock in Footnote
3 to the Company's unaudited financial statements in Part I and in Item 2 of
Part II of this Form 10-Q.
FINANCIAL CONDITION
Investments in Subsidiaries
Sterling Bank, which operates 12 community banking offices in the greater
Houston area, and which intends to add a 13th banking office during late 1996
or early 1997, constitutes the Company's only subsidiary.
Total Assets
The total consolidated assets of the Company as of June 30, 1996, were $690.9
million, as compared to $596.7 million on the same date in 1995, an increase of
$94.2 million or 15.8%.
8
<PAGE> 9
Federal Funds Sold and Federal Funds Purchased
The Bank had federal funds sold as of June 30, 1996, in the amount of $10.0
million. On the same date in 1995, the Bank had no federal funds sold. The
Bank had no federal funds purchased at June 30, 1996, as compared $19.0 million
at June 30, 1995. The net federal funds position shifted by $29.0 million
between June 30, 1995 and 1996, primarily a result of the increase in deposits
realized over this time period.
Loans
As of June 30, 1996, loans (excluding student and residential mortgage loans
held for resale in the amounts of $34.4 million in 1996 and $6.9 million in
1995) were $414.0 million, as compared to $351.6 million on the same date in
1995, an increase of $62.4 million or 17.7% due primarily to continued strong
loan demand. When compared to total loans of $384.8 million on December 31,
1995, the June 30, 1996, loan balance represents a year-to-date $29.2 million
increase in internal loan production, net of payoffs, an annualized percentage
increase of 15.3%. At June 30, 1996, loans as a percentage of assets and
deposits were 59.9% and 66.2%, respectively. The following table summarizes
the Bank's loan portfolio by type of loan as of June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 Percent
Balance of Total
------------- --------
<S> <C> <C>
Commercial, financial and industrial 155,899 37.66%
Real estate - commercial 107,352 25.93%
Real estate - residential mortgage 45,009 10.87%
Real estate - construction 37,417 9.04%
Installment and other 71,643 17.30%
Less unearned discount (3,305) (0.80)%
------- -------
Total loans 414,015 100.00%
======= =======
</TABLE>
Investment Securities
The Bank's investment portfolio as of June 30, 1996, totaled $153.2 million, as
compared to $176.2 million on the same date in 1995. The decrease of $23.0
million or 13.1% is a result of the Bank's reinvestment of cash provided by its
investment securities to other uses. Funds provided by the reduction in
investment securities were used primarily to fund the Bank's strong loan
growth. As required by generally accepted accounting principles, the Bank has
designated its total securities portfolio into (a) Held-to-maturity and (b)
Available-for-sale. As of June 30, 1996, the "Held-to-maturity" ("HTM")
portfolio totaled $148.7 million and included substantially all of the
investment securities maintained by the Bank for investment purposes. The
Available-for-sale ("AFS") portfolio totaled $4.5 million and consisted of the
Bank's portfolio of investment assets which were held for reasons other than
solely for investment, such as the Bank's stock in the regional Federal Home
Loan Bank (the "FHLB"). Due to the nature of the securities classified as AFS,
there was no net unrealized gain or loss in the AFS portfolio as of June 30,
1996. The Bank tracks but does not record market changes on its HTM portfolio.
At June 30, 1996, the market value of the HTM portfolio was $146.1 million.
The Company analyzes its interest rate risk position by use of a simulation
model. As of June 30, 1996, the simulation model indicates that, in the event
of a 200 basis point increase in underlying market interest rates, the
Company's net interest income would increase 3.90%. Correspondingly, in the
event of a 200 basis point decrease in market interest rates, the Company's net
interest income would decrease by 4.64%. The results of this "rate stress
test", which assumes a parallel shift in the yield curve, indicate that the
present mix of earning assets and paying liabilities constitutes an
Asset/Liability portfolio with reasonable protection from income shocks caused
by changes in interest rates. The simulation model also provides a detailed
GAP analysis, which the
9
<PAGE> 10
Company uses as a secondary source in analyzing its Asset/Liability mix. The
GAP measurement of Rate Sensitive Assets (RSA) to Rate Sensitive Liabilities
(RSL) indicates a positive GAP of 1.0410 through the first year and a positive
1.0752 through three years cumulative.
Allowance for Credit Losses
Following is a summary of the changes in the allowance for credit losses for
the six months ended June 30, 1996, and the relationship of the allowance
account to total loans at June 30, 1996, and December 31,1995 (in thousands):
<TABLE>
<S> <C>
Allowance for credit losses, December 31, 1995 $5,907
Chargeoffs (859)
Recoveries 253
Provision for credit losses 1,033
------
Allowance for credit losses, June 30, 1996 $6,334
======
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Loans outstanding at period-end $414,015 $384,777
Allowance for credit losses $ 6,334 $ 5,907
Allowance as a percent of period-end loans 1.53% 1.54%
</TABLE>
In order to determine the adequacy of the allowance for credit losses,
management considers the risk classification and delinquency status of loans
and other factors. Management also establishes specific allowances for credits
which management believes require allowances greater than those allocated
according to their risk classification. An unallocated allowance is also
established based on the Bank's historical chargeoff experience over the last
ten years. The Bank may reduce the provision for credit losses where
appropriate to adjust for significant recoveries. The Bank will continue to
monitor the adequacy of the allowance for credit losses to determine the
appropriate accrual for the Bank's bad debt expense.
Risk Elements
Nonperforming, past due, and restructured loans are fully or substantially
secured by assets, with any excess of loan balances over collateral values
specifically allocated in the allowance for credit losses. Thirteen properties
make up the $2,028,000 of real estate acquired by foreclosure ("ORE") at June
30, 1996, the largest of which is carried at $683,000 and consists of one
commercial property in North Houston. This property actually was not
foreclosed upon, but rather is a tract of unimproved land previously acquired
by the Bank for future expansion. Because the Bank recently opted to acquire a
second, more preferable, tract nearby, the first tract has been recategorized
as ORE and is being marketed for sale. No loss is anticipated. The Bank
carries all properties at the lower of the book value of the loan at
foreclosure or the current fair market appraised values, less estimated closing
costs.
The Bank defines potential problem loans as those loans not classified as
nonperforming, but where information known by management indicates serious
doubt that the borrower may not be able to comply with the present payment
terms. Management identifies these loans through its continuous loan review
process and defines potential problem loans as those loans classified as
substandard, doubtful, or loss, excluding all nonperforming loans.
As of June 30, 1996, the Bank has no material foreign outstandings or loan
concentrations. The Bank, however, continues to monitor the potential risk of
foreign borrowers and concentrations of credit.
10
<PAGE> 11
The following schedule summarizes consolidated nonperforming loans,
nonperforming assets and potential problem loans at year-end 1995 and at June
30, 1996.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(in thousands)
<S> <C> <C>
Nonaccrual loans $ 2,052 $2,858
Restructured loans 77 103
Accruing loans past due 90 days or more 293 446
------- ------
Total nonperforming loans 2,422 3,407
ORE and other foreclosed assets 2,131 1,745
------- ------
Total nonperforming assets $ 4,553 $5,152
======= ======
Total nonperforming loans as a % of gross loans 0.59% 0.89%
Total nonperforming assets as a % of total assets 0.66% 0.80%
Potential problem loans $11,004 $9,101
======= ======
</TABLE>
remises and Equipment
The Bank's premises and equipment, net of depreciation, as of June 30, 1996,
were $17.5 million, as compared to $13.8 million on the same date in 1995, an
increase of $3.7 million or 26.8%. This increase is due primarily to
renovation and improvements of the Bank's West, Gulf Freeway, and Westheimer
banking offices during 1995 and includes upgrades to the electronic technology
and telephone systems in all offices to handle increased volume. The Bank also
completed the opening of the Cypress Office during the period. Additional
increases in premises and equipment are expected during 1996 as the Bank
completes facilities for the planned de novo banking offices discussed
elsewhere in this Form 10-Q and continues to upgrade its computer and
technology resources.
Deposits
Total deposits as of June 30, 1996, were $625.2 million, as compared to $513.3
million on the same date in 1995, an increase of $111.9 million or 21.8%,
reflecting strong growth in the Bank's deposit base. When compared to total
deposits of $574.7 million on December 31, 1995, the June 30, 1996, amount
represents a year-to-date increase of $50.5 million, as the strong deposit
growth experienced in the last months of 1995 continued through the first two
quarters of 1996.
Noninterest bearing demand deposits at June 30, 1996, were $203.9 million, as
compared to $176.2 million at June 30, 1995, an increase of $27.7 million or
15.7%. When compared to noninterest bearing demand deposits of $190.3 million
on December 31, 1995, the June 30 amount represents a year-to-date increase of
$12.7 million, consistent with the overall growth in deposits. The percentage
of noninterest bearing deposits to total deposits as of June 30, 1996,
continued strong at 32.6%.
Notes Payable
In December 1993 and March 1994, the Company borrowed $6.6 million and $1.4
million, respectively, pursuant to an $8 million credit facility between the
Company and a large regional bank. Proceeds of the borrowings were used in the
Company's acquisition and merger of two Houston banks into the Bank. The note
will accrue interest at a rate of 7.13% until the third quarter of 1996. Since
September 30, 1994, the Company has paid regular quarterly principal payments
in the amount of $400,000 (5% of the original principal balance), which will
continue for 20 quarters. As of June 30, 1996, the Company had made eight
regularly scheduled principal payments totaling $3.2 million, and the balance
remaining on the note was $4.8 million.
11
<PAGE> 12
Senior Debentures
The Company's outstanding senior debentures were fully redeemed as of June 30,
1996, as compared to an existing balance of $600,000 on the same date in 1995.
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' Equity
The following table displays the changes in shareholders' equity from December
31, 1995, to June 30,1996: (in thousands)
<TABLE>
<S> <C>
Equity, December 31, 1995 $49,691
Net earnings 4,934
Sale of common stock 532
Cash dividends paid (1,108)
Net change in net unrealized loss on HTM securities transferred
from AFS 38
-------
Equity, June 30, 1996 $54,087
=======
</TABLE>
The Company's risk based capital ratios remain above the levels designated as
"Well Capitalized" on June 30, 1996, with Tier-1 Capital, Total Risk-Based
Capital, and Leverage Capital Ratios of 11.12%, 12.37%, and 7.85%,
respectively.
