<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 18, 1997
STERLING BANCSHARES, INC.
(Exact name of registrant as specified in charter)
Texas 0-20750 74-2175590
(State or other jurisdiction (Commission File Number) (IRS employer
of incorporation) identification number)
15000 Northwest Freeway, Houston, Texas 77040
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 466-8300
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired.
On April 3, 1997, Sterling Bancshares, Inc. (the
"Company") filed a Form 8-K (the "Form 8-K")
relating to an Agreement and Plan of Merger (the
"Merger Agreement") dated as of March 18, 1997,
among the Company, SBI Acquisition Corp., a
wholly-owned subsidiary of the Company and First
Houston Bancshares, Inc. ("First Houston"), to
acquire First Houston and its wholly-owned
subsidiary, Houston National Bank in a
stock-for-stock merger (the "Merger"). Certain
financial statements and pro forma financial
information were included under Item 7 to the Form
8-K. For purposes of amending Exhibit 99.2 to the
Form 8-K, attached to this Form 8-K/A is revised
Exhibit 99.2 which replaces Exhibit 99.2 to the
Form 8-K. Exhibit 99.2 contains the Consolidated
Financial Statements of First Houston and its
subsidiaries for the years ended December 21, 1996
and 1995 and the report of First Houston's
independent auditors with respect thereto. Such
Consolidated Financial statements have been
prepared and furnished by First Houston and the
Company does not assume and expressly disclaims
any responsibility for such financial statements
or the accuracy or completeness of any information
contained therein.
(b) Pro Forma Financial Information.
For the purposes of amending Exhibit 99.3 to the
Form 8-K, attached to this Form 8-K/A is revised
Exhibit 99.3 which replaces Exhibit 99.3 to the
Form 8-K. Exhibit 99.3 contains consolidated
financial data for the Company for the last five
fiscal years which should be read in conjunction
with the financial information included in the
Company's 1996 Annual Report on Form 10-K for the
year ended December 31, 1996, which is
incorporated herein by reference.
On April 7, 1997, the Company filed a Form 8-K/A
(the "Form 8-K/A") for the purposes of amending
Exhibit 99.4 to the Form 8-K. For the purposes of
amending Exhibit 99.4 to the Form 8-K/A, attached
to this Form 8-K/A is revised Exhibit 99.4 which
replaces Exhibit 99.4 to the Form 8-K/A. Exhibit
99.4 contains selected pro forma consolidated
financial data that combine certain consolidated
financial information of the Company and First
Houston as if the Merger had occurred on January
1, 1994.
The selected pro forma consolidated financial data
included as Exhibit 99.4 is not necessarily
indicative of the consolidated financial position
or results of future operations of the combined
entity or of the actual results that would have
been achieved had the Merger been consummated
prior to the periods indicated. Moreover, the
selected pro forma consolidated financial
information has been prepared in reliance upon
certain information prepared and furnished by
First Houston and the Company does not assume and
expressly disclaims any responsibility for the
accuracy of any information relating to First
Houston.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.2 Consolidated Financial Statements of First Houston and its
subsidiaries for the years ended December 31, 1996 and 1995
and the report of First Houston's independent auditors with
respect thereto
99.3 Selected consolidated financial data for the Company for the
last five fiscal years
99.4 Selected pro forma financial data which combines certain
consolidated financial information of the Company and First
Houston as if the Merger had occurred on January 1, 1994
</TABLE>
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING BANCSHARES, INC.
Dated: July 25, 1997 By: /s/ George Martinez
--------------------------
George Martinez, Chairman
3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.2 Consolidated Financial Statements of First Houston and its
subsidiaries for the years ended December 31, 1996 and 1995
and the report of First Houston's independent auditors with
respect thereto
99.3 Selected consolidated financial data for the Company for the
last five fiscal years
99.4 Selected pro forma financial data which combines certain
consolidated financial information of the Company and First
Houston as if the Merger had occurred on January 1, 1994
</TABLE>
<PAGE> 1
EXHIBIT 99.2
- -------------------------------------------------------------------------------
FIRST HOUSTON BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1996 and 1995
and Independent Auditors' Report
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
First Houston Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of First
Houston Bancshares, Inc. and subsidiaries (the "Company") as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of First Houston Bancshares, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
January 27, 1997
(February 5, 1997 as to Note 21 and July 8, 1997
as to paragraphs 2, 3 and 4 of Note 14)
<PAGE> 3
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
MARCH 31, 1997 1996 1995
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks (Note 3)................... $ 3,356,594 $ 6,848,593 $ 4,991,384
Federal funds sold................................. 5,362,136 10,562,900 13,633,236
------------ ------------ ------------
Cash and cash equivalents........................ 8,718,730 17,411,493 18,624,620
Interest-bearing deposits.......................... 95,000
Investment securities available for sale, at fair
value (amortized cost of $53,355,460 and
$48,992,487 at December 31, 1996 and 1995,
respectively) (Note 4)........................... 53,080,597 53,212,387 48,863,899
Loans held for sale................................ 204,546 237,789 213,962
Loans (Notes 5 and 6).............................. 61,158,741 56,658,101 48,516,344
Less allowance for credit losses (Note 7).......... (563,843) (474,834) (558,464)
------------ ------------ ------------
Loans, net....................................... 60,594,898 56,183,267 47,957,880
Premises and equipment, net (Note 8)............... 2,846,456 2,773,446 2,631,899
Real estate acquired by foreclosure................ 37,246 37,246
Accrued interest receivable........................ 1,235,813 1,266,598 1,359,642
Other assets....................................... 1,800,950 1,134,885 876,588
------------ ------------ ------------
TOTAL.................................... $128,519,236 $132,257,111 $120,623,490
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing........................... $ 21,923,945 $ 27,012,016 $ 24,750,594
Interest-bearing (Note 9)..................... 96,969,493 95,919,404 87,650,004
------------ ------------ ------------
Total deposits........................... 118,893,438 122,931,420 112,400,598
Accrued interest payable........................... 125,523 119,527 164,719
Net deferred tax (asset) liability (Note 15)....... (4,258) (4,258) 276,480
Payable to Altair.................................. 77,586 77,586 106,049
Other liabilities.................................. 1,558,071 1,535,664 86,555
------------ ------------ ------------
Total liabilities........................ 120,650,360 124,659,939 113,034,401
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 13, 14 and 17):
Common stock, $1 par value; 3,500,000 shares
authorized and 2,098,238 and 2,096,238 shares
issued and outstanding at December 31, 1996
and 1995, respectively........................ 2,098,238 2,098,238 2,096,238
Cumulative convertible 8% preferred stock, $40
par and liquidation value; 200,000 shares
authorized and 21,375 shares issued and
outstanding................................... 855,000 855,000 855,000
Capital surplus.................................. 6,183,614 6,183,614 6,178,994
Accumulated deficit (Note 2)..................... (1,112,613) (1,445,255) (1,456,275)
Unrealized loss on available-for-sale investment
securities, net of taxes of $48,647 and
$43,720 at December 31, 1996 and 1995,
respectively.................................. (155,362) (94,426) (84,868)
------------ ------------ ------------
Total stockholders' equity............... 7,868,876 7,597,171 7,589,089
------------ ------------ ------------
TOTAL.................................... $128,519,236 $132,257,111 $120,623,490
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees............ $1,575,239 $1,271,612 $5,464,927 $5,025,868 $3,716,787
Taxable investment securities.... 730,842 650,077 2,672,769 2,190,159 893,508
Federal funds sold............... 57,900 110,166 620,666 317,993 129,858
---------- ---------- ---------- ---------- ----------
Total interest income.... 2,363,981 2,031,855 8,758,362 7,534,020 4,740,153
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits......................... 790,994 706,407 3,080,182 2,673,540 1,302,847
Federal funds purchased.......... 4,090 40,671 857
---------- ---------- ---------- ---------- ----------
Total interest expense... 795,084 706,407 3,080,182 2,714,211 1,303,704
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME................ 1,568,897 1,325,448 5,678,180 4,819,809 3,436,449
