<PAGE> 1
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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 MARCH 31, 1998
[ ] 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 March 31, 1998:
<TABLE>
<CAPTION>
CLASS OF STOCK SHARES OUTSTANDING
-------------- ------------------
<S> <C>
Common Stock, Par Value $1.00 20,859,748
</TABLE>
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED FINANCIAL STATEMENTS
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 73,762 $ 110,479
Federal funds sold 15,000 --
Interest-bearing deposits in financial institutions 418 409
Securities purchased with an agreement to resell 27,104 15,496
Available-for-sale investment securities, at fair value 56,463 81,592
Held-to-maturity investment securities, at amortized cost 171,847 195,309
Investment in Sterling Capital Mortgage Company 2,679 2,510
Loans held for sale 94,012 70,193
Loans 699,091 667,918
Allowance for credit losses (7,929) (7,377)
----------- -----------
Loans, net 691,162 660,541
Accrued interest receivable 7,157 7,638
Real estate acquired by foreclosure 1,314 318
Premises and equipment, net 29,104 29,468
Goodwill, net 1,459 1,518
Other assets 5,829 7,406
----------- -----------
TOTAL ASSETS $ 1,177,310 $ 1,182,877
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing $ 335,554 $ 342,623
Interest-bearing 462,946 454,388
Certificates of deposit and other time deposits 241,404 225,209
----------- -----------
Total deposits 1,039,904 1,022,220
Securities sold under agreements to repurchase and other borrowed funds 19,463 44,491
Accrued interest payable and other liabilities 5,113 7,432
----------- -----------
Total liabilities 1,064,480 1,074,143
COMPANY-OBLIGATED MANDITORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST 28,750 28,750
Shareholders' equity:
Convertible preferred stock, $1 par value, 1 million shares authorized 177 177
Common stock, $1 par value, 50 million shares authorized 20,860 20,686
Capital surplus 16,010 14,949
Retained earnings 47,129 44,287
Net unrealized gains (losses) on available-for-sale investment
securities, net of tax (96) (115)
----------- -----------
Total shareholders' equity 84,080 79,984
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,177,310 $ 1,182,877
=========== ===========
</TABLE>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $17,618 $13,548
Federal funds sold 92 347
Deposits in financial institutions 153 126
Securities purchased under agreements to resell 351 --
Investment securities:
Taxable 3,685 3,065
Tax-exempt 211 282
------- -------
Total interest income 22,110 17,368
Interest expense:
Demand and savings deposits 3,482 2,949
Certificates and other time deposits 2,962 2,341
Federal funds purchased and securities purchased under
agreements to resell 238 65
Notes payable -- 94
------- -------
Total interest expense 6,682 5,449
------- -------
NET INTEREST INCOME 15,428 11,919
Provision for credit losses 880 682
------- -------
NET INTEREST INCOME AFTER PROVISION 14,548 11,237
Noninterest income:
Customer service fees 1,619 1,454
Equity in earnings of Sterling Capital Mortgage Company 193 --
Other 806 656
------- -------
Total noninterest income 2,618 2,110
Noninterest expenses:
Salaries and employee benefits 6,247 5,189
Occupancy expense 1,445 1,334
Technology 734 457
Supplies 248 133
Professional fees 273 189
Minority interest expense 667 --
Other 2,001 1,792
------- -------
Total noninterest expenses 11,615 9,094
NET INCOME BEFORE INCOME TAXES 5,551 4,253
Provision for income taxes 1,876 1,404
------- -------
NET INCOME $ 3,675 $ 2,849
======= =======
EARNINGS PER SHARE:
Basic $ 0.18 $ 0.14
======= =======
Diluted $ 0.17 $ 0.13
======= =======
</TABLE>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
STERLING BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,675 $ 2,849
Adjustments to reconcile net income to net cash (used in) provided by
operating activities
Amortization and accretion of premiums and discounts on investment securities, net 89 77
Equity in undistributed earnings of Sterling Capital Mortgage Company (169) 50
Provision for credit losses 880 682
Loss on disposal of premises and equipment -- 118
Loss on sale of real estate acquired by foreclosure and repossessed assets -- 2
Depreciation and amortization 1,168 833
Net change in loans held for sale (23,819) 10,936
Increase (decrease) in accrued interest receivable and other assets 2,117 (651)
Decrease in accrued interest payable and other liabilities (2,328) (610)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (18,387) 14,286