Liquidity
Effective management of balance sheet liquidity is necessary to fund growth in
earning assets and to pay liability maturities, depository customers'
withdrawal requirements and shareholders' dividends. The Company has
instituted Asset/Liability Management policies, including but not limited to a
computer simulation model, to improve liquidity controls and to enhance its
management of interest rate risk and financial condition. The Company has
numerous sources of liquidity including a significant portfolio of shorter term
assets, marketable investment securities (not to include those presently
classified as "Held-to-maturity"), increases in customers' deposits, and access
to borrowing arrangements. Available borrowing arrangements maintained by the
Bank include informal federal funds lines with other commercial banks, an
advancement arrangement with the FHLB, and reverse repurchase lines with other
commercial banks and the FHLB.
RESULTS OF OPERATIONS
Net Income
Net income for the six month period ended June 30, 1996, was $4,934,000, as
compared to $4,102,000 for the same period in 1995, an increase of $832,000 or
20.3%. The Company attributes the increase to its maintenance of strong net
interest margins and to its containment of operating expense increases despite
the ongoing growth of the Bank. Thus, primarily as a result of the Bank's
strong deposit and loan growth, average earning assets for the six months
ending June 30, 1996, were $590.5 million, an increase of $64.7 million or
12.3% over average earning assets of $525.8 million at June 30, 1995. In
addition, operating efficiencies realized during the first two quarters of
1996, combined with the reduction of the Federal Deposit Insurance Corporation
(the "FDIC") assessment, contributed to the increase in net income.
12
<PAGE> 13
Net Interest Income
Net interest income for the six month period ended June 30, 1996, was $17.3
million, as compared to $15.6 million for the same period in 1995, an increase
of $1.7 million or 10.9%. As discussed above, the Company attributes the
growth in net interest income primarily to increases in average earning assets,
enhanced by the maintenance of a strong net interest margin. The yield on
average earning assets for the six month period ended June 30, 1996, was 8.64%,
as compared to 8.68% for the same period in 1995, a decrease of 4 basis points.
This decrease is due primarily to an increase in total loan volume coupled with
a 23 basis point decrease in loan yield, combined with a change in the
investment portfolio mix from longer term investment securities to lower
yielding, more liquid federal funds sold and interest bearing deposits. At
June 30, 1996, total loans represented 69.9% of total interest earning assets,
compared to 65.3% for the same period in 1995. The cost of interest bearing
liabilities rose 11 basis points from 3.71% to 3.82% for the same period. The
Company's 5.99% net interest margin for the first six months of 1996 represents
a decrease of 14 basis points from the 6.13% net interest margin registered
during the same period in 1995.
The data used in the analysis of the changes in net interest income is derived
from the daily average levels of earning assets and interest-bearing
liabilities as well as from the rates earned and paid on such amounts. The
rates earned and paid on each major type of asset and liability are shown
beside the average balance in the account for the period. The average yields
on all interest-earning assets and the average cost of all interest-bearing
liabilities also are summarized. The following schedule gives a comparative
analysis of the Company's daily average interest-earning accounts and
interest-bearing accounts for the six-month periods ended June 30, 1996 and
1995:
13
<PAGE> 14
CONSOLIDATED AVERAGE BALANCE SHEET
SCHEDULE NET INTEREST INCOME
AND NET INTEREST MARGIN
(UNAUDITED)
STERLING BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended June 30,
(dollars in thousands
1996 1995
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest bearing deposits in financial institutions $ 5,941 $ 150 5.08% $ 779 $ 23 5.95%
Federal funds sold 11,500 310 5.42% 1,867 36 3.89%
Investment securities (taxable) 137,935 4,266 6.22% 156,584 4,939 6.36%
Investment securities (tax-exempt) 22,341 566 5.09% 23,042 579 5.07%
Loans, net of unearned discount (taxable) 412,807 20,070 9.78% 342,480 17,008 10.01%
Loans, net of unearned discount (tax-exempt) - - - 1,081 46 8.58%
----------------------------- ------------------------------
Total Interest Earning Assets $590,524 $25,362 8.64% $525,833 $22,631 8.68%
Noninterest Earning Assets:
Cash and due from banks $ 51,214 $ 40,317
Premises and equipment, net 17,168 13,582
Other assets 10,384 11,000
Allowance for credit losses (6,124) (6,031)
------- ---------
Total Noninterest Earning Assets $72,642 $ 58,868
Total Assets $663,166 $584,701
======= ========
Interest Bearing Liabilities:
Demand and savings deposits $256,325 $3,873 3.04% $202,363 $2,558 2.55%
Certificates and other time deposits 153,106 3,740 4.91% 143,908 3,318 4.65%
Other borrowings 9,851 225 4.59% 25,032 766 6.17%
Debentures and notes payable 5,306 221 8.38% 7,725 328 8.56%
---------------------------- ------------------------------
Total Interest Bearing Liabilities $424,588 $8,059 3.82% $379,028 $6,970 3.71%
Noninterest Bearing Liabilities:
Demand deposits $183,331 $160,867
Other liabilities 3,137 3,088
Shareholders' equity 52,110 41,718
-------- --------
Total Noninterest Bearing Liabilities $238,578 $205,673
Total Liabilities and Shareholders' Equity $663,166 $584,701
======== ========
Net Interest Income & Margin $17,303 5.89% $15,661 6.01%
================= =================
Net Interest Income & Margin (tax equivalent) $17,599 5.99% $15,983 6.13%
================= =================
</TABLE>
14
<PAGE> 15
Provision for Credit Losses
Provision for credit losses for the first six months of 1996 was $1,033,000, a
compared to $517,000 for the same period in 1995, an increase of $516,000 or
99.8%. After net chargeoffs of $606,000 and provisions for the first six
months of 1996, the Bank's allowance for credit losses increased by $427,000
from $5,907,000 on December 31, 1995, to $6,334,000 on June 30, 1996. Please
refer to the earlier discussion of Allowances for Credit Losses and
Nonperforming Loans for additional insight to management's approach and
methodology in estimating the allowance for possible credit losses.
Noninterest Income
Total noninterest income remained relatively unchanged for the six month perio
ended June 30, 1996, at $3.8 million, as compared to $3.7 million for the same
period in 1995, an increase of $0.1 million or 2.7%.
Noninterest Expense
Noninterest expenses were flat at $12.9 million for the first six months of
1996 as compared to $12.8 for the same period in 1995. Year-to-year
improvements in equipment, FDIC assessment, and supplies expenses were offset
by higher costs for salaries and other expenses.
Salaries and employee benefits for the six month period ended June 30, 1996,
were $8.0 million, as compared to $7.4 million for the same period in 1995, an
increase of $600,000 or 8.1%. The increase is due in part to strong net incom
growth, which caused corresponding increases in the Company's profit-sharing
and incentive plan costs of approximately $137,000 between the 1995 and 1996
periods. An additional portion of the increase is due to an increase in the
number of employees, caused primarily by additional staffing of the central
operations areas as well as inception of staffing of the new Cypress office,
which opened in mid 1995, and the new Upper Kirby and Cypress Station offices.
At June 30, 1996, the Company employed 339 full time equivalent employees, as
compared to 322 at June 30, 1995. The remaining increase in personnel costs
may be attributed to normal merit and cost-of-living pay increases, which
averaged less than 3%. The Company's ratio of total assets per full-time
equivalent employee as of June 30, 1996, increased to $2,038,000 from
$1,853,000 on the same date in 1995.
Net occupancy expenses for the period ended June 30, 1996, were $1.1 million,
unchanged from the same period in 1995. Rental reduction at the Westheimer
office offset renovation and reconstruction expenses incurre at the Westheimer
and Gulf Freeway offices in addition to expenses related to the new Cypress
office. Management expects increases in net occupancy expense during the
remainder of 1996 as additional expenses are recognized due to the new Upper
Kirby and Cypress Station offices and to planned renovation and reconstruction
of the Guardian and Champions offices.
The FDIC assessment for the six month period ended June 30, 1996, was $1,000,
as compared to $569,000 for the same period in 1995, a decrease of $568,000 or
99.8%. The decrease is due to a reduction, effective in September of 1995, but
retroactive to the second quarter of 1995 in the FDIC premium on deposits.
This reduction resulted in a decrease of the Bank's FDIC assessment rate from
$0.23 to $.00 per $100 of deposits. Sterling now pays approximately $500 per
quarter to the FDIC for membership.
Equipment expense for the six month period ended June 30, 1996, was $681,000,
as compared to $1,077,000 for the same period in 1995, a decrease of $396,000
or 36.8%. The decrease is reflective primarily of higher-than-normal
expenditures occurring in the first six months of 1995 as the Company merged
the four banking offices of two acquired institutions into the Bank. The
Company expects that in future periods equipment expenses will rise due to
planned purchases relating to opening the new Upper Kirby and Cypress Station
Offices and to the renovation work targeted for existing offices as noted
above.
15
<PAGE> 16
Data processing expense for the six month period ended June 30, 1996, was
$456,000, as compared to $370,000 for the same period in 1995, an increase of
$86,000 or 23.2%. The company expects ongoing increases in its data processing
expenses for the remainder of 1996 as it completes local and wide-area network
construction, the primary cause of the year-to-date increase over the prior
year, and also as it continues implementation of its long-term technology
strategy.
All other noninterest expenses, including supplies expense, legal and
professional fees, telephone expenses, and costs associated with foreclosed and
repossessed assets, for the six month period ended June 30, 1996, were $2.6
million as compared to $2.4 million for the same period in 1995, an increase
of $0.2 million or 8.3%. Increases in telephone and other expenses were partly
offset by a $110,000 decrease in supplies expense, The decrease in supplies
related to higher-than-normal supplies expenditures occurring in the first
quarter of 1995 due to the Company's merger of the four banking offices of two
acquired institutions into the Bank. The Company expects that in future
periods other noninterest expenses will rise due to purchases related to
opening the new Upper Kirby and Cypress Station offices and to the renovation
and reconstruction of the Guardian and Champions offices, as well as to
continued growth in loans and bookkeeping operations.