PROVISION FOR CREDIT LOSSES (Note
7)............................... 80,000 47,500 230,000 230,000 505,000
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES................ 1,488,897 1,277,948 5,448,180 4,589,809 2,931,449
---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME:
Customer service fees............ 122,241 99,758 453,836 401,212 495,307
Other............................ 28,940 60,573 180,231 130,609 109,210
---------- ---------- ---------- ---------- ----------
Total noninterest
income................. 151,181 160,331 634,067 531,821 604,517
---------- ---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits... 479,277 434,885 2,839,612 2,078,395 1,313,448
Net occupancy expense............ 133,609 97,834 441,129 364,676 263,776
Licensing fees................... 116,400 97,979 409,834 337,500
Data processing.................. 76,804 71,572 320,690 294,189 256,760
Legal and professional........... 96,218 69,989 273,190 233,601 152,509
Federal Deposit Insurance
Corporation assessment........ 2,073 652 2,152 92,606 123,123
Other............................ 231,996 235,421 933,387 646,899 603,779
---------- ---------- ---------- ---------- ----------
Total noninterest
expense................ 1,136,377 1,008,332 5,219,994 4,047,866 2,713,395
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES......... 503,701 429,947 862,253 1,073,764 822,571
PROVISION FOR INCOME TAXES (Note
15).............................. 171,059 128,567 363,184 256,957 271,794
---------- ---------- ---------- ---------- ----------
NET INCOME......................... $ 332,642 $ 301,380 $ 499,069 $ 816,807 $ 550,777
========== ========== ========== ========== ==========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE (Note 18)....... $ 0.15 $ 0.14 $ 0.20 $ 0.43 $ 0.39
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED LOSS ON
COMMON STOCK PREFERRED STOCK AVAILABLE-FOR-SALE
---------------------- ----------------- CAPITAL ACCUMULATED SECURITIES,
SHARES AMOUNT SHARES AMOUNT SURPLUS DEFICIT NET OF TAXES
--------- ---------- ------ -------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994........ 1,231,738 $1,231,738 21,375 $855,000 $3,754,861 $(1,201,956) $ (9,092)
Net income...................... 550,777
Cash dividends paid on common
stock, at $.15 per share...... (184,859)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ (642,563)
--------- ---------- ------ -------- ---------- ----------- ---------
BALANCE AT DECEMBER 31, 1994...... 1,231,738 1,231,738 21,375 855,000 3,754,861 (904,438) (651,655)
Net income...................... 816,807
Sale of common stock, at $4.00
per share..................... 864,500 864,500 2,424,133
Cash dividends paid on common
stock, at $.20 per share...... (405,874)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Dividend-in-kind................ (894,370)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ 566,787
--------- ---------- ------ -------- ---------- ----------- ---------
BALANCE AT DECEMBER 31, 1995...... 2,096,238 2,096,238 21,375 855,000 6,178,994 (1,456,275) (84,868)
Net income...................... 499,069
Stock options exercised, at
$3.31 per share............... 2,000 2,000 4,620
Cash dividends paid on common
stock, at $.20 per share...... (419,649)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ (9,558)
--------- ---------- ------ -------- ---------- ----------- ---------
BALANCE AT DECEMBER 31, 1996...... 2,098,238 2,098,238 21,375 855,000 6,183,614 (1,445,255) (94,426)
Net income...................... 332,642
Change in unrealized loss on
available-for-sale
investment securities, net
of tax...................... (60,937)
--------- ---------- ------ -------- ---------- ----------- ---------
BALANCE AT MARCH 31, 1997
(UNAUDITED)..................... 2,098,238 $2,098,238 21,375 $855,000 $6,183,614 $(1,112,613) $(155,362)
========= ========== ====== ======== ========== =========== =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE AT JANUARY 1, 1994........ $4,630,551
Net income...................... 550,777
Cash dividends paid on common
stock, at $.15 per share...... (184,859)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ (642,563)
----------
BALANCE AT DECEMBER 31, 1994...... 4,285,506
Net income...................... 816,807
Sale of common stock, at $4.00
per share..................... 3,288,633
Cash dividends paid on common
stock, at $.20 per share...... (405,874)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Dividend-in-kind................ (894,370)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ 566,787
----------
BALANCE AT DECEMBER 31, 1995...... 7,589,089
Net income...................... 499,069
Stock options exercised, at
$3.31 per share............... 6,620
Cash dividends paid on common
stock, at $.20 per share...... (419,649)
Cash dividends paid on preferred
stock, at $3.20 per share..... (68,400)
Change in unrealized loss on
available-for-sale investment
securities, net of tax........ (9,558)
----------
BALANCE AT DECEMBER 31, 1996...... 7,597,171
Net income...................... 332,642
Change in unrealized loss on
available-for-sale
investment securities, net
of tax...................... (60,937)
----------
BALANCE AT MARCH 31, 1997
(UNAUDITED)..................... $7,868,876
==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 332,642 $ 301,380 $ 499,069 $ 816,807 $ 550,777
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Gain) loss on sale of
available-for-sale investment
securities..................... (38,729) (86,621) 645 177
Amortization and accretion of
premiums and discounts on
investment securities, net..... 57,128 91,032 268,398 123,249 4,379
Provision for credit losses...... 80,000 47,500 230,000 230,000 505,000
Deferred income tax expense...... 280,738 166,899 168,819
Depreciation and amortization.... 91,927 74,040 302,795 351,280 217,510
Decrease (increase) in accrued
interest receivable............ 30,785 (46,330) 93,044 (662,175) (385,422)
Decrease (increase) in other
assets......................... (666,065) (339,412) (814,849) (418,129) (62,336)
(Decrease) increase in accrued
interest payable............... 5,996 9,477 (45,192) 57,875 52,954
Increase in other liabilities.... 22,406 484,914 1,449,109 91,579 (163,816)
Increase in payable to Altair.... (28,463) 106,049
------------ ------------ ------------ ------------ ------------
Total adjustments........... (377,823) 282,492 1,648,959 47,272 337,265
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities...... (45,181) 583,872 2,148,028 864,079 888,042
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in
interest-bearing deposits in
banks............................ 95,000 (95,000)
Proceeds from sales of
available-for-sale investment
securities....................... 1,900,000 19,433,913 5,401,110 1,606,360
Proceeds from maturities of
available-for-sale investment
securities....................... 13,000,000 3,200,000 30,521,429 35,100,000
Purchases of available-for-sale
investment securities............ (12,988,180) (8,434,549) (54,506,251) (66,190,212) (16,687,933)
Proceeds from paydowns on
investments secured by
mortgages........................ 10,914 386 6,160 96,667 102,522
Net increase in loans.............. (4,467,397) (269,451) (8,516,460) (4,930,855) (10,903,101)
Purchase of premises and
equipment........................ (164,936) (65,381) (471,054) (716,701) (155,749)
Disposal of premises and
equipment........................ 26,714
Increase in deferred software
costs............................ (8,448) (190,034)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities................ (4,609,599) (3,668,995) (13,410,549) (31,343,439) (26,227,935)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit
accounts......................... (4,037,983) (7,654,816) 10,530,822 42,836,953 17,539,496
Proceeds from issuance of common
stock............................ 6,620 3,288,633
Dividend-in-kind................... (648,555)
Payment of cash dividends.......... (488,048) (474,274) (253,259)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities...... (4,037,983) (7,654,816) 10,049,394 45,002,757 17,286,237
------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE> 7
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NET (DECREASE) INCREASE
IN CASH AND
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH EQUIVALENTS..................... $ (8,692,763) $(10,739,939) $ (1,213,127) $ 14,523,397 $ (8,053,656)
CASH AND CASH EQUIVALENTS:
Beginning of year.................. 17,411,493 18,624,620 18,624,620 4,101,223 12,154,879
------------ ------------ ------------ ------------ ------------
End of year........................ $ 8,718,730 $ 7,884,681 $ 17,411,493 $ 18,624,620 $ 4,101,223
============ ============ ============ ============ ============
SUPPLEMENTAL INFORMATION:
Income taxes paid.................. $ 134,741 $ 78,702 $ 129,000
Interest paid...................... 3,125,374 2,708,636 1,250,649
NONCASH INVESTING AND FINANCING
ACTIVITIES:
</TABLE>
During the year ended December 31, 1996 the Bank acquired real estate
through foreclosure of collateral on loans in the amount of $37,246. There were
no such transactions during the years ended December 31, 1995 or 1994.