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in securities purchased under agreements to resell (11,608) --
Proceeds from maturity and paydowns of held-to-maturity investment securities 25,182 5,166
Purchases of held-to-maturity investment securities -- (25,660)
Proceeds from maturity and paydowns of available-for-sale investment securities 23,429 13,011
Purchases of available-for-sale investment securities (81) (13,049)
Net increase in loans (32,654) (29,590)
Proceeds from sale of real estate acquired by foreclosure 157 405
Net increase in interest-bearing deposits in financial institutions (9) (25,405)
Proceeds from sale of premises and equipment 80 29
Purchase of premises and equipment (884) (2,897)
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 3,612 (77,990)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 17,684 28,973
Net increase (decrease) in repurchase agreements/funds purchased (25,028) 4,071
Repayment of notes payable -- (400)
Proceeds from issuance of common stock 1,236 223
Dividends paid (834) (662)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,942) 32,205
NET DECREASE IN CASH AND CASH EQUIVALENTS (21,717) (31,499)
CASH AND CASH EQUIVALENTS:
Beginning of period 110,479 125,854
--------- ---------
End of period $ 88,762 $ 94,355
========= =========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 422 $ 200
========= =========
Interest paid $ 6,648 $ 5,395
========= =========
Noncash investing and financing activities:
Acquisitions of real estate through foreclosure of collateral $ 1,153 $ --
========= =========
</TABLE>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
STERLING BANCSHARES, INC., AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 notes 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 three
month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements and
notes thereto included in the annual report on form 10-K of Sterling
Bancshares, Inc. (the "Company") for the year ended December 31, 1997.
On September 30, 1997, the Company acquired First Houston Bancshares, Inc.
("First Houston") in an exchange of 1,686,014 shares of the Company's
common stock for First Houston's outstanding common and preferred stock.
The transaction was accounted for as a pooling of interests and previously
issued financial statements were restated.
2. EARNINGS PER COMMON SHARE
Earnings per common share was computed based on the following (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------------------------
1998 1997
------------------- ---------------------
AMOUNT PER SHARE AMOUNT PER SHARE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net income $ 3,675 $ 2,849
======= =======
Basic:
Weighted average shares outstanding 20,767 $ 0.18 20,504 $ 0.14
====== ========
Diluted:
Add incremental shares for:
Assumed exercise of outstanding options 741 696
Assumed conversion of preferred stock 459 255
------- -------
Total 21,967 $ 0.17 21,455 $ 0.13
======= ====== ======= ========
</TABLE>
----------------------------------------------------------------------
Note: Net income and share information have been adjusted to reflect a
three-for-two stock split distributed February 20, 1998.
3. RECENT ACCOUNTING STANDARDS
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires that all components of comprehensive
income and total comprehensive income be reported on one of the following:
(1) the statement of operations, (2) the statement of stockholders' equity
or (3) a new separate statement of comprehensive income. Comprehensive
income is
5
<PAGE> 6
comprised of net income and all changes to stockholders' equity, except
those due to investments by owners (changes in capital surplus) and
distributions to owners (dividends). The Company will report comprehensive
income on the statement of stockholders' equity. Comprehensive income for
the Company includes net income and the changes in unrealized gains and
losses on available-for-sale securities, net of tax. Comprehensive income
totaled $3,694,000 for the three months ended March 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
EXPANSION - The Company opened its fourteenth banking office in the Cypress
Station area, north of the city, in January 1997.
On September 30, 1997, First Houston was acquired by the Company in a
stock-for-stock merger. On October 27, 1997, Houston National Bank was merged
into Sterling Bank, creating the Bank's fifteenth banking office.