SUPPLEMENTAL TABLES
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
(UNAUDITED)
(in thousands except for per share data and ratios)
<TABLE>
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
1996 1996 1995 1995 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock Data (A):
Earnings per common share: primary 0.31 0.30 0.30 0.29 0.27
Earnings per common share: fully diluted 0.31 0.30 0.30 0.29 0.27
Dividends paid per common share 0.07 0.07 0.05 0.05 0.05
Book value per common share [EOP] (no dilution) 6.68 6.29 6.32 5.96 5.70
Tangible book value [EOP] (no dilution) 6.43 6.01 6.05 5.67 5.40
Market price [EOP]:
High 15.50 14.00 12.17 12.00 9.00
Low 13.31 11.25 11.00 8.67 7.83
Close 14.00 14.00 11.67 11.50 8.83
Market price capitalization (mktprice x #shrs) [EOP] 111,301 110,642 91,688 90,321 69,183
Market price / book value [EOP] 209.58% 222.58% 184.60% 192.95% 154.97%
Common share dividend 554 554 419 419 420
Dividend payout ratio (DPCS / EPCS) 22.58% 23.33% 17.78% 18.60% 20.00%
Dividend yield (DPCS / mktprice) [EOP] 2.00% 2.00% 1.83% 1.86% 2.42%
Price / earnings ratio (mktprice / 4 qtrs. earnings) 11.70 12.14 10.57 10.88 8.69
Common shares [EOP] 7,950 7,903 7,859 7,854 7,832
Common shares: primary (average) 8,163 8,121 8,086 8,042 7,929
Common shares: fully diluted (average) 8,163 8,144 8,086 8,079 7,990
Preferred shares: [EOP] 49 49 49 - -
Income Statement:
Interest income 12,927 12,435 12,280 11,822 11,624
Interest expense 4,091 3,968 3,850 3,737 3,690
------------------------------------------------------
Net interest income 8,836 8,467 8,430 8,086 7,934
Provision for loan losses 520 513 216 186 231
Noninterest income 1,849 1,930 1,935 1,913 1,911
Noninterest expense 6,551 6,328 6,579 6,344 6,524
Provision for income taxes 1,083 1,153 1,146 1,129 972
------------------------------------------------------
Net income 2,531 2,403 2,424 2,340 2,118
======================================================
</TABLE>
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock
split in the form of 50% stock dividend paid in February 1996.
16
<PAGE> 17
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS, CONTINUED
(UNAUDITED)
(in thousands except for per share data and ratios)
<TABLE>
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
1996 1996 1995 1995 1995
------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Balance Sheet - End of Period:
Federal Funds Sold 10,000 10,000 5,000 - -
Interest bearing deposits in other financial institutions 1,240 9,192 1,135 139 258
Investment securities available-for-sale 4,552 3,994 3,931 58,088 57,769
Investment securities held-to-maturity 148,657 155,989 163,581 114,650 118,403
Loans held for sale 34,419 9,680 7,868 6,848 6,902
Loans, net of unearned income 414,015 404,109 384,777 361,370 351,649
------------------------------------------------------
Total interest-earning assets 612,883 592,964 566,292 541,095 534,981
Allowance for loan losses (6,334) (6,256) (5,907) (6,187) (6,236)
Cash and due from banks 55,652 46,684 60,075 49,725 43,756
Other real estate 2,028 1,833 1,716 1,718 1,369
Other assets 24,645 24,237 23,007 20,906 20,520
Goodwill 2,003 2,085 2,166 2,248 2,330
------------------------------------------------------
Total assets 690,877 661,547 647,349 609,505 596,720
Noninterest-bearing deposits 203,908 184,875 190,333 175,300 176,187
Interest-bearing deposits 421,323 406,402 384,391 356,153 337,093
------------------------------------------------------
Total deposits 625,231 591,277 574,724 531,453 513,280
Federal funds purchased and securities sold under
agreements to repurchase 3,689 9,494 12,083 21,231 28,558
Note payable and senior debentures 4,800 5,200 5,800 6,400 7,000
------------------------------------------------------
Total other interest-bearing liabilities 8,489 14,694 17,883 27,631 35,558
Other liabilities 3,070 3,884 5,051 3,618 3,159
Total shareholders' equity 54,087 51,692 49,691 46,803 44,723
Problem Assets & Potential Problem Loans [EOP]
Nonaccrual loans 2,052 2,159 2,858 2,482 2,673
Restructured loans 77 90 103 129 139
Accruing loans past due 90 days or more 293 698 446 458 675
------------------------------------------------------
Total nonperforming loans 2,422 2,947 3,407 3,069 3,487
ORE & other repossessed assets 2,131 1,899 1,745 1,824 1,397
------------------------------------------------------
Total nonperforming assets 4,553 4,846 5,152 4,893 4,884
Potential problem loans 11,004 10,643 9,101 N/A N/A
Nonperforming loans as a % of total loans 0.59% 0.73% 0.89% 0.85% 0.99%
Nonperforming assets as a % of total assets 0.66% 0.73% 0.80% 0.80% 0.82%
Reconciliation of the Allowance for Credit Losses:
Allowance for credit losses, beginning of period 6,256 5,907 6,187 6,236 6,047
Chargeoffs (582) (277) (572) (294) (102)
Recoveries 140 113 76 59 60
Provision for credit losses 520 513 216 186 231
------------------------------------------------------
Allowance for credit losses, end of period 6,334 6,256 5,907 6,187 6,236
======================================================
Reserve for credit losses [EOP]/:
Total loans 1.53 1.55 1.54 1.71 1.77
Nonaccrual loans 308.67 289.76 206.68 249.27 233.30
Nonaccrual and accruing loans past due 90 days 270.11 218.97 178.78 210.44 186.26
Selected Ratios:
Overhead ratio 61.31% 60.86% 63.47% 63.45% 66.27%
Stockholders' equity / total assets [EOP] 7.83% 7.81% 7.68% 7.68% 7.49%
Loans / deposits [EOP] 66.22% 68.35% 66.95% 68.00% 68.51%
Loans / assets [EOP] 59.93% 61.09% 59.44% 59.29% 58.93%
</TABLE>
17
<PAGE> 18
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS, CONTINUED
(UNAUDITED)
(in thousands except for per share data and ratios)
<TABLE>
<CAPTION>
YTD YTD YTD YTD YTD
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
1996 1996 1995 1995 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet and Interest Margin [YTD AVG]
Federal Funds Sold 11,500 7,445 1,857 1,238 1,867
Interest bearing deposits in other financial institutions 5,941 1,785 2,297 1,527 1,779
Investment securities (taxable) 137,935 141,891 153,005 154,929 156,584
Investment securities (tax exempt) 22,341 22,450 22,930 23,044 23,042
Loans, net of unearned income (taxable) 412,807 404,637 356,665 348,815 342,480
Loans, net of unearned income (tax exempt) - - 795 1,059 1,081
------------------------------------------------------
Total interest-earning assets 590,524 578,208 537,549 530,612 525,833
Cash and due from banks 51,214 49,946 42,575 41,259 40,317
Bank premises and equipment, net 17,168 16,446 14,116 13,871 13,582
Other assets 10,384 10,436 10,281 10,915 11,000
Allowance for loan losses (6,124) (5,986) (6,080) (6,059) (6,031)
------------------------------------------------------
Total assets 663,166 649,050 598,441 590,598 584,701
======================================================
Noninterest-bearing deposits 183,331 176,967 168,987 164,785 160,867
Interest-bearing deposits 409,431 401,660 351,374 345,239 346,271
------------------------------------------------------
Total deposits 592,762 578,627 520,361 510,024 507,138
Federal funds purchased and securities sold under
agreements to repurchase 9,851 10,811 23,518 26,774 25,032
Note payable and senior debentures 5,306 5,532 6,990 7,456 7,725
------------------------------------------------------
Total interest-bearing liabilities 424,588 418,003 381,882 379,469 379,028
Other liabilities 3,137 3,075 2,955 3,277 3,088
Total shareholders' equity 52,110 51,005 44,617 43,067 41,718
------------------------------------------------------
Total liabilities and shareholders' equity 663,166 649,050 598,441 590,598 584,701
======================================================
Yield on interest earning assets 8.64% 8.63% 8.69% 8.68% 8.68%
Yield on interest bearing liabilities 3.82% 3.81% 3.81% 3.77% 3.71%
Net interest margin 5.89% 5.87% 5.99% 5.98% 6.01%
Net interest margin (tax equivalent) 5.99% 5.98% 6.10% 6.10% 6.13%
Selected Ratios:
Return on average assets [YTD] 1.50% 1.49% 1.48% 1.46% 1.41%
Return on average stockholders' equity [YTD] 19.04% 18.95% 19.87% 20.00% 19.83%
Stockholders' equity / total assets [YTD] 7.86% 7.86% 7.46% 7.29% 7.13%
</TABLE>
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Convertible Preferred Stock Authorized and Issued
The Convertible Preferred Stock authorized by the Company's Board of Directors
and designated as Series A, Series B, and Series C has a liquidation preference
over the Company's Common Stock. The stock is subject to certain limitations
and restrictions as to sale. The subscription period for Series A shares ended
October 20, 1995, with issuance of 49,500 shares to 29 investors. Pursuant to
a Confidential Private Placement Memorandum of May 1, 1996, the Company has
offered up to 150,000 shares of Series B shares for issue to qualified
investors who are bona fide Texas residents. The offering of Series B shares
is presently scheduled to end on September 15, 1996, with certificates to be
issued on that date or shortly thereafter. Series C shares are expected to be
issued beginning in late 1996 or early 1997.
Prior to conversion into shares of the Company's Common Stock, the Convertible
Preferred Shares will pay no dividend. Convertibility of the Series A, B, and
C shares is related to the performance of the Cypress, Upper Kirby, and Cypress
Station offices, respectively, and in any event the earliest possible
conversion date does not occur until two years after the initial office opening
date (September 1997 for Series A and later dates for the two other offices).