During the years ended December 31, 1996, 1995 and 1994 the net change in
the unrealized loss on investment securities available for sale, net of tax was
$(9,558), $566,787 and $(642,563), respectively.
During December 1995 Bancshares distributed 239,500 shares of $1 par value
common stock in Altair representing all of the issued and outstanding common
stock to a trustee to be held for distribution to holders of Bancshares common
and preferred stock on December 29, 1995 and holders of Bancshares stock
options. No gain or loss was recognized from the distribution and the book value
of Altair was eliminated against Bancshares retained earnings.
See notes to consolidated financial statements.
<PAGE> 8
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Nature of Operations -- First Houston Bancshares, Inc. ("Bancshares") is a
bank holding company that provides retail and commercial banking services
through Houston National Bank (the "Bank"), its Texas-chartered bank subsidiary.
Bancshares and the Bank are hereafter collectively referred to as the "Company."
The Bank provides a broad line of financial products and services to small- to
medium-sized businesses and consumers. The Company had an additional subsidiary
First Houston Financial Services ("Altair") in 1995 that provided computer
software services. Altair was formed in 1994 and was engaged in the development
of computer software winch serves certain of the Bank's customers. Altair became
an independent trust on December 28, 1995.
Summary of Significant Accounting and Reporting Policies -- The accounting
and reporting policies of the Company conform to generally accepted accounting
principles ("GAAP") and the prevailing practices within the banking industry
except in regards to the disclosure related to Statement of Financial Accounting
Standards ("SFAS") No. 123 "Accounting for Stock Based Compensation" in Note 14.
A summary of significant accounting and reporting policies is as follows:
Basis of Presentation -- The consolidated financial statements include
Bancshares and the Bank. All significant intercompany transactions have been
eliminated upon consolidation.
The accompanying Consolidated Financial Statements and information as of
March 31, 1997 and for the three months ended March 31, 1997 and 1996 are
unaudited, and include all adjustments (consisting of only normal recurring
adjustments), that are necessary, in the opinion of management, for a fair
presentation.
Use of Estimates -- The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Investment Securities -- All investment securities are classified as
available for sale. Investment securities available for sale are carried at fair
value. Unrealized gains and losses are excluded from earnings and reported, net
of tax, as a separate component of stockholders' equity until realized.
Securities within the available-for-sale portfolio may be used as part of the
Company's asset and liability strategy and may be sold in response to changes in
interest rate risk, prepayment risk or other similar economic factors.
Premiums and discounts are amortized and accreted to operations using the
straight-line method of accounting, adjusted for prepayments as applicable. Tins
method of accounting approximates the interest method. The specific
identification method of accounting is used to compute gains or losses on the
sales of these assets.
Loans Held for Sale -- Loans originated and intended for sale in the
secondary market are carried at the lower of cost or fair value. Net unrealized
losses are recognized in a valuation allowance by charges to income.
Loans -- Loans are stated at the principal amounts outstanding, net of
unearned discount. Unearned discount relates principally to consumer installment
loans and is amortized using the "sum of the digits" method which records
interest in proportion to the declining outstanding balances of the loans. This
method approximates the interest method. For other loans, such income is
recognized using the simple interest method.
Effective January 1, 1995, the Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure." SFAS
No. 114 applies only to impaired loans, with the exception of groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment. SFAS No. 114 defines a
<PAGE> 9
loan as impaired if, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due, both interest and
principal, according to the contractual terms of the loan agreement.
Specifically SFAS No. 114 requires that the allowance for credit losses related
to impaired loans be determined based on the present value of expected cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Prior to the adoption of SFAS
No. 114, the Bank's methodology for determining the adequacy of the allowance
for credit losses did not incorporate the concept of the time value of money and
the expected future interest cash flow.
As permitted by SFAS No. 118, interest revenue received on impaired loans
continues to be either applied against principal or realized as interest
revenue, according to management's judgment as to the collectibility of
principal.
Nonperforming Loans and Past Due Loans -- Included in the nonperforming
loan category are loans which have been categorized by management as nonaccrual
because collection of interest is doubtful and loans which have been
restructured to provide a reduction in the interest rate or a deferral of
interest or principal payments.
When the payment of principal or interest on a loan is delinquent for 90
days, or earlier in some cases, the loan is placed on nonaccrual status, unless
the loan is in the process of collection and the underlying collateral fully
supports the carrying value of the loan. If the decision is made to continue
accruing interest on the loan, periodic reviews are made to confirm the accruing
status of the loan. When a loan is placed on nonaccrual status. interest accrued
during the current year prior to the judgment of uncollectibility is charged to
operations. Interest accrued during prior periods is charged to the allowance
for credit losses. Generally, any payments received on nonaccrual loans are
applied first to outstanding loan amounts and next to the recovery of
charged-off loan amounts. Any excess is treated as recovery of lost interest.
Nonrefundable Fees and Costs Associated with Lending Activities -- Loan
origination and commitment fees are recognized as interest income at the time of
funding. Related direct costs are not separately allocated to loans but are
charged to noninterest expense in the period incurred. The net effect of not
recognizing such fees and related costs over the life of the related loan is not
considered to be material to the financial statements.