In January 1998, the Company opened its sixteenth banking office on Spencer
Highway in Pasadena. In conjunction with the opening of this office, the
Company's Board approved in April 1998 the offering of 50,000 shares of Series E
convertible preferred stock. These preferred shares will be convertible into a
maximum of 62,500 shares of the Company's common stock. The offering will
terminate on or about July 15, 1998. The conversion ratio is dependent upon the
Spencer Highway office meeting certain performance goals.
On May 13, 1998, the Company opened its seventeenth banking office in Fort Bend
county.
On February 17, 1998, the Company entered into an Agreement and Plan of
Consolidation (the "Agreement") with Humble National Bank ("Humble"). The terms
of the Agreement provide that each share of Humble's common stock will be
canceled and converted to the right to receive a fractional share of the
Company's common stock, for a total of 855,000 shares of the Company's common
stock. Humble had approximately $54.2 million in assets and $49.6 million in
deposits as of December 31, 1997. This Agreement is subject to approval by the
applicable banking regulatory authorities.
FINANCIAL CONDITION
INVESTMENTS IN SUBSIDIARIES - Sterling Bank is a wholly-owned banking
subsidiary. In September 1996, the Company purchased a 40% equity and 44%
voting interest in Sterling Capital Mortgage Company ("SCMC"), an originator and
servicer of single family residential mortgage loans headquartered in Houston,
Texas. The Company also owns a 100% beneficial interest in Sterling Bancshares
Capital Trust I.
TOTAL ASSETS - The total consolidated assets of the Company as of March 31, 1998
were $1.2 billion, as compared to $1.2 billion as of December 31, 1997, a small
decrease of $5.6 million or 0.5%.
FEDERAL FUNDS SOLD - The Bank had federal funds sold of $15.0 million at March
31, 1998. Comparatively, the Bank had no federal funds sold on December 31,
1997.
6
<PAGE> 7
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - As of March 31, 1998,
securities purchased under agreements to resell totaled $27.1 million as
compared to $15.5 million as of December 31, 1997. The securities purchased are
SBA guaranteed loan pools and certificates and generally have a term of six
months or less.
INVESTMENT SECURITIES - The Bank's investment portfolio as of March 31, 1998,
totaled $228.3 million, as compared to $276.9 million on December 31, 1997, a
decrease of $48.6 million or 17.6%. Proceeds from maturities, calls and paydowns
on mortgage-backed securities were reinvested into federal funds sold and loans.
The Bank has designated its total securities portfolio into held-to-maturity
("HTM") and available-for-sale ("AFS") categories. As of March 31, 1998, the HTM
portfolio totaled $171.8 million and the AFS portfolio totaled $56.5 million.
The Bank tracks but does not record market changes on its HTM portfolio. At
March 31, 1998, the market value of the HTM portfolio was $174.3 million.
LOANS HELD FOR SALE - Total loans held for sale increased from $70.2 million at
December 31, 1997 to $94.0 million at March 31, 1998, an increase of 33.9%.
Loans held for sale included loans warehoused for Sterling Capital Mortgage
Company of $83.1 million and $61.1 million and student loans of $10.9 million
and $9.1 million at March 31, 1998 and December 31, 1997, respectively. Loans
warehoused for Sterling Capital Mortgage increased by $9.1 million or 14.9% from
December 31, 1997.
LOANS HELD FOR INVESTMENT - As of March 31, 1998, loans held for investment were
$699.1 million. When compared to loans held for investment of $667.9 million on
December 31, 1997, the March 31, 1998 loan balance represents a year-to-date
$31.2 million increase in internal loan production, net of payoffs, or an
increase of 4.7%. At March 31, 1998, loans held for investment as a percentage
of assets and deposits were 59.4% and 67.2%, respectively.