The ratios for the conversion of the Preferred Stock into Common Stock is
contingent upon the deposit performances of the respective offices, and ranges
from 1:1 (that is, one share of Common for each share of Preferred, the ratio
being adjusted to reflect stock splits occurring during the period in which the
Preferred Shares are outstanding) if deposit goals (as defined in the
Confidential Private Placement Memorandum) are not met, to 1.25:1 (similarly
adjusted for any splits or capital changes) if deposit goals are met prior to
two years of operation. Because of the size and structure of the offering,
management does not expect material dilution of the Company's per share
earnings regardless of which conversion ratio becomes applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the regularly scheduled annual meeting of shareholders held on April 22,
1996, there were 6,477,805 shares present or represented by proxy, which was
equal to 81.965% of all voting shares outstanding. Two votes were taken.
Proposal #1 involved the election by security holders of six Class I Directors
to the Company's Board of Directors to serve terms until the 1999 annual
meeting of shareholders or until their successors have been elected and
qualified. In the vote on Proposal #1, all nominees listed in the proxy
statement were elected. In Proposal #2, security holders authorized an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of the Company's Common Stock, $1.00 par value, from
10,000,000 to 20,000,000 shares. Further details of the vote, including vote
totals, were previously disclosed in the Company's Form 10-Q filed in May 1996
and are incorporated herein by reference.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 4. Instruments Defining the Rights of Security Holders, including
Indentures
4.1) Articles of Incorporation of Jersey Village Bancshares, Inc.,
dated September 19, 1980
4.2) Amendment to Articles of Incorporation dated April 22, 1996
4.3) Amendment to Articles of Incorporation dated March 14, 1985
4.4) Amendment to Articles of Incorporation dated August 14, 1992
4.5) Statement of Resolution Establishing Series A Convertible
Preferred Stock
4.6) Statement of Resolution Establishing Series B Convertible
Preferred Stock
Exhibit 11. Computation of Earnings Per Share
Included as Note (2) to Interim Consolidated Financial Statements on page
6 of this Form 10-Q
Exhibit 27. Financial Data Schedule
The required Financial Data Schedule has been included as Exhibit 27 of
the Form 10-Q filed electronically with the Securities and Exchange
Commission.
b) Reports of Form 8-K No reports on Form 8-K were filed during the period
ending June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sterling Bancshares, Inc.
-------------------------
(Registrant)
By:
-----------------------------------------------------
Seth A. McMeans
(Executive Officer and Principal Financial Officer)
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 4. Instruments Defining the Rights of Security Holders,
including Indentures
4.1) Articles of Incorporation of Jersey Village Bancshares, Inc.,
dated September 19, 1980
4.2) Amendment to Articles of Incorporation dated April 22, 1996
4.3) Amendment to Articles of Incorporation dated March 14, 1985
4.4) Amendment to Articles of Incorporation dated August 14, 1992
4.5) Statement of Resolution Establishing Series A Convertible Preferred
Stock
4.6) Statement of Resolution Establishing Series B Convertible Preferred
Stock
Exhibit 11. Computation of Earnings Per Share
Included as Note (2) to Interim Consolidated Financial Statements on
page 6 of this Form 10-Q
Exhibit 27. Financial Data Schedule
The required Financial Data Schedule has been included as Exhibit 27 of
the Form 10-Q filed electronically with the Securities and Exchange
Commission.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
[Seal]
The State of Texas
Secretary of State
CERTIFICATE OF INCORPORATION
OF
JERSEY VILLAGE BANCSHARES, INC.
CHARTER NUMBER 533200
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT ARTICLES OF INCORPORATION FOR THE ABOVE CORPORATION, DULY SIGNED
AND VERIFIED HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE
OF THE AUTHORITY VESTED IN HIM BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
INCORPORATION AND ATTACHES HERETO A COPY OF THE ARTICLES OF INCORPORATION.
DATED SEP. 23, 1980
[Seal] \S\ G.W. STRAKE,JR.
---------------------------------------
Secretary of State
PRL
<PAGE> 2
Filed in the Office of the
Secretary of State of Texas
SEP 23 1980
Clerk II
Corporations Section
ARTICLES OF INCORPORATION
OF
JERSEY VILLAGE BANCSHARES, INC.
The undersigned, a natural person of the age of eighteen (18) years or
more and a citizen of the State of Texas, acting as the sole incorporator of a
corporation under the provisions of the Texas Business Corporation Act, adopts
the following Articles of Incorporation:
ARTICLE 1.
The name of the Corporation is JERSEY VILLAGE BANCSHARES, INC.
ARTICLE 2.
The period of duration of the Corporation is perpetual.
ARTICLE 3.
The purpose for which the Corporation is organized is to engage in any
or all lawful acts, activities or businesses for which a corporation may be
organized under the Texas Business Corporation Act.
ARTICLE 4.
The total number of shares of all classes of stock which the
Corporation shall be authorized to issue is 2,000,000 shares, divided into the
following: (i) 1,000,000 shares of Cumulative Preferred Stock, of the par value
of $1.00 per share (Preferred Stock); and (ii) 1,000,000 shares of Common
Stock, of the par value of $1.00 per share (Common Stock).
A description of the respective classes of stock and a statement of
the designations, preferences, limitations and relative rights of said
respective classes of stock are as follows:
-2-
<PAGE> 1
EXHIBIT 4.2
[Seal]
The State of Texas
Secretary of State
CERTIFICATE OF AMENDMENT
FOR
STERLING BANCSHARES, INC.
CHARTER NUMBER 00533200
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT. DATED MAY 10, 1996 EFFECTIVE MAY 10, 1996
[Seal] \S\ Antonio O. Garza, Jr.
---------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE> 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF TEXAS
MAY 10 1996
CORPORATIONS SECTION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
STERLING BANCSHARES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation to increase the authorized number of
shares of Common Stock, $1.00 par value per share, from 10,000,000 shares to
20,000,000 shares.
ARTICLE ONE. The name of the corporation is Sterling Bancshares, Inc.
ARTICLE TWO. The following amendment to the Articles of Incorporation
was adopted by the shareholders of the Corporation on April 22, 1996:
The first paragraph of Article 4 of the Articles of Incorporation is
hereby amended in its entirety to be and read as follows:
The total number of shares of all classes of stock
which the Corporation shall be authorized to issue is
21,000,000 shares, divided into the following: (i) 1,000,000
shares of Preferred Stock, of the par value of $1.00 per share
(Preferred Stock); and (ii) 20,000,000 shares of Common Stock,
of the par value of $1.00 per share (Common Stock).
ARTICLE THREE. The number of shares of the Corporation outstanding at
the time of such adoption was 7,903,937 shares of Common Stock and 49,500
shares of Preferred Stock; and the number of shares entitled to vote thereon
was 7,903,106 shares of Common Stock.
ARTICLE FOUR. The number of shares of Common Stock voted for such
amendment was 6,416,509; the number of shares voted against such amendment was
54,284; and the number of shares abstaining from voting on such amendment was
4,762.
DATED: April 22, 1996
STERLING BANCSHARES, INC.
By: /S/ Seth A. McMeans
------------------------------------
Name: Seth A. McMeans
-------------------------------
Title: Chief Financial Officer
& Secretary
------------------------------
-2-
<PAGE> 1
EXHIBIT 4.3
[Seal]
The State of Texas
Secretary of State
CERTIFICATE OF AMENDMENT
FOR
STERLING BANCSHARES, INC.
FORMERLY
JERSEY VILLAGE BANCSHARES, INC.
CHARTER NUMBER 533200
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT ARTICLES OF AMENDMENT, DULY SIGNED AND VERIFIED HAVE BEEN
RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE
OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, ISSUES THIS CERTIFICATE AND
ATTACHES HERETO A COPY OF THE ARTICLES OF AMENDMENT.
DATED MAR. 14, 1985
[Seal] \s\ illegible
---------------------------------------
Secretary of State
<PAGE> 2
FILED
In the Office of the
Secretary of State of Texas
MAR 14 1985
Clerk II U
Corporations Section
ARTICLES OF AMENDMENT
BY THE SHAREHOLDERS
TO THE
ARTICLES OF INCORPORATION
OF
JERSEY VILLAGE BANCSHARES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation, which change the name of the
corporation from Jersey Village Bancshares, Inc. to Sterling Bancshares, Inc.
ARTICLE ONE. The name of the corporation is JERSEY VILLAGE
BANCSHARES, INC.
ARTICLE TWO. The following amendment to the Articles of
Incorporation was adopted by the shareholders of the corporation on February
19, 1985:
Article One of the Articles of Incorporation is hereby amended
to read as follows:
The name of the corporation is STERLING BANCSHARES, INC.
ARTICLE THREE. The number of shares of the corporation outstanding
at the time of such adoption was 173,089 shares of Common Stock; and the number
of shares entitled to vote thereon was 173,089 shares of Common Stock.
ARTICLE FOUR. The number of shares of Common Stock voted for such
amendment was 155,845; and the number of shares voted against such amendment
was 0.
DATED February 28, 1985.
JERSEY VILLAGE BANCSHARES, INC.
By: \S\ George Martinez
------------------------------------
George Martinez, President
By: \S\ C.P. Bryan, Jr.
------------------------------------
C.P. Bryan, Jr., Secretary
<PAGE> 3
THE STATE OF TEXAS *
*
COUNTY OF HARRIS *
I, Ginger Fitzgerald, a Notary Public, do hereby certify that on this
28th day of February, 1985, personally appeared before me GEORGE MARTINEZ, who
declared that he is the President of the corporation executing the foregoing
document, and being first duly sworn, acknowledged that he signed the foregoing
document in the capacity therein set forth and declared that the statements
therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
\S\ Ginger Fitzgerald
-------------------------------------
Notary Public - State of Texas
Expiration Date : 8/21/88
<PAGE> 1
EXHIBIT 4.4
LSM-AM(STK)
[Seal]
The State of Texas
Secretary of State
CERTIFICATE OF AMENDMENT
FOR
STERLING BANCSHARES, INC.
CHARTER NUMBER 00533200
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT.
DATED AUG. 20, 1992
EFFECTIVE AUG. 20, 1992
[Seal] \S\ John Hannah Jr.