Allowance for Credit Losses -- The allowance for credit losses is a
valuation allowance available for losses incurred on loans. All losses are
charged to the allowance for credit losses when the loss actually occurs or when
a determination is made that a loss is likely to occur. Recoveries are credited
to the allowance at the time of recovery.
Throughout the year, management estimates the likely level of future losses
to determine whether the allowance for credit losses is adequate to absorb
losses in the existing portfolio. Based on these estimates, an amount is charged
to the provision for credit losses and credited to the allowance for credit
losses in order to adjust the allowance to a level determined to be adequate to
absorb losses.
Management's judgment as to the level of losses on existing loans involves
the consideration of current and anticipated economic conditions and their
potential effects on specific borrowers; an evaluation of the existing
relationships among loans, potential credit losses and the present level of the
allowance; results of examinations of the loan portfolio by regulatory agencies;
and management's internal review of the loan portfolio. In determining the
collectibility of certain loans, management also considers the fair value of any
underlying collateral. The amounts ultimately realized may differ from the
carrying values of these assets due to economic, operating, or other conditions
beyond the Bank's control.
It should be understood that estimates of credit losses involve an exercise
of judgment. While it is reasonably possible that in the short term the Bank may
sustain losses which are substantial in relation to the allowance for credit
losses, it is the judgment of management that the allowance for credit losses
reflected in the consolidated balance sheets is adequate to absorb estimated
losses that exist in the current loan portfolio.
<PAGE> 10
Premises and Equipment -- Land is carried at cost. Premises and equipment
are carried at cost less accumulated depreciation and amortization. Depreciation
expense is computed principally using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the periods of the leases or the estimated useful
lives, whichever is shorter.
Real Estate Acquired by Foreclosure -- Real estate properties acquired
through, or in lieu of, loan foreclosure are to be sold and are initially
recorded at fair value at the date of foreclosure establishing a new cost basis.
After foreclosure, valuations are performed by management and the real estate is
carried at the lower of the carrying amount or fair value less cost to sell.
Federal Income Taxes -- Bancshares files a consolidated federal income tax
return. The Bank computes federal income taxes as if it filed a separate return
and remits to, or is reimbursed by, Bancshares based on the portion of taxes
currently due or refundable.
Deferred income taxes are accounted for by applying statutory tax rates in
effect at the balance sheet date to differences between the book basis and the
tax basis of assets and liabilities. The resulting deferred tax assets and
liabilities are adjusted to reflect changes in enacted tax laws or rates.
Realization of net deferred tax assets is dependent on generating
sufficient future taxable income. Although realization is not assured,
management believes it is more likely than not that all of the net deferred tax
assets will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the short term if estimates of future
taxable income are reduced.
Recently Issued Accounting Standards -- Effective January 1, 1996, the Bank
adopted SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This statement establishes accounting
standards for recognizing and measuring impairment of long-lived assets to be
held and used and for such assets held for disposal. The implementation of this
pronouncement did not have a materially adverse effect on the Company's
consolidated financial statements.
Statement of Cash Flows -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal finds
sold. Generally, federal funds are purchased and sold for one-day periods.
Earnings per Share -- Earnings per common share and common equivalent share
were computed by dividing net income less dividends payable on the cumulative,
convertible preferred stock by the weighted average number of shares of common
stock and common stock equivalents outstanding during the year. The convertible
preferred stock is not considered to be the equivalent of common stock because
the effective yield of 8% is not less than 66 2/3% of the average AA corporate
bond yield at the time of issuance.
Reclassifications -- Certain amounts in the accompanying consolidated
financial statements and related notes as of December 31, 1995 and 1994 have
been reclassified to conform to the current year's presentation.
<PAGE> 11
2. DIVIDEND IN KIND
On December 29, 1995, Bancshares spun off its computer software service
business to its stockholders through a transfer of 239,500 shares of $1 par
value common stock, constituting all of the issued and outstanding shares of
Altair, to a trustee to be held for future distribution to Bancshares
stockholders. On May 21, 1996 the Trustee distributed 1 share of Altair common
stock for each share of Bancshares preferred stock and 1 share of Altair common
stock for every 10 shares of Bancshares common stock owned by Bancshares
stockholders of record on December 29, 1995. Holders of options to purchase
Bancshares common stock received the right to purchase 1 share of Altair common
stock for each option held on December 29, 1995. No gain or loss was recognized
from the distribution, and the book value of Altair of $894,370 was eliminated
against Bancshares' retained earnings. The following supplemental information is
provided regarding the accounts of Altair spun off at the close of business on
December 31, 1995:
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents................................. $648,555
Property and equipment.................................... 32,265
Deferred software costs................................... 98,641
Other assets.............................................. 126,409
--------
Total assets...................................... 905,870
--------
Liabilities -- Other liabilities............................ 11,500
--------
Net assets of Altair........................................ $894,370
========
</TABLE>
Supplemental Pro Forma Financial Information (Unaudited) -- As a result of
the aforementioned distribution, the Company believes that the following pro
forma financial information is important to enable the reader to obtain a
meaningful understanding of the Company's results of operations. The pro forma
financial statements are for informational purposes only to illustrate the
estimated effects of the distribution of Altair on the Company on a stand-alone
basis and may not necessarily reflect the future results of operations of the
Company or what the earnings or results of operations of the Company would have
been had Altair operated as a separate, independent company.
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- ---------------------------------------
YEARS ENDED DECEMBER 31, HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
- ------------------------ ---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income......... $7,534,020 $7,534,020 $4,740,153 $4,740,153
Interest expense........ 2,714,211 2,714,211 1,303,704 1,303,704
---------- ---------- ---------- ----------
Net interest income..... 4,819,809 4,819,809 3,436,449 3,436,449
Provision for credit
losses................ 230,000 230,000 505,000 505,000
---------- ---------- ---------- ----------
Net interest income
after provision for
credit losses......... 4,589,809 4,589,809 2,931,449 2,931,449
Noninterest income...... 531,821 $ 360,188 171,633 604,517 604,517
Noninterest expense..... 4,047,866 615,902 3,431,964 2,713,395 $ 84,795 2,628,600
---------- --------- ---------- ---------- -------- ----------
Income (loss) before
income taxes.......... 1,073,764.. (255,714) 1,329,478 822,571 (84,795) 907,366
Provision (benefit) for
income taxes.......... 256,957 (106,049)(a) 363,006 271,794 (28,830)(b) 300,624
---------- --------- ---------- ---------- -------- ----------
Net income (loss)....... $ 816,807 $(149,665) $ 966,472 $ 550,777 $(55,965) $ 606,742
========== ========= ========== ========== ======== ==========
</TABLE>
- ---------------
The following is a summary of adjustments reflected on the pro forma condensed
statements of income. Following the distribution, in the opinion of management,
expenses of the Company would not have differed materially from the amounts
remaining in the consolidated financial statements after eliminating those
expenses attributable to Altair.
<PAGE> 12
Notes:
(a) To eliminate the historical income and expenses of Altair for the respective
periods presented, as if the distribution had occurred on January 1, 1994.
(b) To record the estimated income tax effect for the pro forma adjustments
described in Note (a) for the years ended December 31, 1995 and 1994,
respectively.
3. CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve Bank to maintain average
reserve balances. "Cash and due from banks" in the consolidated balance sheets
include amounts so restricted of approximately $524,000 and $526,000 at December
31, 1996 and 1995, respectively.