The following table summarizes the Bank's loan portfolio by type of loan as of
March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
----------
<S> <C> <C>
Commercial, financial and industrial 279,100 39.92%
Real estate - commercial 193,856 27.73%
Real estate - residential mortgage 85,342 12.21%
Real estate - construction 58,628 8.39%
Foreign commercial and industrial 842 0.12%
Installment and other 82,443 11.79%
Less unearned discount (1,120) (0.16)%
--------- ------
Total loans held for investment $ 699,091 100.00%
========= ======
</TABLE>
7
<PAGE> 8
ALLOWANCE FOR CREDIT LOSSES - Following is a summary of the changes in the
allowance for credit losses for the three months ended March 31, 1998, and the
relationship of the allowance to total loans at March 31, 1998, and December 31,
1997 (in thousands):
<TABLE>
<S> <C>
Allowance for credit losses, December 31, 1997 $ 7,377
Chargeoffs (413)
Recoveries 85
Provision for credit losses 880
-------
Allowance for credit losses, March 31, 1998 $ 7,929
=======
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Loans held for investment at period-end $699,091 $667,918
Allowance for credit losses $ 7,929 $ 7,377
Allowance as a percent of period-end loans 1.13% 1.10%
</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 charge-off experience over the last ten years. The Bank
may reduce the provision for credit losses where appropriate. 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 - Non-performing, 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.
Eight properties make up the $1.3 million of other real estate owned ("ORE") at
March 31, 1998. One property makes up over half of that balance and was
foreclosed during March 1998. The Bank carries all properties at the current
fair market value, less estimated closing and holding costs.
The Bank defines potential problem loans as those loans not classified as
non-performing, but where information known by management indicates serious
doubt that the borrower will 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 non-performing loans. As of March 31, 1998, the
Bank has no material foreign loans outstanding or loan concentrations. The Bank,
however, continues to monitor the potential risk of foreign borrowers and
concentrations of credit.
8
<PAGE> 9
The following schedule summarizes consolidated non-performing loans,
non-performing assets and potential problem loans at year-end 1997 and at March
31, 1998
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(In thousands)
<S> <C> <C>
Nonaccrual loans $ 4,055 $ 4,192
Restructured loans -- --
Accruing loans past due 90 days or more 302 368
------- -------
Total nonperforming loans 4,357 4,560
ORE and other foreclosed assets 1,534 672
------- -------
Total nonperforming assets $ 5,891 $ 5,232
======= =======
Total nonperforming loans as a % of gross loans 0.55% 0.62%
Total nonperforming assets as a % of total assets 0.50% 0.44%
Potential problem loans $12,395 $12,676
======= =======
</TABLE>
PREMISES AND EQUIPMENT - The Bank's premises and equipment, net of depreciation,
as of March 31, 1998, were $29.1 million, as compared to $29.5 million as of
December 31, 1997, a decrease of $364 thousand.
DEPOSITS - Total deposits as of March 31, 1998, were $1.04 billion, as compared
to $1.02 billion on December 31, 1997, an increase of $17.7 million, resulting
from growth in same location deposits, combined with the additional deposits of
the new banking office in Pasadena. Non-interest bearing demand deposits at
March 31, 1998, were $335.6 million, as compared to $342.6 million at December
31, 1997, a decrease of $7.1 million or 2.1%. The percentage of non-interest
bearing deposits to total deposits as of March 31, 1998 continued to be strong
at 32.3%.
CAPITAL RESOURCES AND LIQUIDITY
SHAREHOLDERS' EQUITY - The following table displays the changes in shareholders'
equity from December 31, 1997 to March 31,1998 (in thousands):
<TABLE>
<S> <C> <C>
Equity, December 31, 1997 $ 79,984
Comprehensive income:
Net income 3,675
Net change in net unrealized losses on AFS securities 19
-----
Total comprehensive income 3,694
Issuance of common stock 1,236
Cash dividends paid (834)
--------
Equity, March 31, 1998 $ 84,080
========
</TABLE>
The Company's risk based capital ratios remain above the levels designated as
"well capitalized" on March 31, 1998, with Tier-1 Capital, Total Risk-Based
Capital, and Leverage Capital Ratios of 12.07%, 13.01%, and 9.55%, respectively.