----------------------------------------
Secretary of State
<PAGE> 2
FILED
In the Office of the
Secretary of State of Texas
AUG 20 1992
Corporations Section
ARTICLES OF AMENDMENT
BY THE SHAREHOLDERS
TO THE
ARTICLES OF INCORPORATION
OF
STERLING BANCSHARES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation, which changes the number of
authorized shares of common stock from 1,000,000 to 10,000,000 shares.
ARTICLE ONE. The name of the corporation is Sterling Bancshares,
Inc.
ARTICLE TWO. The following amendment to the Articles of
Incorporation was adopted by the shareholders of the corporation on August 11,
1992:
Article Four Paragraph One of the Articles of Incorporation is hereby
amended to read as follows:
The total number of shares of all classes of stock which the
Corporation shall be authorized to issue is 11,000,000 shares, divided
into the following: (i) l,000,000 shares of Cumulative Preferred
Stock, of the par value of $1.00 per share (Preferred Stock); and (ii)
10,000,000 shares of Common Stock, of the par value of $1.00 per share
(Common Stock).
ARTICLE THREE. The number of shares of the corporation outstanding
at the time of such adoption was 879,945 shares of Common Stock; and the number
of shares entitled to vote thereon was 879,945 shares of Common Stock.
ARTICLE FOUR. The number of shares of Common Stock voted for such
amendment was 681, 598; and the number of shares voted against such amendment
was 150.
DATED August 14, 1992.
STERLING BANCSHARES, INC.
By: \S\ C. Frank Kurtin
-------------------------------------
C. Frank Kurtin, Secretary
<PAGE> 3
THE STATE OF TEXAS *
*
COUNTY OF HARRIS *
I, Nellie Haaksma, a Notary Public, do hereby certify that on this
14th day of August, 1992, personally appeared before me C. FRANK KURTIN, who
declared that he is the Secretary of the corporation executing the foregoing
document, and being first duly sworn, acknowledged that he signed the foregoing
document in the capacity therein set forth and declared that the statements
therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
\S\ Nellie J. Haaksma
----------------------------------------
Notary Public - State of Texas
Expiration Date : 11/18/94
[SEAL]
<PAGE> 1
EXHIBIT 4.5
[Seal]
The State of Texas
Secretary of State
July 31, 1995
SNELL & SMITH/PAUL PRYZANT
1000 LOUISIANA, STE. 3650
HOUSTON, TX 77002
RE:
STERLING BANCSHARES, INC.
CHARTER NUMBER 00533200-00
IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ESTABLISHMENT OF A
SERIES OF SHARES. THE APPROPRIATE EVIDENCE IS ATTACHED FOR YOUR FILES, AND THE
ORIGINAL HAS BEEN FILED IN THIS OFFICE.
PAYMENT OF THE FILING FEE IS ACKNOWLEDGED BY THIS LETTER.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
VERY TRULY YOURS,
[Seal] \S\ Antonio O. Garza, Jr.
------------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE> 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF TEXAS
JUL 21 1995
CORPORATIONS SECTION
STERLING BANCSHARES, INC.
STATEMENT OF RESOLUTION ESTABLISHING
SERIES A CONVERTIBLE PREFERRED STOCK
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act and Article Four of its Articles of Incorporation, the
undersigned corporation submits the following statement for the purpose of
establishing and designating a series of shares and fixing and determining the
relative rights and preferences thereof:
1. The name of the corporation is Sterling Bancshares, Inc. (the
"Corporation").
2. The following resolution, establishing and designating a
series of shares and fixing and determining the relative rights and preferences
thereof, was duly adopted by the Board of Directors of the Corporation on July
17, 1995:
RESOLVED, that pursuant to the Articles of Incorporation of the
Corporation, as amended, authorizing the Board of Directors to establish and
designate series of the preferred stock, $1.00 par value, of the Corporation
(the "Preferred Stock") and to fix and determine the relative rights and
preferences of the shares of any such series, there is hereby designated a
series of Preferred Stock to be called "Series A Convertible Preferred Stock"
to consist of 100,000 shares and to have the following terms:
1. DEFINITIONS.
"Bank" means Sterling Bank, a commercial bank chartered under
the laws of the State of Texas and a wholly-owned subsidiary of the
Corporation.
"Board" means the Board of Directors of the Corporation.
"Common Stock" means the shares of common stock, $1.00 par
value, of the Corporation.
-2-
<PAGE> 3
"Corporation" means Sterling BancShares, Inc., a Texas
corporation.
-3-
<PAGE> 4
"Deposit Goal" means the goal for the New Banking Office that
the average monthly deposits credited to the New Banking Office for
any consecutive three months exceed $20,000,000, with the calculations
to be made as set forth in Section 4(b)(iii) herein.
"New Banking Office" means the new banking office to be opened
by the Bank at 13386 Jones Road, Houston, Texas 77070 on the Office
Opening Date.
"Office Opening Date" means the opening date for the New
Banking Office which is anticipated to be August 15, 1995.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization;
"Preferred Stock" means the shares of preferred stock, $1.00
par value, of the Corporation.
"Purchase Price" means the price per share of $13.04 at which
the shares of Series A Convertible Preferred Stock are being offered
and sold by the Corporation.
"Series A Preferred Stock" means the Series A Convertible
Preferred Stock, $1.00 par value per share, of the Corporation.
2. DIVIDENDS. The holders of outstanding shares of Series A
Preferred Stock shall not be entitled to receive any dividends on the shares of
Series A Preferred Stock.
3. REDEMPTION. (a) The outstanding shares of Series A Preferred
Stock are redeemable at the option of the Corporation, out of the assets of the
Corporation legally available therefor, at any time or from time to time, in
whole and not in part, at a redemption price per share of Series A Preferred
Stock (the "Redemption Price") equal to the Purchase Price; provided, however,
that for a period of not less than 30 days prior to the date fixed for
redemption (the "Redemption Date"), the holders of the outstanding shares of
Series A Preferred Stock shall have an option to convert each share of Series A
Preferred Stock into 1.25 shares of Common Stock.
(b) Notice of any redemption of shares of Series A
Preferred Stock, specifying the date fixed for redemption, the
redemption price and the place at which shareholders may obtain
payment of the Redemption Price upon surrender of their certificates,
and the option of the shareholders to convert their shares of Series A
Preferred Stock into shares of Common Stock, shall be mailed to each
holder of record of the shares to be redeemed, at such holder's
address of record, not less than 35, nor more than 90, days prior to
the Redemption Date. Such notice shall set forth the manner in which
shareholders may convert their
-4-
<PAGE> 5
shares of Series A Preferred Stock into shares of Common Stock, or to
receive the Redemption Price, upon surrender of their certificates.
(c) Unless the Corporation defaults in the payment in
full of the Redemption Price, (i) all rights of the holders of such
shares of Series A Preferred Stock as shareholders of the Corporation
by reason of the ownership of such shares (including, without
limitation, the right to convert the shares of Series A Preferred
Stock into shares of Common Stock) shall cease on the Redemption Date
except the right to receive the amount payable upon redemption of such
shares upon presentation and surrender of the respective certificates
evidencing such shares, and (ii) such shares shall be deemed not to be
outstanding after the Redemption Date.
(d) Any shares of Series A Preferred Stock that have
been redeemed shall, after such redemption, not be reissued as Series
A Preferred Stock, but shall become authorized but unissued shares of
Preferred Stock of the Corporation, and the certificates evidencing
such shares shall be cancelled.
4. CONVERSION RIGHTS. The shares of Series A Preferred Stock
shall be convertible into shares of Common Stock as follows:
(a) No Optional Conversion. Other than prior to a
redemption of the shares of Series A Preferred Stock as set forth in
Section 3 above, the holders of shares of Series A Preferred Stock
shall have no optional rights to convert such shares into shares of
Common Stock.
(b) Automatic Conversion. On the third anniversary
of the Office Opening Date for the New Banking Office (unless
accelerated as set forth below), each outstanding share of Series A
Preferred Stock shall automatically be converted, without any further
act of the Corporation or the holders of Series A Preferred Stock,
into the number of fully paid and nonassessable shares of Common Stock
specified below.
(i) Second Anniversary after Offering Date.
If the average monthly deposits credited to the New
Banking Office exceed $20,000,000 in any consecutive
three month period (the "Deposit Goal") prior to the
second anniversary of the Office Opening Date, (A)
the date of the automatic conversion into shares of
Common Stock shall be the second anniversary of the
Office Opening Date, and (B) each share of Series A
Preferred Stock shall automatically be converted into
1.25 shares of Common Stock. If the Deposit Goal of
the New Banking Office has not been met prior to the
second anniversary of the Office Opening Date, the
shares of Series A Preferred Stock will not be
converted into shares of Common
-5-
<PAGE> 6
Stock until the third anniversary of the Office
Opening Date.
(ii) Third Anniversary after Office Opening
Date. If the conversion of the shares of Series A
Preferred Stock into shares of Common Stock has not
previously taken place, then, on the third
anniversary of the Office Opening Date, each
outstanding share of Series A Preferred Stock shall
automatically be converted into (A) 1.1 shares of
Common Stock if the Deposit Goal of the New Banking
Office has been met prior to the third anniversary of
the Office Opening Date, and (B) 1.0 shares of Common
Stock if the Deposit Goal for the New Banking Office
has not been met prior to the third anniversary of
the Office Opening Date.
(iii) Determination of Whether Deposit Goal
Has Been Met. The Deposit Goal for the New Banking
Office shall have been met prior to a specified date
if the average monthly deposits credited to the New
Banking Office for any consecutive three months prior
to such date exceed $20,000,000. For the purposes of
determining whether the Deposit Goal has been met,
the Corporation will follow the following procedures:
Deposits: For the purposes of making
the Deposit Goal calculations, "deposits"
means the book balances in all accounts which
are insurable by the Federal Deposit
Insurance Corporation (such as demand,
savings, time, money market and NOW accounts
and Certificates of Deposit), including the
balances in such accounts in excess of
$100,000; provided, however, that Large
Certificates of Deposit (meaning those of
$100,000 or more) shall be included in the
total amount of deposits only to the extent
that they do not exceed 10% of total
deposits.
Credit for Deposits: Deposits which
are opened in the New Banking Office receive
the credit for the account. The Bank's
accounting system tracks and accounts for all
depository accounts on a daily basis.