4. INVESTMENT SECURITIES
The amortized cost and fair value of investments in debt securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities and
obligations of U.S. government
securities....................... $53,051,262 $24,154 $155,234 $52,920,182
Mortgage-backed securities.......... 304,198 11,993 292,205
----------- ------- -------- -----------
Total....................... $53,355,460 $24,154 $167,227 $53,212,387
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities and
obligations of U.S. government
securities....................... $48,682,042 $65,290 $187,424 $48,559,908
Mortgage-backed securities.......... 310,445 6,454 303,991
----------- ------- -------- -----------
Total....................... $48,992,487 $65,290 $193,878 $48,863,899
=========== ======= ======== ===========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1996,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................... $31,126,905 $31,107,325
Due after one year through five years..................... 21,924,357 21,812,857
----------- -----------
Total........................................... 53,051,262 52,920,182
Mortgage-backed securities................................ 304,198 292,205
----------- -----------
Total........................................... $53,355,460 $53,212,387
=========== ===========
</TABLE>
Proceeds from sales of investments in available-for-sale debt securities
during 1996, 1995 and 1994 were $19,433,913, $5,401,110 and $1,606,360,
respectively. Gross gains of $87,332, $4,890 and $5,184 and gross losses of
$711, $5,535 and $5,361, respectively, were realized on those sales.
<PAGE> 13
Investment securities with an amortized cost of $45,223,555 and $46,075,176
and a fair value of $45,176,034 and $45,960,057 at December 31, 1996 and 1995,
respectively, were pledged to secure public deposits, trustee deposits and for
other purposes required or permitted by law.
5. LOANS
The loan portfolio consists of various types of loans made principally to
borrowers located in Harris County, Texas, classified by major type as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial, financial and industrial...................... $18,696,559 $18,123,468
Real estate -- mortgage................................... 30,570,344 22,498,077
Real estate -- construction............................... 2,998,316 1,657,167
Installment............................................... 4,364,273 4,947,400
Purchased receivables..................................... 242,875 1,501,928
----------- -----------
Total........................................... 56,872,367 48,728,040
Less unearned discount.................................... 214,266 211,696
----------- -----------
Total........................................... $56,658,101 $48,516,344
=========== ===========
</TABLE>
As discussed in Note 1, the Bank adopted SFAS No. 114 and SFAS No. 118
effective January 1, 1995. Adoption of these statements had no impact on the
Company's financial statements including the level of the allowance for credit
losses. Instead. it resulted only in a reallocation of the existing allowance
for credit loses.
At December 31, 1996, the Bank had a recorded investment in impaired loans
of approximately $1,485,000 under SFAS No. 114. Such impaired loans did not
require an allowance for credit losses. At December 31, 1995, the recorded
investment in impaired loans under SFAS No. 114 was approximately $1.028,000.
These impaired loans required an allowance for credit losses of approximately
$183,000.
The average recorded investment in unpaired loans for the year ended
December 31, 1996 and 1995 was $592,318 and $671,278, respectively. The Bank
recognized interest income on these impaired loans of approximately $31,000 in
1995. No interest income was recognized on impaired loans during 1996.
Loan maturities and rate sensitivity of the loan portfolio, excluding
installment loans before unearned income and purchased receivables were as
follows at December 31, 1996:
<TABLE>
<CAPTION>
WITHIN ONE- AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial, financial and
industrial................... $12,937,610 $ 5,549,389 $ 209,560 $18,696,559
Real estate -- mortgage........ 8,325,559 18,125,990 4,118,795 30,570,344
Real estate -- construction.... 1,352,792 1,574,515 71,009 2,998,316
----------- ----------- ---------- -----------
Total................ $22,615,961 $25,249,894 $4,399,364 $52,265,219
=========== =========== ========== ===========
Loans at fixed interest
rates........................ $10,998,024 $1,700,165
Loans at variable interest
rates........................ 14,251,870 2,699,199
----------- ----------
Total................ $25,249,894 $4,399,364
=========== ==========
</TABLE>
Loans outstanding to directors, executive officers and their affiliates as
of December 31, 1996 and 1995 were $3,671,040 and $3,344,568, respectively. In
the opinion of management, all transactions entered into between the Bank and
such related parties have been and are, in the ordinary course of business, made
on the same terms and conditions as similar transactions with unaffiliated
persons.
<PAGE> 14
An analysis of activity with respect to these related-party loans is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Beginning balance........................................... $3,344,568 $ 604,119
New loans................................................... 837,854 3,020,578
Repayments.................................................. (511,382) (280,129)
---------- ----------
Ending balance.............................................. $3,671,040 $3,344,568
========== ==========
</TABLE>
6. NONPERFORMING LOANS
The following table presents information relating to nonperforming loans
and past due loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Nonaccrual loans............................................ $ 97,298 $369,009
90 days or more past due loans, not on nonaccrual........... 139,137 173,317
-------- --------
Total............................................. $236,435 $542,326
======== ========
</TABLE>
There were no restructured loans during the years ended December 31, 1996,
1995 or 1994.
With respect to these nonperforming loans, the following table presents
interest income actually earned and additional interest income that would have
been earned under the original terms of the loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Nonaccrual loans:
Income earned.......................................... $12,253 $ 2,355 $8,720
Forgone income......................................... 41,375 43,616 3,172
</TABLE>
7. ALLOWANCE FOR CREDIT LOSSES
An analysis of activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 558,464 $ 507,316 $ 433,583
Additions -- provision charged to operations...... 230,000 230,000 505,000
Deductions:
Loans charged off............................... (341,494) (186,069) (434,269)
Loan recoveries................................. 27,864 7,217 3,002
--------- --------- ---------
Net charge-offs................................... (313,630) (178,852) (431,267)
--------- --------- ---------
Balance at end of year............................ $ 474,834 $ 558,464 $ 507,316
========= ========= =========
</TABLE>
<PAGE> 15
8. PREMISES AND EQUIPMENT
Premises and equipment are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land........................................................ $1,134,210 $1,134,210
Buildings................................................... 831,251 831,251
Building improvements....................................... 265,004 261,878
Tenant lease improvements................................... 15,545 8,394
Furniture, fixtures and equipment........................... 2,025,654 1,589,955
---------- ----------
Total............................................. 4,271,664 3,825,688
Less accumulated depreciation and amortization.............. 1,498,218 1,193,789
---------- ----------
Premises and equipment, net................................. $2,773,446 $2,631,899
========== ==========
</TABLE>
9. DEPOSITS
Included in interest-bearing deposits are certificates of deposit in
amounts of $100,000 or more. These certificates and their remaining maturities
at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- -----------
<S> <C> <C>
Three months or less....................................... $ 806,164 $ 4,395,434
Four through six months.................................... 2,195,318 2,341,170
Seven through twelve months................................ 1,637,277 1,904,763
Thereafter................................................. 3,221,711 1,596,405
---------- -----------
Total............................................ $7,860,470 $10,237,772
========== ===========
</TABLE>
Interest expense for certificates of deposit in excess of $100,000 was
$490,579, $389,136 and $163,410 for the years ended December 31, 1996, 1995 and
1994, respectively.
The Bank has no brokered deposits and there are no major concentrations of
deposits.
