<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 JUNE 30, 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)
<TABLE>
<S> <C>
TEXAS 74-2175590
(State of Incorporation) (IRS Employer ID Number)
</TABLE>
15000 NORTHWEST FREEWAY, SUITE 200
HOUSTON, TEXAS 77040
(Address of principal executive office)
713-466-8300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 ("Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes [X] No [ ]
The number of shares outstanding of each class of the registrant's capital
stock as of June 30, 1998:
<TABLE>
<CAPTION>
CLASS OF STOCK SHARES OUTSTANDING
-------------- ------------------
<S> <C>
Common Stock, Par Value $1.00 21,809,617
</TABLE>
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and due from banks..................................... $ 85,314 $ 114,552
Federal funds sold.......................................... 27,000 7,500
Interest-bearing deposits in financial institutions......... 5,880 409
Securities purchased with an agreement to resell............ 36,529 15,496
Available-for-sale investment securities, at fair value..... 75,924 93,669
Held-to-maturity investment securities, at amortized cost... 165,832 197,970
Investment in Sterling Capital Mortgage Company............. 2,952 2,510
Loans held for sale......................................... 101,865 70,193
Loans....................................................... 748,897 693,460
Allowance for credit losses................................. (8,609) (7,629)
---------- ----------
Loans, net................................................ 740,288 685,831
Accrued interest receivable................................. 7,686 7,958
Real estate acquired by foreclosure......................... 2,237 515
Premises and equipment, net................................. 31,243 31,013
Goodwill, net............................................... 1,418 1,518
Other assets................................................ 7,996 7,915
---------- ----------
TOTAL ASSETS...................................... $1,292,164 $1,237,049
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing....................................... $ 403,274 $ 359,137
Interest-bearing.......................................... 491,864 475,890
Certificates of deposit and other time deposits............. 256,069 236,756
---------- ----------
Total deposits.................................... 1,151,207 1,071,783
Securities sold under agreements to repurchase and other
borrowed funds............................................ 15,956 44,501
Accrued interest payable and other liabilities.............. 4,271 8,571
---------- ----------
Total liabilities................................. 1,171,434 1,124,855
COMPANY-OBLIGATED MANDATORILY 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............................................. 21,810 21,496
Capital surplus........................................... 18,055 16,306
Retained earnings......................................... 51,972 45,523
Net unrealized gains(losses) on available-for-sale
investment securities, net of tax...................... (34) (58)
---------- ----------
Total shareholders' equity........................ 91,980 83,444
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $1,292,164 $1,237,049
========== ==========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
1
<PAGE> 3
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees................................ $19,733 $15,550 $38,002 $29,631
Federal funds sold................................... 283 504 462 866
Deposits in financial institutions................... 95 371 241 497
Securities purchased under agreements to resell...... 520 -- 871 --
Investment securities:
Taxable........................................... 3,495 3,371 7,384 6,639
Tax-exempt........................................ 324 290 558 587
------- ------- ------- -------
Total interest income........................ 24,450 20,086 47,518 38,220
Interest expense:
Demand and savings deposits.......................... 3,616 3,419 7,225 6,445
Certificates and other time deposits................. 3,386 2,735 6,542 5,239
Securities sold under agreements to repurchase and
other borrowed funds.............................. 221 107 446 172
Notes payable........................................ -- 54 -- 147
------- ------- ------- -------
Total interest expense....................... 7,223 6,315 14,213 12,003
------- ------- ------- -------
NET INTEREST INCOME.......................... 17,227 13,771 33,305 26,217
Provision for credit losses.................. 1,764 735 2,665 1,454
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION.................................. 15,463 13,036 30,640 24,763
Noninterest income:
Customer service fees................................ 1,849 1,779 3,695 3,447
Equity in earnings of Sterling Capital Mortgage
Company........................................... 269 55 462 55
Other................................................ 1,431 777 2,297 1,495