Average Monthly Deposits: At the end
of each calendar month, the Bank will
calculate and record the average deposit
balance of the New Banking Office for the
month by adding the daily account balances in
the various deposit accounts and dividing
such sum by the number of days in such month.
Balances for non-business days are deemed
-6-
<PAGE> 7
to be the same as that of the immediately
previous business day.
Three Month Average: After three full
calendar months have expired, the Bank will
calculate the three month average of the
average monthly deposits for the New Banking
Office by adding the three consecutive
monthly averages for such Office and then
dividing this sum by three. The calculation
of the three month average of the average
monthly deposits of the New Banking Office
will be made after the end of each calendar
month.
All determinations regarding whether the Deposit Goal
of the New Banking Office has been met as of any date
shall be made by the Board of Directors of the
Corporation, whose determinations in this regard
shall be final and conclusive for all purposes.
(c) Mechanics of Conversion. Upon the occurrence
of the dates specified in Section 4(b) above, the outstanding shares
of Series A Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not
the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of Series A Preferred Stock
are delivered either to the Corporation or any transfer agent
designated by the Corporation. Conversion shall be deemed to have
been effected on the date of the occurrence of the dates specified in
Section 4(b) above, as the case may be, and such date is referred to
herein as the "Conversion Date." Subject to the provisions of Section
4(b) above, as promptly as practicable thereafter (and after surrender
of the certificate or certificates representing shares of Series A
Preferred Stock to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled as provided in Section
4(b) hereof. Subject to the provisions of Section 4(b), the person in
whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of such
Common Stock on the applicable Conversion Date.
(d) Fractional Shares. No fractional shares of
Common Stock or scrip shall be issued upon exchange of shares of
Series A Preferred Stock. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares
of Series A Preferred Stock, the number of full shares of Common
-7-
<PAGE> 8
Stock issuable upon exchange thereof shall be increased to the next
higher number of whole shares.
(e) Rights After Conversion Date. From and after
the Conversion Date (unless the Corporation defaults in issuing shares
of Common Stock in exchange for the outstanding shares of Series A
Preferred Stock on the Conversion Date), such shares of Series A
Preferred Stock shall be deemed not to be outstanding and all rights
of the holders of such shares as stockholders of the Corporation by
reason of the ownership of such shares shall cease, except the right
to receive shares of Common Stock as provided in Section 4(b) herein
on presentation and surrender of the respective certificates
evidencing such shares of Series A Preferred Stock. Upon presentation
and surrender, on or after the Conversion Date, of any certificate
evidencing shares of Series A Preferred Stock (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be exchanged by the Corporation for shares of Common
Stock as provided in this Section 4.
(f) Authorized, But Unissued Shares. Any shares
of Series A Preferred Stock that shall at any time have been converted
into shares of Common Stock pursuant to this Section 4 shall, after
such exchange, not be reissued as Series A Preferred Stock, but shall
become authorized but unissued shares of Preferred Stock of the
Corporation, and the certificates evidencing such shares shall be
cancelled.
(g) Reservation of Shares. The Corporation shall
reserve at all times so long as any shares of Series A Preferred Stock
remain outstanding, free from preemptive rights, out of its treasury
stock or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, sufficient shares of Common Stock to provide
for the exchange of all outstanding shares of Series A Preferred
Stock.
(h) Fully Paid and Nonassessable Shares. All
shares of Common Stock or other securities which may be issued upon
exchange of the shares of Series A Preferred Stock will upon issuance
by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof and the Corporation shall take no action which
would cause a contrary result.
5. CONVERSION RATIO ADJUSTMENTS. The number of shares of Common
Stock into which the shares of Series A Preferred Stock shall be converted
pursuant to Section 4 (the "Conversion Ratios") and the securities or other
property deliverable upon exchange of the Series A Preferred Stock shall be
subject to adjustment from time to time as follows:
-8-
<PAGE> 9
(a) Stock Dividends, Subdivisions or Split-Ups. If
the number of shares of Common Stock outstanding at any time after the
date of issuance of the Series A Preferred Stock is increased by a
stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend or the effective date of such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any shares of
Series A Preferred Stock thereafter exchanged shall be entitled to
receive the number of shares of Common Stock of the Corporation which
he would have owned immediately following such action had such shares
of Series A Preferred Stock been exchanged immediately prior thereto.
(b) Combinations of Stock. If the number of shares
of Common Stock outstanding at any time after the date of issuance of
the Series A Preferred Stock is decreased by a combination of the
outstanding shares of Common Stock, then, immediately after the
effective date of such combination, the Conversion Ratios applicable
thereto shall be appropriately increased so that the holder of any
shares of Series A Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock of the
Corporation which he would have owned immediately following such action
had such shares of Series A Preferred Stock been exchanged immediately
prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of
All Assets, etc. Subject to the last sentence of this Section 5(c),
in case of any capital reorganization of the Corporation, or of any
reclassification of the Common Stock, or in case of the consolidation
of the Corporation with or the merger of the Corporation with or into
any other Person or of the sale, lease or other transfer of all or
substantially all of the assets of the Corporation to any other
Person, or in the case of any distribution of cash or other assets or
of notes or other indebtedness of the Corporation or any other
securities of the Corporation (except Common Stock) to the holders of
its Common Stock, each share of Series A Preferred Stock shall, after
such capital reorganization, reclassification, consolidation, merger,
sale, lease or other transfer or such distribution, be convertible
into the number of shares of stock or other securities or property to
which the Common Stock issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease
or other transfer or such distribution) upon exchange of such share of
Series A Preferred Stock would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease
or other transfer or such distribution in place of (or in addition to,
in the case of any such event after which Common Stock remains
outstanding) the shares of Common Stock into which such share of
Series A Preferred Stock would otherwise have been convertible; and in
any such case, if necessary, the provisions set forth herein with
respect to the
-9-
<PAGE> 10
rights and interests thereafter of the holders of the shares of Series
A Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any share of stock or
other securities or property thereafter deliverable on the exchange of
the shares of Series A Preferred Stock. If any conversion pursuant to
this Section 5(c) is effected prior to the second anniversary of the
Office Opening Date of the New Banking Office, the applicable
Conversion Ratio to be adjusted shall be 1.25 shares of Common Stock
for each share of Series A Preferred Stock, but if any conversion
pursuant to this Section 5(c) is effected after the second
anniversary, but prior to the third anniversary, of the Office Opening
Date, the applicable Conversion Ratio to be adjusted shall be 1.1
shares of Common Stock for each share of Series A Preferred Stock.
(d) Rounding of Calculations; Minimum Adjustment.
All calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a share of Common Stock, as the case may be.
Any provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of
such adjustment would be less than one hundredth of a share of Common
Stock, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate one
hundredth of a share of Common Stock or more.
(e) Timing of Issuance of Additional Common Stock
upon Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event issuing to the holder of any
share of Series A Preferred Stock exchanged after such record date and
before the occurrence of such event the additional shares of Common
Stock or other property issuable or deliverable upon such exchange by
reason of the adjustment required by such event over and above the
shares of Common Stock or other property issuable or deliverable upon
such exchange before giving effect to such adjustment; provided,
however, that the Corporation upon request shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares or other property,
and such cash, upon the occurrence of the event requiring such
adjustment.
(f) Statement Regarding Adjustments. Whenever the
Conversion Ratios shall be adjusted as provided in this Section 5, the
Corporation shall forthwith file, at the office of any transfer agent
for the Series A Preferred Stock and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
holder of shares of Series A Preferred Stock at its address
-10-
<PAGE> 11
appearing on the Corporation's records. Each such statement shall be
signed by the Corporation's independent public accountants.
(g) Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of shares of Common Stock of the
Corporation or other securities or property upon exchange of any
shares of Series A Preferred Stock; provided, however, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares or securities in the name
other than that of the holder of the shares of Series A Preferred
Stock in respect of which such shares are being issued.
6. VOTING. The holders of shares of Series A Preferred Stock
shall have no right or power to vote on any matter except as required by law.
In any matter on which the holders of Series A Preferred Stock shall, as a
matter of law, be entitled to vote, the holders shall be entitled to one vote
for each share of Series A Preferred Stock held.
7. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the shares of Series A Preferred Stock then outstanding shall be entitled to
receive out of the assets of the Corporation an amount per share in cash equal
to the Purchase Price before any payment or distribution shall be made on the
Common Stock or on any other class of capital stock of the Corporation ranking
junior to the Series A Preferred Stock upon liquidation. All outstanding
shares of any other series of Preferred Stock shall rank at parity with the
shares of Series A Preferred Stock. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially all of its
assets as an entirety, shall not be regarded as a "dissolution, liquidation or
winding up of the Corporation" within the meaning of this Section 7(a).
(b) After the payment to the holders of shares of
Series A Preferred Stock of the full preferential amounts fixed hereby
for shares of Series A Preferred Stock, the holders of Series A
Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of shares of Series A Preferred Stock upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital stock of the
Corporation ranking on a parity with the shares of Series A Preferred
Stock, if any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
shares of Series A Preferred stock, ratably, in
-11-
<PAGE> 12
proportion to the full distributable amounts for which holders of all
such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
8. REPORTS TO HOLDERS OF SERIES A PREFERRED STOCK. For so long
as there shall remain outstanding any shares of Series A Preferred Stock, the
Corporation shall furnish to each holder of record of Series A Preferred Stock
(i) all reports or other correspondence sent by the Corporation to holders of
record of the Common Stock of the Corporation, and (ii) a monthly report
setting forth the average monthly deposits for the New Banking Office.
9. CERTAIN COVENANTS. So long as any shares of Series A
Preferred Stock are outstanding, without the prior written consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
the Corporation shall not amend, alter or repeal any provisions of this
Statement of Resolution Establishing Series A Convertible Preferred Stock, or
otherwise amend, alter or repeal any provision of the Articles of Incorporation
of the Corporation so as to affect adversely the preferences, rights, powers or
privileges of the Series A Preferred Stock.
10. EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series A Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
-12-
<PAGE> 13
RESOLVED FURTHER, that the appropriate officers of the Corporation are
authorized to make such filings and to take any other action they deem
necessary to effect the foregoing resolution.