10. EMPLOYEE BENEFITS
The Bank maintains a 401(k) plan (the "Plan") for substantially all
employees having tenure of three months or more. The Bank matches contribution
by the employee dollar-for-dollar up to a maximum contribution by the Bank of an
amount equal to 6% of the employee's annual salary. The Bank's contributions to
the Plan were approximately $72,000, $29,000 and $21,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
During June 1995 the Bank entered into a deferred compensation agreement
with a key employee of the Bank. The agreement provided for total payments of
$690,000, payable in five annual installments beginning in the year 2011,
provided that such employee met certain conditions of continued employment.
In connection with the deferred compensation agreement the Bank was making
payments on a life insurance policy on behalf of the key employee. Upon reaching
age 65, provided such employee met certain conditions of continued employment,
the employee would receive the cash surrender value of this policy upon
reimbursement to the Bank of all premiums paid by the Bank on behalf of the
employee. In addition, the life insurance policy had an annuity feature which
would pay $80,000 per year for 15 years.
In exchange for the cancellation of these deferred compensation agreements
the Bank agreed to contribute $650,000 to a new deferred compensation plan.
During 1996 the Bank recognized $650,000 in connection with the settlement.
<PAGE> 16
11. INTEREST RATE RISK
The Bank is principally engaged in providing short-term commercial loans
with interest rates that fluctuate with various market indices and long-term,
fixed rate real estate loans. These loans are primarily funded through
short-term demand deposits and longer-term certificates of deposit with variable
and fixed rates. The real estate loans are more sensitive to interest rate risk
than the commercial loans due to their fixed rates and longer maturities.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to various financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
these commitments and conditional obligations as it does for on-balance sheet
instruments.
The following is a summary of the various financial instruments entered
into by the Bank:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Financial instruments whose contract amount represents
credit risk:
Commitments to extend credit.............................. $9,573,000 $8,063,000
Standby letters of credit................................. 88,000 356,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment amounts disclosed
above do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if considered necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
customer.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to the Bank's customers.
13. STOCKHOLDERS' EQUITY
The Company's 8% Class A Cumulative Convertible Preferred Stock may be
converted into common stock at the option of the holder at a ratio of one share
of $40 par value cumulative convertible preferred stock for ten shares of
Company common stock. Bancshares may redeem this preferred stock at par value or
convert this preferred stock to common stock any time after July 1, 1998.
During 1995 Bancshares completed an offering of 864,500 shares of its $1
par value common stock at a price of $4 per share. The proceeds of the offering
after deducting all associated costs were $3,288,633 or $3.80 per share.
<PAGE> 17
14. STOCK OPTIONS
Options have been granted to key employees, officers and directors at
prices determined by the Board of Directors which approximate the book value of
the common stock at the date of grant. Options granted under the plan vest
immediately and must be exercised no later than ten years from the date of
grant. No more than 135,515 shares of common stock may be issued under this
plan. A summary of changes in outstanding options is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Shares under option, beginning of period................ 75,000 75,000 23,000
Changes during the period:
Granted............................................... 60,500 52,000
Cancelled/expired..................................... (2,000)
Exercised............................................. (2,000)
------- ------ ------
Shares under option, end of period...................... 131,500 75,000 75,000
======= ====== ======
Weighted average option price........................... $ 3.21 $ 3.20 $ 2.96
======= ====== ======
</TABLE>
At December 31, 1996, the Company has one stock-based compensation plan,
which is described above. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for the stock option plan. Had compensation cost for the
Company's stock-based compensation plan been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income................ $499,069 $493,983 $816,807 $811,807 $550,777 $545,661
Primary earnings per
share................... $ 0.20 $ 0.20 $ 0.43 $ 0.43 $ 0.39 $ 0.39
Fully diluted earnings per
share................... 0.20 0.20 0.43 0.43 0.39 0.39
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions.
<TABLE>
<CAPTION>
1996 1994
----- -----
<S> <C> <C>
Expected live (years)....................................... 10.00 10.00
Interest rate............................................... 5.65% 7.84%
Volatility.................................................. 0.00% 0.00%
Dividend yield.............................................. 6.20% 4.50%
</TABLE>
No options were granted during the year ended December 31, 1995.
15. INCOME TAXES
The components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current............................................ $ 82,446 $ 90,058 $102,975
Deferred........................................... 280,738 166,899 168,819
-------- -------- --------
Total.................................... $363,184 $256,957 $271,794
======== ======== ========
</TABLE>
<PAGE> 18
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate on income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Taxes calculated at statutory rate................ $303,366 $ 365,080 $279,674
Increase (decrease) resulting from other, net..... 59,818 (108,123) (7,880)
-------- --------- --------
Total................................... $363,184 $ 256,957 $271,794
======== ========= ========
</TABLE>
Deferred income taxes and benefits are provided for differences between the
financial statement carrying amount of existing assets and liabilities and their
respective tax basis. Significant deferred tax assets and liabilities at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses............................... $ 12,245 $ 65,949
Net operating loss carryforward........................... 17,262 75,043
Investment tax credit..................................... 28,915 28,915
Unrealized loss on securities available for sale.......... 48,647 43,720
Deferred compensation..................................... 280,500
Other..................................................... 18,683 13,134
-------- ---------
Total deferred tax assets......................... 406,252 226,761
-------- ---------
Deferred tax liabilities:
Depreciable assets........................................ 69,000 59,707
Cash to accrual........................................... 332,994 443,534
-------- ---------
Total deferred tax liabilities.................... 401,994 503,241
-------- ---------
Net deferred tax asset (liability)................ $ 4,258 $(276,480)
======== =========
</TABLE>
During 1988 Bancshares sold shares of common stock which resulted in a
change in ownership as defined under tax law. This change in ownership caused a
severe limitation on the Company's ability to utilize its net operating loss
carryforwards. In general, the current tax law limits the Company's annual
utilization of its net operating loss carryforwards to an amount approximating
7% of the fair market value of the Company at the date the change in ownership
occurred. Management currently estimates that the maximum annual utilization of
the net operating loss carryforward will approximate $170,000. The Company's net
operating loss carryforwards of $51,000 as of December 31, 1996 will begin to
expire in the year ending December 31, 2003, if not utilized. The Company's
investment tax credit carryforward of $29,000 will expire in the year ending
December 31, 2000.
16. DIVIDEND RESTRICTIONS
Dividends paid by Bancshares and by the Bank to Bancshares are subject to
restrictions by certain regulatory agencies. There was an aggregate of
approximately $651,000 and $955,000, respectively available for payment of
dividends at December 31, 1996 under these restrictions. Dividends paid by the
Bank to Bancshares for the years ended December 31, 1996, 1995 and 1994 were
$90,000, $420,000 and $745,719, respectively. Bancshares paid cash dividends to
its stockholders of $488,048, $474,274 and $253,259 for the years ended December
31, 1996, 1995 and 1994, respectively.
17. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Any institution that
fails to meet its minimum capital requirements is subject to actions by
regulators that could have a direct material effect on the Company's and the
Bank's financial statements. Under the capital adequacy guidelines and the
regulatory framework for prompt corrective action,
<PAGE> 19
the Bank must meet specific capital guidelines based on the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and the Bank's capital amounts and the
Bank's classification under the regulatory framework for prompt corrective
action are also subject to qualitative judgments by the regulators about the
components, risk weightings and other factors.