------- ------- ------- -------
Total noninterest income..................... 3,549 2,611 6,454 4,997
Noninterest expense:
Salaries and employee benefits....................... 6,477 5,734 12,962 11,172
Occupancy expense.................................... 1,604 1,394 2,996 2,805
Technology........................................... 1,341 594 2,308 1,170
Supplies............................................. 236 235 504 444
Professional fees.................................... 525 375 895 617
Minority interest expense............................ 667 178 1,334 178
Other................................................ 2,150 2,075 4,252 3,947
------- ------- ------- -------
Total noninterest expense.................... 13,000 10,585 25,251 20,333
NET INCOME BEFORE INCOME TAXES............... 6,012 5,062 11,843 9,427
Provision for income taxes........................ 1,744 1,670 3,723 3,106
------- ------- ------- -------
NET INCOME................................... $ 4,268 $ 3,392 $ 8,120 $ 6,321
======= ======= ======= =======
Earnings per share:
Basic................................................ $ 0.20 $ 0.16 $ 0.37 $ 0.30
======= ======= ======= =======
Diluted.............................................. $ 0.19 $ 0.15 $ 0.36 $ 0.28
======= ======= ======= =======
</TABLE>
See Notes to Interim Consolidated Financial Statements.
2
<PAGE> 4
STERLING BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,120 $ 6,321
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization and accretion of premiums and discounts on
investment securities, net............................ 234 173
Equity in undistributed earnings of Sterling Capital
Mortgage Company...................................... (442) 20
Provision for credit losses............................ 2,665 1,454
Loss on disposal of premises and equipment............. -- 115
Gain on sale of real estate acquired by foreclosure and
repossessed assets.................................... (76) (32)
Depreciation and amortization.......................... 2,599 1,854
Net change in loans held for sale...................... (31,672) (5,646)
Increase (decrease) in accrued interest receivable and
other assets.......................................... 291 (2,883)
Decrease in accrued interest payable and other
liabilities........................................... (4,310) (2,037)
-------- ---------
Net cash used in operating activities............. (22,591) (661)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in securities purchased under agreements to
resell................................................. (21,033) --
Proceeds from maturity and paydowns of held-to-maturity
investment securities.................................. 50,060 12,482
Purchases of held-to-maturity investment securities....... (10,180) (75,415)
Proceeds from maturity and paydowns of available-for-sale
investment securities.................................. 42,433 19,079
Purchases of available-for-sale investment securities..... (32,630) (16,804)
Net increase in loans..................................... (59,033) (91,915)
Proceeds from sale of real estate acquired by
foreclosure............................................ 265 633
Net increase in interest-bearing deposits in financial
institutions........................................... (5,471) (20)
Proceeds from sale of premises and equipment.............. 59 196
Purchase of premises and equipment........................ (2,888) (5,087)
-------- ---------
Net cash used in investing activities............. (38,418) (156,851)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts.......................... 79,424 80,102
Net increase (decrease) in repurchase agreements/funds
purchased.............................................. (28,545) 30,039
Repayment of notes payable................................ -- (4,000)
Proceeds from issuance of common stock.................... 2,063 1,020
Proceeds from issuance of preferred stock................. -- 1,226
Proceeds from issuance of trust preferred securities of
subsidiary trust....................................... -- 28,750
Dividends paid............................................ (1,671) (1,358)
-------- ---------
Net cash provided by financing activities......... 51,271 135,779
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (9,738) (21,733)
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 122,052 131,348
-------- ---------
End of period............................................. $112,314 $ 109,615
======== =========
SUPPLEMENTAL INFORMATION:
Income taxes paid......................................... $ 4,783 $ 6,723
======== =========
Interest paid............................................. $ 14,110 $ 11,718
======== =========
Noncash investing and financing activities:
Acquisitions of real estate through foreclosure of
collateral............................................ $ 1,911 $ 71
======== =========
</TABLE>
See Notes to Interim Consolidated Financial Statements.