Dated: July 19, 1995
STERLING BANCSHARES, INC.
By: /S/ C. Frank Kurtin
------------------------------------
Name: C. FRANK KURTIN
-----------------------------
Title: Secretary, Treasurer & CFO
----------------------------
-13-
<PAGE> 1
EXHIBIT 4.6
STERLING BANCSHARES, INC.
STATEMENT OF RESOLUTION ESTABLISHING
SERIES B CONVERTIBLE PREFERRED STOCK
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act and Article Four of its Articles of Incorporation, the
undersigned corporation submits the following statement for the purpose of
establishing and designating a series of shares and fixing and determining the
relative rights and preferences thereof:
1. The name of the corporation is Sterling Bancshares, Inc. (the
"Corporation").
2. The following resolution, establishing and designating a
series of shares and fixing and determining the relative rights and preferences
thereof, was duly adopted by the Board of Directors of the Corporation on July
17, 1995:
RESOLVED, that pursuant to the Articles of Incorporation of the
Corporation, as amended, authorizing the Board of Directors to establish and
designate series of the preferred stock, $1.00 par value, of the Corporation
(the "Preferred Stock") and to fix and determine the relative rights and
preferences of the shares of any such series, there is hereby designated a
series of Preferred Stock to be called "Series B Convertible Preferred Stock"
to consist of 100,000 shares and to have the following terms:
1. DEFINITIONS.
"Bank" means Sterling Bank, a commercial bank chartered under
the laws of the State of Texas and a wholly-owned subsidiary of the
Corporation.
"Board" means the Board of Directors of the Corporation.
"Common Stock" means the shares of common stock, $1.00 par
value, of the Corporation.
"Corporation" means Sterling BancShares, Inc., a Texas
corporation.
"Deposit Goal" means the goal for the New Banking Office that
the average monthly deposits credited to the New Banking Office for
any consecutive three months exceed $25,000,000, with the calculations
to be made as set forth in Section 4(b)(iii) herein.
"New Banking Office" means the new banking office to be opened
by the Bank at 875 FM 1960 West, Houston, Texas 77090 on the Office
Opening Date.
<PAGE> 2
"Office Opening Date" means the opening date for the New
Banking Office which is anticipated to be November 15, 1995.
"Person" means an individual, a partnership, a joint venture,
a corporation, an association, a trust, or any other entity or
organization;
"Preferred Stock" means the shares of preferred stock, $1.00
par value, of the Corporation.
"Purchase Price" means the price per share of $__________ at
which the shares of Series B Convertible Preferred Stock are being
offered and sold by the Corporation.
"Series B Preferred Stock" means the Series B Convertible
Preferred Stock, $1.00 par value per share, of the Corporation.
2. DIVIDENDS. The holders of outstanding shares of Series B
Preferred Stock shall not be entitled to receive any dividends on the shares of
Series B Preferred Stock.
3. REDEMPTION. (a) The outstanding shares of Series B Preferred
Stock are redeemable at the option of the Corporation, out of the assets of the
Corporation legally available therefor, at any time or from time to time, in
whole and not in part, at a redemption price per share of Series B Preferred
Stock (the "Redemption Price") equal to the Purchase Price; provided, however,
that for a period of not less than 30 days prior to the date fixed for
redemption (the "Redemption Date"), the holders of the outstanding shares of
Series B Preferred Stock shall have an option to convert each share of Series B
Preferred Stock into 1.25 shares of Common Stock.
(b) Notice of any redemption of shares of Series B
Preferred Stock, specifying the date fixed for redemption, the
redemption price and the place at which shareholders may obtain
payment of the Redemption Price upon surrender of their certificates,
and the option of the shareholders to convert their shares of Series B
Preferred Stock into shares of Common Stock, shall be mailed to each
holder of record of the shares to be redeemed, at such holder's
address of record, not less than 35, nor more than 90, days prior to
the Redemption Date. Such notice shall set forth the manner in which
shareholders may convert their shares of Series B Preferred Stock into
shares of Common Stock, or to receive the Redemption Price, upon
surrender of their certificates.
(c) Unless the Corporation defaults in the payment in
full of the Redemption Price, (i) all rights of the holders of such
shares of Series B Preferred Stock as shareholders of the Corporation
by reason of the ownership of such shares (including, without
limitation, the right to convert the shares of Series B Preferred
Stock into shares of Common Stock) shall cease on the Redemption Date
except the right to receive the amount payable upon redemption of such
shares upon presentation and surrender of the respective certificates
evidencing such shares, and (ii) such shares shall be deemed not to be
outstanding after the Redemption Date.
(d) Any shares of Series B Preferred Stock that have
been redeemed shall, after such redemption, not be reissued as Series
B Preferred Stock, but shall become authorized but unissued shares of
Preferred Stock of the Corporation, and the certificates evidencing
such shares shall be cancelled.
-2-
<PAGE> 3
4. CONVERSION RIGHTS. The shares of Series B Preferred Stock
shall be convertible into shares of Common Stock as follows:
(a) No Optional Conversion. Other than prior to a
redemption of the shares of Series B Preferred Stock as set forth in
Section 3 above, the holders of shares of Series B Preferred Stock
shall have no optional rights to convert such shares into shares of
Common Stock.
(b) Automatic Conversion. On the third anniversary
of the Office Opening Date for the New Banking Office (unless
accelerated as set forth below), each outstanding share of Series B
Preferred Stock shall automatically be converted, without any further
act of the Corporation or the holders of Series B Preferred Stock,
into the number of fully paid and nonassessable shares of Common Stock
specified below.
(i) Second Anniversary after Offering Date.
If the average monthly deposits credited to the New
Banking Office exceed $25,000,000 in any consecutive
three month period (the "Deposit Goal") prior to the
second anniversary of the Office Opening Date, (A)
the date of the automatic conversion into shares of
Common Stock shall be the second anniversary of the
Office Opening Date, and (B) each share of Series B
Preferred Stock shall automatically be converted into
1.25 shares of Common Stock. If the Deposit Goal of
the New Banking Office has not been met prior to the
second anniversary of the Office Opening Date, the
shares of Series B Preferred Stock will not be
converted into shares of Common Stock until the third
anniversary of the Office Opening Date.
(ii) Third Anniversary after Office Opening
Date. If the conversion of the shares of Series B
Preferred Stock into shares of Common Stock has not
previously taken place, then, on the third
anniversary of the Office Opening Date, each
outstanding share of Series B Preferred Stock shall
automatically be converted into (A) 1.1 shares of
Common Stock if the Deposit Goal of the New Banking
Office has been met prior to the third anniversary of
the Office Opening Date, and (B) 1.0 shares of Common
Stock if the Deposit Goal for the New Banking Office
has not been met prior to the third anniversary of
the Office Opening Date.
(iii) Determination of Whether Deposit Goal
Has Been Met. The Deposit Goal for the New Banking
Office shall have been met prior to a specified date
if the average monthly deposits credited to the New
Banking Office for any consecutive three months prior
to such date exceed $25,000,000. For the purposes of
determining whether the Deposit Goal has been met,
the Corporation will follow the following procedures:
Deposits: For the purposes of making
the Deposit Goal calculations, "deposits"
means the book balances in all accounts which
are insurable by the Federal Deposit
Insurance Corporation (such as demand,
savings, time, money market and NOW accounts
and Certificates of Deposit), including the
balances in such accounts in excess of
$100,000; provided, however, that Large
Certificates of Deposit (meaning those of
$100,000 or more) shall be included
-3-
<PAGE> 4
in the total amount of deposits only to the
extent that they do not exceed 10% of total
deposits.
Credit for Deposits: Deposits which
are opened in the New Banking Office receive
the credit for the account. The Bank's
accounting system tracks and accounts for all
depository accounts on a daily basis.
Average Monthly Deposits: At the end
of each calendar month, the Bank will
calculate and record the average deposit
balance of the New Banking Office for the
month by adding the daily account balances in
the various deposit accounts and dividing
such sum by the number of days in such month.
Balances for non-business days are deemed to
be the same as that of the immediately
previous business day.
Three Month Average: After three full
calendar months have expired, the Bank will
calculate the three month average of the
average monthly deposits for the New Banking
Office by adding the three consecutive
monthly averages for such Office and then
dividing this sum by three. The calculation
of the three month average of the average
monthly deposits of the New Banking Office
will be made after the end of each calendar
month.
All determinations regarding whether the Deposit Goal
of the New Banking Office has been met as of any date
shall be made by the Board of Directors of the
Corporation, whose determinations in this regard
shall be final and conclusive for all purposes.
(c) Mechanics of Conversion. Upon the occurrence
of the dates specified in Section 4(b) above, the outstanding shares
of Series B Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not
the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue to any holder certificates
evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of Series B Preferred Stock
are delivered either to the Corporation or any transfer agent
designated by the Corporation. Conversion shall be deemed to have
been effected on the date of the occurrence of the dates specified in
Section 4(b) above, as the case may be, and such date is referred to
herein as the "Conversion Date." Subject to the provisions of Section
4(b) above, as promptly as practicable thereafter (and after surrender
of the certificate or certificates representing shares of Series B
Preferred Stock to the Corporation or any transfer agent designated by
the Corporation), the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled as provided in Section
4(b) hereof. Subject to the provisions of Section 4(b), the person in
whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of such
Common Stock on the applicable Conversion Date.
-4-
<PAGE> 5
(d) Fractional Shares. No fractional shares of
Common Stock or scrip shall be issued upon exchange of shares of
Series B Preferred Stock. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares
of Series B Preferred Stock, the number of full shares of Common Stock
issuable upon exchange thereof shall be increased to the next higher
number of whole shares.
(e) Rights After Conversion Date. From and after
the Conversion Date (unless the Corporation defaults in issuing shares
of Common Stock in exchange for the outstanding shares of Series B
Preferred Stock on the Conversion Date), such shares of Series B
Preferred Stock shall be deemed not to be outstanding and all rights
of the holders of such shares as stockholders of the Corporation by
reason of the ownership of such shares shall cease, except the right
to receive shares of Common Stock as provided in Section 4(b) herein
on presentation and surrender of the respective certificates
evidencing such shares of Series B Preferred Stock. Upon presentation
and surrender, on or after the Conversion Date, of any certificate
evidencing shares of Series B Preferred Stock (properly endorsed or
assigned for transfer, if the Corporation shall so require), such
shares shall be exchanged by the Corporation for shares of Common
Stock as provided in this Section 4.