9
<PAGE> 10
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 (excluding 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 Federal Home Loan Bank ("FHLB"), and reverse repurchase
lines with other commercial banks and the FHLB.
RESULTS OF OPERATIONS
NET INCOME - Net income for the three month period ended March 31, 1998, was
$3.7 million as compared to $2.8 million for the same period in 1997, an
increase of approximately $826 thousand or 29.0%. This increase was a result of
the overall growth in the asset base of the bank.
NET INTEREST INCOME - Net interest income for the three month period ended March
31, 1998, was $15.4 million, as compared to $11.9 million for the same period in
1997, an increase of $3.5 million or 29.4%. The growth in net interest income is
attributable primarily to increases in average earning assets, enhanced by the
maintenance of a strong net interest margin. Average earning assets for the
quarter ended March 31, 1998, were $1.04 billion, up $225.0 million, or 27.6%
from $816.4 million for the same period in 1997. The yield on average earning
assets for the three month period ended March 31, 1998, was 8.61%, as compared
to 8.63% for the same period in 1997, a slight decrease of 2 basis points. For
the first three months of 1998, average total loans represented 72.2% of average
total interest earning assets, compared to 68.2% for the same period in 1997.
The cost of interest bearing liabilities rose 12 basis points from 3.71% in 1997
to 3.83% in 1998. Even though average rates on earning assets declined and
average rates on interest bearing liabilities increased, the Company's 6.01% net
interest margin for the first three months of 1998 increased from the 5.92% net
interest margin recorded during the same period in 1997. This is the result of
growth in average non-interest bearing demand deposits of $73.6 million, or
29.3%, reinvestment of earnings and issuance of stock resulting in an increase
of average equity of $13.4 million, or 19.5%, and the issuance of the Trust
Preferred Securities of $28.8 million.
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.
10
<PAGE> 11
The following schedule gives a comparative analysis of the Company's daily
average interest-earning accounts and interest-bearing accounts for the
three-month periods ended March 31, 1998 and 1997:
CONSOLIDATED YIELD ANALYSIS
THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
---------- ---------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest bearing deposits in financial institutions $ 11,057 $ 153 5.61% $ 10,448 $ 126 4.89%
Federal funds sold 6,322 92 5.90% 25,871 347 5.44%
Securities purchased under agreements to resell 20,067 351 7.09% -- -- --
Investment securities (taxable) 230,996 3,685 6.47% 201,271 3,065 6.18%
Investment securities (tax-exempt) 20,806 211 4.11% 22,105 282 5.17%
Loans, net of unearned discount (taxable) 751,304 17,603 9.50% 555,759 13,531 9.87%
Loans, not of unearned discount (tax-exempt) 778 15 7.82% 919 17 7.50%
---------- ---------- ------- ---------- ---------- -------
Total Interest Earning Assets 1,041,330 22,110 8.61% 816,373 17,368 8.63%
Noninterest Earning Assets:
Cash and due from banks 71,528 68,867
Premises and equipment, net 29,366 27,456
Other assets 22,117 17,551
Allowance for credit losses (7,542) (7,226)
---------- ----------
Total Noninterest Earning Assets 115,469 106,648
---------- ----------
TOTAL ASSETS $1,156,799 $ 923,021
========== ==========
INTEREST BEARING LIABILITIES:
Demand and savings deposits $ 455,960 $ 3,482 3.10% $ 395,608 $ 2,949 3.02%
Certificates and other time deposits 232,024 2,962 5.18% 190,415 2,341 4.99%
Other borrowings 20,326 238 4.75% 5,955 65 4.43%
Notes payable -- -- -- 3,867 94 9.86%
---------- ---------- ------- ---------- ---------- -------
Total Interest Bearing Liabilities 708,310 6,682 3.83% 595,845 5,449 3.71%
Noninterest Bearing Liabilities:
Demand deposits 324,431 250,833
Other liabilities 12,877 7,354
Trust preferred securities 28,750 --
Shareholders' equity 82,431 68,989
---------- ----------
Total Noninterest Bearing Liabilities 448,489 327,176
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,156,799 $ 923,021
========== ==========
NET INTEREST INCOME & MARGIN $ 15,428 6.01% $ 11,919 5.92%
========== ======= ========== =======
NET INTEREST INCOME & MARGIN (TAX EQUIVALENT) $ 15,526 6.05% $ 12,054 5.99%
========== ======= ========== =======
</TABLE>
PROVISION FOR CREDIT LOSSES - The provision for credit losses for the first
three months of 1998 was $880 thousand, as compared to $682 thousand for the
same period in 1997, an increase of $198 thousand or 29.0%. After net
charge-offs of $328 million and provisions for the first three months of 1998,
the Bank's allowance for credit losses increased by $552 thousand from $7.4
million on December 31, 1997, to $7.9 thousand on March 31, 1998. Please refer
to the earlier discussion of ALLOWANCES FOR CREDIT LOSSES AND NON-PERFORMING
LOANS for additional insight to management's approach and methodology in
estimating the allowance for credit losses.