3
<PAGE> 5
STERLING BANCSHARES, INC., AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1998,
are not necessarily indicative of the results that may be expected for the
entire year or any interim period. 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.
2. ACQUISITION
On June 30, 1998, the Company acquired Humble National Bank ("Humble") in
exchange for 855,000 shares of the Company's common stock. This transaction was
accounted for as a pooling of interests and previously issued financial
statements have been restated.
The following table reflects the results of operations of the Company and
Humble as separate entities and the combined amounts after the pooling of
interests:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
STERLING STERLING
(WITHOUT (WITHOUT
HUMBLE) HUMBLE COMBINED HUMBLE) HUMBLE COMBINED
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $45,623 $1,895 $47,518 $36,634 $1,586 $38,220
Interest expense..................... 13,602 611 14,213 11,507 496 12,003
------- ------ ------- ------- ------ -------
Net interest income.................. 32,021 1,284 33,305 25,127 1,090 26,217
Provision for credit losses.......... 2,623 42 2,665 1,400 54 1,454
------- ------ ------- ------- ------ -------
Net interest income after provision
for loan losses.................... 29,398 1,242 30,640 23,727 1,036 24,763
Noninterest income................... 5,393 1,061 6,454 4,455 542 4,997
Noninterest expense.................. 23,591 1,660 25,251 19,036 1,297 20,333
------- ------ ------- ------- ------ -------
Net income before income taxes....... 11,200 643 11,843 9,146 281 9,427
Provision for income taxes........... 3,534 189 3,723 3,028 78 3,106
------- ------ ------- ------- ------ -------
Net income........................... $ 7,666 $ 454 $ 8,120 $ 6,118 $ 203 $ 6,321
======= ====== ======= ======= ====== =======
</TABLE>
4
<PAGE> 6
STERLING BANCSHARES, INC., AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") was computed based on the following (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
PER PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income................................... $4,268 $3,392 $8,120 $6,321
======= ======= ======= =======
Basic:
Weighted average shares outstanding........ 21,780 $0.20 21,415 $0.16 21,701 $0.37 21,387 $0.30
===== ===== ===== =====
Diluted:
Add incremental shares for:
Assumed exercise of outstanding
options................................ 719 685 618 691
Assumed conversion of preferred stock.... 459 282 459 269
------- ------- ------- -------
Total................................ 22,958 $0.19 22,382 $0.15 22,778 $0.36 22,346 $0.28
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
All 1997 amounts have been restated to reflect the acquisition of Humble on
June 30, 1998 and a three-for-two stock split on February 20, 1998.
4. 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
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.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
Expansion -- 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 designated 50,000 shares of Series E convertible preferred stock
and authorized the offering and sale of such shares to investors who may assist
in the business development efforts of the office. These preferred shares will
be convertible into a maximum of 62,500 shares of the Company's common stock.
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. In conjunction with the opening of this office, in April 1998, the
Company's Board designated two additional series of convertible preferred stock
consisting of 30,000 shares of Series F Convertible Preferred Stock and 50,000
shares of Series G Convertible Preferred Stock. The shares of Series F and
Series G Convertible Preferred Stock, which are being offered and sold to
prospective investors who the Company believes will be helpful in the
development of the office, will be convertible into a maximum of 100,000 shares
of the Company's common stock.
On June 30, 1998, Humble was acquired by the Company in a stock-for-stock
merger. The Company plans to merge Humble into Sterling Bank before the end of
1998, to create Sterling Bank's eighteenth banking office.
On July 2, 1998, the Company acquired an additional 40% equity ownership in
CMCR Holding Company, the parent company of Sterling Capital Mortgage Company
("SCMC") resulting in a total of 80% equity ownership. This acquisition will be
accounted for as a purchase transaction and the results of operations from July
2, 1998 forward will be consolidated into the Company's results of operations.