To meet the capital adequacy requirements, the Company and the Bank must
maintain minimum capital amounts and ratios as defined in the regulations.
Management believes, as of December 31, 1996, that the Company and the Bank met
all capital adequacy requirements to which they are subject.
At December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The following is a summary of the Company's and the Bank's capital ratios
at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------ ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)........ $8,072,005 13.2% $5,290,635 8.0% N/A N/A
Tier I Capital
(to Risk Weighted Assets)........ 7,597,171 12.4% 2,645,318 4.0% N/A N/A
Tier I Capital
(to Average Assets).............. 7,597,171 5.7% 3,967,713 3.0% N/A N/A
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets)........ 8,186,214 14.3% 4,575,601 8.0% N/A N/A
Tier I Capital
(to Risk Weighted Assets)........ 7,627,751 13.3% 2,287,800 4.0% N/A N/A
Tier I Capital
(to Average Assets).............. 7,627,751 6.3% 3,617,727 3.0% N/A N/A
BANK ONLY:
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets)........ $8,032,685 12.2% $5,268,830 8.0% $6,586,037 10.0%
Tier I Capital
(to Risk Weighted Assets)........ 3,557,851 11.5% 2,643,819 4.0% 3,965,729 6.0%
Tier I Capital
(to Average Assets).............. 3,557,851 5.7% 3,980,300 3.0% 3,980,300 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets)........ 7,611,361 13.4% 4,559,601 8.0% 5,699,501 10.0%
Tier I Capital
(to Risk Weighted Assets)........ 7,052,897 12.4% 2,279,800 4.0% 3,419,701 6.0%
Tier I Capital
(to Average Assets).............. 7,052,897 6.0% 3,550,138 3.0% 5,916,896 5.0%
</TABLE>
<PAGE> 20
18. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The following table presents information necessary for the computation of
earnings per common and common equivalent share for the years ended December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income....................................... $ 499,069 $ 816,807 $ 550,277
Less preferred stock dividends................... 68,400 68,400 68,400
---------- ---------- ----------
Net income available to common stockholders...... $ 430,669 $ 748,407 $ 481,877
========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding.................. 2,153,281 1,745,821 1,231,738
========== ========== ==========
</TABLE>
19. DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair values of financial
instruments is made in accordance with SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair values
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents -- For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment Securities -- For securities held as investments, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Loan Receivables -- The fair value of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities -- The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Written -- The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of guarantees and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting date.
<PAGE> 21
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents..... $ 17,411,493 $ 17,411,493 $ 18,624,620 $ 18,624,620
Interest-bearing deposits..... 95,000 95,000
Investment securities
available for sale......... 53,212,387 53,212,387 48,863,899 48,863,899
Loans held for sale........... 237,789 237,789 213,962 213,962
Loans......................... 56,658,101 56,658,000 48,516,344 48,371,000
Less allowance for credit
losses..................... (474,834) (474,834) (558,464) (558,464)
------------ ------------ ------------ ------------
Total................. $127,044,936 $127,044,835 $115,755,361 $115,610,017
============ ============ ============ ============
Financial
liabilities -- deposits....... $122,931,420 $123,169,042 $112,400,598 $112,364,498
------------ ------------ ------------ ------------
Total................. $122,931,420 $123,169,042 $112,400,598 $112,365,498
============ ============ ============ ============
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996 and 1995. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
20. PARENT-COMPANY-ONLY FINANCIAL INFORMATION
The following are parent-company-only condensed balance sheets as of
December 31, 1996 and 1995 and condensed statements of income and condensed
statements of cash flows for the three years in the period ended December 31,
1996.
<PAGE> 22
FIRST HOUSTON BANCSHARES, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 200 $ 311,757
Investment in subsidiary.................................... 7,506,243 7,031,040
Receivable from Bank........................................ 540,118 152,341
Other assets................................................ 90,000 200,000
----------- -----------
TOTAL............................................. $ 8,136,561 $ 7,695,138
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to Altair......................................... $ 77,586 $ 106,049
Federal income tax payable................................ 461,804
----------- -----------
Total liabilities................................. 539,390 106,049
STOCKHOLDERS' EQUITY:
Common stock.............................................. 2,098,238 2,096,238
Preferred stock........................................... 855,000 855,000
Capital surplus........................................... 6,183,614 6,178,994
Accumulated deficit....................................... (1,445,255) (1,456,275)
Unrealized loss on securities, net of tax................. (94,426) (84,868)
----------- -----------
Total stockholders' equity........................ 7,597,171 7,589,089
----------- -----------
TOTAL............................................. $ 8,136,561 $ 7,695,138
=========== ===========
</TABLE>
FIRST HOUSTON BANCSHARES, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
INCOME -- Dividends from subsidiary....................... $ 90,000 $420,000 $ 754,719
OPERATING EXPENSE -- Other expense........................ 59,703 50,110 50,665
-------- -------- ---------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY.................................. 30,297 369,890 704,054
INCOME TAX EXPENSE (BENEFIT).............................. 15,990 (233) 17,226
-------- -------- ---------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF
SUBSIDIARY.............................................. 14,307 370,123 721,280
EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) OF SUBSIDIARY..... 484,762 446,684 (170,503)
-------- -------- ---------
NET INCOME................................................ $499,069 $816,807 $ 550,777
======== ======== =========
</TABLE>
<PAGE> 23
FIRST HOUSTON BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 499,069 $ 816,807 $ 550,777
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed (earnings) loss of
subsidiary...................................... (484,762) (446,684) 170,503
Increase in receivable from Bank.................. (387,777) (158,090) (35,745)
Decrease (increase) in other assets............... 110,000 (182,773)
Increase in federal income taxes payable.......... 461,804
(Decrease) increase in payable to Altair.......... (28,463) 111,798
Decrease in accounts payable...................... (47,432)
--------- ----------- ---------
Total adjustments............................ (329,198) (675,749) 87,326
--------- ----------- ---------
Net cash provided by operating activities.... 169,871 141,058 638,103
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in prepaid offering expense................. 35,000 33,439
Dividends paid....................................... (488,048) (474,274) (253,259)
Capital contribution to subsidiary................... (2,750,000) (350,000)
Proceeds from stock offering......................... 3,288,633
Proceeds from exercise of stock options.............. 6,620
--------- ----------- ---------
Net cash (used in) provided by financing
activities................................. (481,428) 99,359 (569,820)
--------- ----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (311,557) 240,417 68,283
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 311,757 71,340 3,057
--------- ----------- ---------
End of year.......................................... $ 200 $ 311,757 $ 71,340
========= =========== =========
</TABLE>
21. SUBSEQUENT EVENT
On February 5, 1997 the Company entered into a letter of intent with a Bank
Holding Company to exchange all of the Company's outstanding common stock for
common stock of the Bank Holding Company. The letter of intent does not
constitute a binding agreement and is subject to due diligence investigations,
completion of a merger agreement, regulatory approval and approval from the Bank
Holding Company's and the Company's board of directors and stockholders.
<PAGE> 1
Exhibit 99.3 to Form 8-K Current Report
STERLING BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA - STERLING BANCSHARES, INC.