(f) Authorized, But Unissued Shares. Any shares
of Series B Preferred Stock that shall at any time have been converted
into shares of Common Stock pursuant to this Section 4 shall, after
such exchange, not be reissued as Series B Preferred Stock, but shall
become authorized but unissued shares of Preferred Stock of the
Corporation, and the certificates evidencing such shares shall be
cancelled.
(g) Reservation of Shares. The Corporation shall
reserve at all times so long as any shares of Series B Preferred Stock
remain outstanding, free from preemptive rights, out of its treasury
stock or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of
Series B Preferred Stock, sufficient shares of Common Stock to provide
for the exchange of all outstanding shares of Series B Preferred
Stock.
(h) Fully Paid and Nonassessable Shares. All
shares of Common Stock or other securities which may be issued upon
exchange of the shares of Series B Preferred Stock will upon issuance
by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof and the Corporation shall take no action which
would cause a contrary result.
5. CONVERSION RATIO ADJUSTMENTS. The number of shares of Common
Stock into which the shares of Series B Preferred Stock shall be converted
pursuant to Section 4 (the "Conversion Ratios") and the securities or other
property deliverable upon exchange of the Series B Preferred Stock shall be
subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions or Split-Ups. If
the number of shares of Common Stock outstanding at any time after the
date of issuance of the Series B Preferred Stock is increased by a
stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend or the effective date of such
subdivision or split-up, as the case may be, the Conversion Ratios
shall be appropriately increased so that the holder of any shares of
-5-
<PAGE> 6
Series B Preferred Stock thereafter exchanged shall be entitled to
receive the number of shares of Common Stock of the Corporation which
he would have owned immediately following such action had such shares
of Series B Preferred Stock been exchanged immediately prior thereto.
(b) Combinations of Stock. If the number of shares
of Common Stock outstanding at any time after the date of issuance of
the Series B Preferred Stock is decreased by a combination of the
outstanding shares of Common Stock, then, immediately after the
effective date of such combination, the Conversion Ratios applicable
thereto shall be appropriately increased so that the holder of any
shares of Series B Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock of the
Corporation which he would have owned immediately following such
action had such shares of Series B Preferred Stock been exchanged
immediately prior thereto.
(c) Reorganization, Reclassification, Merger, Sale of
All Assets, etc. Subject to the last sentence of this Section 5(c),
in case of any capital reorganization of the Corporation, or of any
reclassification of the Common Stock, or in case of the consolidation
of the Corporation with or the merger of the Corporation with or into
any other Person or of the sale, lease or other transfer of all or
substantially all of the assets of the Corporation to any other
Person, or in the case of any distribution of cash or other assets or
of notes or other indebtedness of the Corporation or any other
securities of the Corporation (except Common Stock) to the holders of
its Common Stock, each share of Series B Preferred Stock shall, after
such capital reorganization, reclassification, consolidation, merger,
sale, lease or other transfer or such distribution, be convertible
into the number of shares of stock or other securities or property to
which the Common Stock issuable (at the time of such capital
reorganization, reclassification, consolidation, merger, sale, lease
or other transfer or such distribution) upon exchange of such share of
Series B Preferred Stock would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease
or other transfer or such distribution in place of (or in addition to,
in the case of any such event after which Common Stock remains
outstanding) the shares of Common Stock into which such share of
Series B Preferred Stock would otherwise have been convertible; and in
any such case, if necessary, the provisions set forth herein with
respect to the rights and interests thereafter of the holders of the
shares of Series B Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any share of
stock or other securities or property thereafter deliverable on the
exchange of the shares of Series B Preferred Stock. If any conversion
pursuant to this Section 5(c) is effected prior to the second
anniversary of the Office Opening Date of the New Banking Office, the
applicable Conversion Ratio to be adjusted shall be 1.25 shares of
Common Stock for each share of Series B Preferred Stock, but if any
conversion pursuant to this Section 5(c) is effected after the second
anniversary, but prior to the third anniversary, of the Office Opening
Date, the applicable Conversion Ratio to be adjusted shall be 1.1
shares of Common Stock for each share of Series B Preferred Stock.
(d) Rounding of Calculations; Minimum Adjustment.
All calculations under this Section 5 shall be made to the nearest one
hundredth (1/100th) of a share of Common Stock, as the case may be.
Any provision of this Section 5 to the contrary notwithstanding, no
adjustment in the Conversion Ratios shall be made if the amount of
such adjustment would be less than one hundredth of a share of Common
Stock, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made
-6-
<PAGE> 7
at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate one hundredth of a share of Common Stock or
more.
(e) Timing of Issuance of Additional Common Stock
upon Certain Adjustments. In any case in which the provisions of this
Section 5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event issuing to the holder of any
share of Series B Preferred Stock exchanged after such record date and
before the occurrence of such event the additional shares of Common
Stock or other property issuable or deliverable upon such exchange by
reason of the adjustment required by such event over and above the
shares of Common Stock or other property issuable or deliverable upon
such exchange before giving effect to such adjustment; provided,
however, that the Corporation upon request shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares or other property,
and such cash, upon the occurrence of the event requiring such
adjustment.
(f) Statement Regarding Adjustments. Whenever the
Conversion Ratios shall be adjusted as provided in this Section 5, the
Corporation shall forthwith file, at the office of any transfer agent
for the Series B Preferred Stock and at the principal office of the
Corporation a statement showing in detail the facts requiring such
adjustment and the Conversion Ratios that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
holder of shares of Series B Preferred Stock at its address appearing
on the Corporation's records. Each such statement shall be signed by
the Corporation's independent public accountants.
(g) Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of shares of Common Stock of the
Corporation or other securities or property upon exchange of any
shares of Series B Preferred Stock; provided, however, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares or securities in the name
other than that of the holder of the shares of Series B Preferred
Stock in respect of which such shares are being issued.
6. VOTING. The holders of shares of Series B Preferred Stock
shall have no right or power to vote on any matter except as required by law.
In any matter on which the holders of Series B Preferred Stock shall, as a
matter of law, be entitled to vote, the holders shall be entitled to one vote
for each share of Series B Preferred Stock held.
7. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the shares of Series B Preferred Stock then outstanding shall be entitled to
receive out of the assets of the Corporation an amount per share in cash equal
to the Purchase Price before any payment or distribution shall be made on the
Common Stock or on any other class of capital stock of the Corporation ranking
junior to the Series B Preferred Stock upon liquidation. All outstanding
shares of any other series of Preferred Stock shall rank at parity with the
shares of Series B Preferred Stock. The consolidation or merger of the
Corporation, or a sale, exchange or transfer of all or substantially all of its
assets as an entirety, shall not be
-7-
<PAGE> 8
regarded as a "dissolution, liquidation or winding up of the Corporation"
within the meaning of this Section 7(a).
(b) After the payment to the holders of shares of
Series B Preferred Stock of the full preferential amounts fixed hereby
for shares of Series B Preferred Stock, the holders of Series B
Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation.
(c) If the assets of the Corporation available for
distribution to the holders of shares of Series B Preferred Stock upon
dissolution, liquidation or winding up of the Corporation are
insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7(a), no distribution shall be made on
account of any shares of a class or series of capital stock of the
Corporation ranking on a parity with the shares of Series B Preferred
Stock, if any, upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the
shares of Series B Preferred stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding
up.
8. REPORTS TO HOLDERS OF SERIES B PREFERRED STOCK. For so long
as there shall remain outstanding any shares of Series B Preferred Stock, the
Corporation shall furnish to each holder of record of Series B Preferred Stock
(i) all reports or other correspondence sent by the Corporation to holders of
record of the Common Stock of the Corporation, and (ii) a monthly report
setting forth the average monthly deposits for the New Banking Office.
9. CERTAIN COVENANTS. So long as any shares of Series B
Preferred Stock are outstanding, without the prior written consent of the
holders of a majority of the outstanding shares of Series B Preferred Stock,
the Corporation shall not amend, alter or repeal any provisions of this
Statement of Resolution Establishing Series B Convertible Preferred Stock, or
otherwise amend, alter or repeal any provision of the Articles of Incorporation
of the Corporation so as to affect adversely the preferences, rights, powers or
privileges of the Series B Preferred Stock.
10. EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law,
the shares of Series B Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other special rights other
than those specifically set forth herein.
-8-
<PAGE> 9
RESOLVED FURTHER, that the appropriate officers of the Corporation are
authorized to make such filings and to take any other action they deem
necessary to effect the foregoing resolution.
Dated: _____________, 1995
STERLING BANCSHARES, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
-9-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 55,652
<INT-BEARING-DEPOSITS> 1,240
<FED-FUNDS-SOLD> 10,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,552
<INVESTMENTS-CARRYING> 148,657
<INVESTMENTS-MARKET> 150,664
<LOANS> 448,434
<ALLOWANCE> (6,334)
<TOTAL-ASSETS> 690,877
<DEPOSITS> 625,231
<SHORT-TERM> 3,689
<LIABILITIES-OTHER> 3,070
<LONG-TERM> 4,800
<COMMON> 7,951
0
49
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 690,877
<INTEREST-LOAN> 20,070
<INTEREST-INVEST> 4,832
<INTEREST-OTHER> 460
<INTEREST-TOTAL> 25,362
<INTEREST-DEPOSIT> 7,613
<INTEREST-EXPENSE> 446
<INTEREST-INCOME-NET> 17,303
<LOAN-LOSSES> 1,033
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,879
<INCOME-PRETAX> 7,170
<INCOME-PRE-EXTRAORDINARY> 4,934
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,934
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 5.99
<LOANS-NON> 2,052
<LOANS-PAST> 293
<LOANS-TROUBLED> 71
<LOANS-PROBLEM> 11,004
<ALLOWANCE-OPEN> (5,907)
<CHARGE-OFFS> (859)
<RECOVERIES> 253
<ALLOWANCE-CLOSE> 6,334
<ALLOWANCE-DOMESTIC> 4,544
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,790
</TABLE>