NON-INTEREST INCOME - Total non-interest income for the three month
period ended March 31, 1998 was $2.6 million, as compared to $2.1 million for
the same period in 1997, an
11
<PAGE> 12
increase of $508 thousand or 24.1%. The increase is due primarily to growth in
the Bank's deposit base, resulting in increased fee income. Also, the Company
recorded equity earnings of $193 thousand from Sterling Capital Mortgage Company
during the first quarter of 1998, compared to a break-even position for the
first quarter of 1997.
NON-INTEREST EXPENSE - Non-interest expenses increased $2.5 million, or 27.7%,
to $11.6 million for the first three months of 1998 as compared to $9.1 million
for the same period in 1997.
Salaries and employee benefits for the three month period ended March 31, 1998
were $6.2 million, as compared to $5.2 million for the same period in 1997, an
increase of $1.1 million or 20.4%. The increase is due to an increase in the
number of employees. Full time equivalent employees increased by 78, from 392 in
March 1997 to 470 in March 1998 or 19.9%. The increases in headcount were across
the board between the banking offices and the central support divisions and were
a result of supporting a larger customer base. The remaining increase in
personnel costs may be attributed to normal market adjustments and
cost-of-living pay increases.
Technology expense for the three month period ended March 31, 1998, was $734
thousand as compared to $457 thousand for the same period in 1997, an increase
of $277 thousand or 60.6%. The increase is principally due to depreciation
expense relating to the new mainframe computer system installed in April 1997
and an enhanced teller platform installed during September 1997. These new
systems should provide the infrastructure for future expansion.
Minority interest expense represent the interest expense of the subsidiary trust
on the Trust Preferred Securities. These securities were issued during the
second quarter of 1997.
Other non-interest expense was $2.0 million for the three month period ended
March 31, 1998, as compared to $1.8 million for the same period in 1997, an
increase of $209 thousand million or 11.7%.
ITEM 3. QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes since December 31, 1997. See Form 10K, Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Sensitivity and Liquidity".
PART II. OTHER INFORMATION
ITEM 1. Not applicable.
ITEM 2. CHANGES IN SECURITIES
There were no changes in securities during the three months ended March 31,
1998.
ITEM 3. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the three
months ended March 31, 1998.
12
<PAGE> 13
ITEM 5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
Included as Note (2) to Interim Consolidated Financial Statements on
page 5 of this Form 10-Q.
EXHIBIT 27. FINANCIAL DATA SCHEDULE
The required Financial Data Schedules have been included as Exhibits 27
and 27.1 of the Form 10-Q filed electronically with the Securities and
Exchange Commission.
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: /s/ George Martinez
------------------------------------
GEORGE MARTINEZ
CHAIRMAN AND CHIEF FINANCIAL OFFICER
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 COMPUTATION OF EARNINGS PER SHARE
Included as Note (2) to Interim Consolidated Financial Statements on
page 5 of this Form 10-Q.