The selected consolidated financial data below summarizes historical
consolidated financial information of the Company for the periods indicated and
should be read in connection with the financial information included in the
Company's 1996 Annual Report on Form 10-K for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME:
Interest income.................................. $53,413 $46,734 $39,735 $27,231 $26,136
Interest expense................................. 16,727 14,557 11,140 7,301 8,699
Net interest income.............................. 36,686 32,177 28,595 19,930 17,437
Provision for credit losses...................... 2,113 919 921 856 808
Non-interest income.............................. 7,964 7,536 7,135 4,424 3,690
Non-interest expense............................. 27,134 25,781 24,458 15,661 13,266
Income before income taxes....................... 15,403 13,013 10,351 7,837 7,053
Income taxes..................................... 4,749 4,147 3,200 2,474 2,274
Net income....................................... 10,654 8,866 7,151 5,363 4,779
PER SHARE DATA:(1)
Net income per share (fully diluted)............. $0.86 $0.73 $0.60 $0.45 $0.52
Book value per common share...................... 4.97 4.22 3.38 3.09 3.58
Tangible book value per share.................... 4.82 4.03 3.17 2.85 2.93
Weighted average common and common equivalent
shares......................................... 12,340 12,117 11,883 11,824 9,248
BALANCE SHEET DATA:
Total assets..................................... $790,073 $647,349 $598,654 $553,196 $380,435
Loans, net of unearned discount.................. 497,429 392,645 328,560 291,762 205,356
Allowance for credit losses...................... 6,578 5,907 5,810 5,044 3,373
Investment securities............................ 152,253 167,512 191,957 192,919 115,135
Deposits......................................... 717,413 574,724 538,335 481,677 337,631
Notes payable and senior debentures.............. 4,000 5,800 8,050 12,900 2,300
Shareholders' equity............................. 59,407 49,691 39,623 35,792 33,077
SELECTED PERFORMANCE RATIOS:
Return on average assets......................... 1.53% 1.48% 1.26% 1.37% 1.42%
Return on average shareholders' equity........... 19.40% 19.87% 18.76% 15.24% 20.83%
Dividend payout ratio............................ 21.54% 19.38% 19.85% 23.53% 0.00%
Net interest margin (tax equivalent)............. 6.03% 6.10% 5.72% 5.72% 5.81%
ASSET QUALITY RATIOS:
Non-performing loans to total period-end loans... 0.55% 0.87% 0.80% 1.04% 0.60%
Period-end non-performing assets to total
assets......................................... 0.64% 0.80% 0.72% 1.03% 1.30%
Period-end allowance for credit losses to
non-performing loans........................... 242.56% 173.38% 221.09% 116.91% 271.80%
Period-end allowance for credit losses to total
loans.......................................... 1.32% 1.50% 1.77% 1.73% 1.64%
Net charge-offs to average loans................. 0.33% 0.23% 0.05% 0.34% 0.18%
LIQUIDITY AND CAPITAL RATIOS:
Average loans to average deposits................ 70.40% 68.69% 61.22% 61.31% 60.87%
Period-end shareholders' equity to total
assets......................................... 7.52% 7.68% 6.62% 6.47% 8.69%
Average shareholders' equity to average assets... 7.89% 7.46% 6.71% 8.99% 6.84%
Period-end Tier 1 capital to risk weighted
assets(2)...................................... 10.27% 10.82% 10.41% 9.75% 13.13%
Period-end total capital to risk weighted
assets(2)...................................... 11.44% 12.07% 11.67% 10.99% 14.38%
Period-end Tier 1 leverage ratio (tangible
shareholders' equity to total average
assets)(2)..................................... 8.03% 7.66% 6.57% 5.96% 8.69%
</TABLE>
- ---------------
(1) Per share data for all periods and dates have been adjusted retroactively to
give effect to the three-for-two split effected as a stock dividend to
common shareholders distributed on February 24, 1997.
(2) Calculated in accordance with regulations in effect at December 31, 1996.
12
<PAGE> 1
Exhibit 99.4 to Form 8-K Current Report
STERLING BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA - PRO FORMA
The following pro forma consolidated financial data combines the historical
consolidated financial statements of the Company and First Houston as if the
Merger had occurred as of January 1, 1994, after giving effect to the pro forma
adjustments described in the notes to the pro forma financial statements
included as Exhibit 99.5 of this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
SUMMARY OF INCOME:
Interest income............................................. $ 62,171 $ 54,268 $ 44,475
Interest expense............................................ 19,807 17,271 12,444
Net interest income......................................... 42,364 36,997 32,031
Provision for credit losses................................. 2,343 1,149 1,426
Non-interest income......................................... 8,598 8,068 7,740
Non-interest expense........................................ 32,354 29,829 27,171
Income before income taxes.................................. 16,265 14,087 11,174
Income taxes................................................ 5,112 4,404 3,472
Net income.................................................. 11,153 9,683 7,702
PER SHARE DATA:(1)
Net income per share (fully diluted)........................ $ 0.79 $ 0.70 $ 0.57
Book value per common share................................. 4.90 4.24 3.26
Tangible book value per share............................... 4.77 4.08 3.08
Weighted average common and common equivalent shares........ 14,064 13,841 13,607
BALANCE SHEET DATA:
Total assets................................................ $922,330 $767,972 $672,616
Loans, net of unearned discount............................. 554,325 441,375 372,538
Allowance for credit losses................................. 7,053 6,465 6,317
Investment securities....................................... 205,465 216,376 214,494
Deposits.................................................... 840,344 687,125 607,899
Notes payable and senior debentures......................... 4,000 5,800 8,050
Shareholders' equity........................................ 67,004 57,280 43,909
SELECTED PERFORMANCE RATIOS:
Return on average assets.................................... 1.37% 1.38% 1.22%
Return on average shareholders' equity...................... 17.85 19.03 18.00
Net interest margin (tax equivalent)........................ 5.80 5.84 5.63
Dividend payout ratio....................................... 21.54 19.38 19.85
ASSET QUALITY RATIOS:
Non-performing loans to total period-end loans.............. 0.53% 0.90% 0.71%
Period-end non-performing assets to total assets............ 0.58 0.74 0.65
Period-end allowance for credit losses to non-performing
loans..................................................... 239.25 163.71 230.72
Period-end allowance for credit losses to total loans....... 1.27 1.46 1.70
Net charge-offs to average loans............................ 0.36 0.25 0.17
LIQUIDITY AND CAPITAL RATIOS:
Average loans to average deposits........................... 66.76% 65.81% 61.53%
Period-end shareholders' equity to total assets............. 7.65 7.46 6.53
Average shareholders' equity to average assets.............. 7.70 7.25 6.76
Period-end Tier 1 capital to risk weighted assets(2)........ 10.48 11.11 10.42
Period-end total capital to risk weighted assets (2)........ 11.61 12.33 11.91
Period-end Tier 1 leverage ration (tangible shareholders'
equity to total average assets)(2)........................ 7.99% 7.88% 6.99%
</TABLE>
- ---------------
(1) Per share data for all periods and dates have been adjusted retroactively to
give effect to the three-for-two split effected as a stock dividend to
common shareholders distributed on February 24, 1997.
(2) Calculated in accordance with regulations in effect at December 31, 1996.
13