27 FINANCIAL DATA SCHEDULE
The required Financial Data Schedules have been included as Exhibits 27
and 27.1 of the Form 10-Q filed electronically with the Securities and
Exchange Commission.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED FINANCIAL STATEMENTS OF STERLING BANCSHARES, INC. AND ITS
SUBSIDIARIES AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10Q AS OF MARCH 31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 73,762
<INT-BEARING-DEPOSITS> 418
<FED-FUNDS-SOLD> 15,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,463
<INVESTMENTS-CARRYING> 171,847
<INVESTMENTS-MARKET> 174,305
<LOANS> 793,103
<ALLOWANCE> (7,929)
<TOTAL-ASSETS> 1,177,310
<DEPOSITS> 1,039,904
<SHORT-TERM> 19,463
<LIABILITIES-OTHER> 5,113
<LONG-TERM> 0
0
177
<COMMON> 20,860
<OTHER-SE> 63,043
<TOTAL-LIABILITIES-AND-EQUITY> 1,177,310
<INTEREST-LOAN> 17,618
<INTEREST-INVEST> 3,896
<INTEREST-OTHER> 596
<INTEREST-TOTAL> 22,110
<INTEREST-DEPOSIT> 6,444
<INTEREST-EXPENSE> 6,682
<INTEREST-INCOME-NET> 15,428
<LOAN-LOSSES> 880
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,615
<INCOME-PRETAX> 5,551
<INCOME-PRE-EXTRAORDINARY> 5,551
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,675
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
<YIELD-ACTUAL> 5.98
<LOANS-NON> 4,055
<LOANS-PAST> 302
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,395
<ALLOWANCE-OPEN> 7,377
<CHARGE-OFFS> 413
<RECOVERIES> 85
<ALLOWANCE-CLOSE> 7,929
<ALLOWANCE-DOMESTIC> 4,028
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,901
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 MAR-31-1997
<CASH> 93,490 58,993
<INT-BEARING-DEPOSITS> 42 25,427
<FED-FUNDS-SOLD> 11,244 35,362
<TRADING-ASSETS> 211,207 166,941
<INVESTMENTS-HELD-FOR-SALE> 211,381 57,312
<INVESTMENTS-CARRYING> 55,041 168,573
<INVESTMENTS-MARKET> 211,207 166,941
<LOANS> 647,664 572,791
<ALLOWANCE> (7,508) (7,589)
<TOTAL-ASSETS> 1,060,681 956,713
<DEPOSITS> 918,844 869,317
<SHORT-TERM> 33,790 7,822
<LIABILITIES-OTHER> 5,134 6,621
<LONG-TERM> 0 3,600
0 0
177 88
<COMMON> 20,650 20,654
<OTHER-SE> 53,336 48,611
<TOTAL-LIABILITIES-AND-EQUITY> 1,060,681 956,713
<INTEREST-LOAN> 14,988 13,548
<INTEREST-INVEST> 3,425 3,347
<INTEREST-OTHER> 853 473
<INTEREST-TOTAL> 19,266 17,368
<INTEREST-DEPOSIT> 5,897 5,290
<INTEREST-EXPENSE> 6,058 5,449
<INTEREST-INCOME-NET> 13,208 11,919
<LOAN-LOSSES> 718 682
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 9,942 9,094
<INCOME-PRETAX> 4,893 4,253
<INCOME-PRE-EXTRAORDINARY> 4,893 4,253
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,269 2,849
<EPS-PRIMARY> .29 .14
<EPS-DILUTED> .30 .13
<YIELD-ACTUAL> 5.97 5.92
<LOANS-NON> 2,487 2,102
<LOANS-PAST> 433 639
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 7,589 7,053
<CHARGE-OFFS> 833 236
<RECOVERIES> 70 80
<ALLOWANCE-CLOSE> 7,508 7,589
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
RESTATEMENT FOR 3 FOR 2 STOCK SPLIT, EFFECTIVE FEBRUARY 1998 & MERGER WITH
FIRST HOUSTON BANCSHARES, INC, ACCOUNTED FOR AS A POOLING OF INTERESTS,
EFFECTIVE SEPTEMBER 1997.
</FN>
</TABLE>