On June 12, 1998, the Company entered into an Agreement and Plan of
Consolidation (the "Agreement") with Hometown Bancshares, Inc. ("Hometown"),
which is a bank holding company owning 100% of Clear Lake National Bank. Under
the terms of the Agreement, the merger consideration to be paid to Hometown's
shareholders will be determined based upon the average closing sales price of
the Company's common stock for a ten day period preceding the closing, provided
that the total number of shares of the Company's common stock to be paid to
Hometown's shareholders will not be more than 1,375,000 shares or less than
1,150,000 shares. Hometown had approximately $84.7 million in assets and $77.6
million in deposits as of June 30, 1998. This Agreement is subject to approval
by the shareholders of Hometown and applicable banking regulatory authorities.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Same Period in 1997
Net Income -- Net income for the six-month period ended June 30, 1998, was
$8.1 million as compared to $6.3 million for the same period in 1997, an
increase of approximately $1.8 million or 28.5%. This increase was a result of
the overall growth in the asset base of the bank.
Net Interest Income -- Net interest income for the six-month period ended
June 30, 1998, was $33.3 million, as compared to $26.2 million for the same
period in 1997, an increase of $7.1 million or 27.0%. 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 six months ended June 30, 1998, were $1.1 billion, up $232
million, or 26.1% from $890.1 million for the same period in 1997. The yield on
average earning assets for the six-month period ended June 30, 1998, was 8.54%,
as compared to 8.66% for the same period in 1997. This decrease is due primarily
to an increase in mortgage loans held for resale, which have a lower yield than
most other loan types. For the first six months of 1998, average total loans
represented
6
<PAGE> 8
72.0% of average total interest earning assets, compared to 67.4% for the same
period in 1997. The cost of interest bearing liabilities rose 4 basis points
from 3.76% in 1997 to 3.80% in 1998. Even though average rates on earning assets
declined and average rates on interest bearing liabilities increased, the
Company's 5.98% net interest margin for the first six months of 1998 increased
from the 5.94% net interest margin recorded during the same period in 1997. This
is the result of growth in average non-interest bearing demand deposits of $81.6
million, or 29.9%, reinvestment of earnings and issuance of stock resulting in
an increase of average equity of $13.7 million, or 18.5%, 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.
7
<PAGE> 9
The following schedule gives a comparative analysis of the Company's daily
average interest-earning accounts and interest-bearing accounts for the
six-month periods ended June 30, 1998 and 1997, respectively:
CONSOLIDATED YIELD ANALYSIS
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
---------- -------- ----- ---------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest bearing deposits in financial
institutions........................... $ 8,428 $ 241 5.77% $ 18,719 $ 497 5.35%
Federal funds sold....................... 16,892 462 5.52% 32,556 866 5.36%
Securities purchased under agreements to
resell................................. 24,752 871 7.10% -- -- --
Investment securities (taxable).......... 238,766 7,384 6.24% 215,661 6,639 6.21%
Investment securities (tax-exempt)....... 24,906 558 4.52% 23,447 587 5.05%
Loans (taxable).......................... 807,899 37,972 9.48% 598,787 29,597 9.97%
Loans (tax-exempt)....................... 784 30 7.72% 902 34 7.60%
---------- ------- ---- ---------- ------- ----
Total Interest Earning
Assets....................... 1,122,427 47,518 8.54% 890,072 38,220 8.66%
Noninterest Earning Assets:
Cash and due from banks.................. 71,295 71,538
Premises and equipment, net.............. 31,117 29,088
Other assets............................. 19,999 18,105
Allowance for credit losses.............. (8,131) (7,599)
---------- ----------
Total Noninterest Earning
Assets....................... 114,280 111,132
---------- ----------
Total Assets................... $1,236,707 $1,001,204
========== ==========
Interest Bearing Liabilities:
Demand and savings deposits.............. $ 480,601 $ 7,225 3.03% $ 424,194 $ 6,445 3.06%
Certificates and other time deposits..... 253,732 6,542 5.20% 208,271 5,239 5.07%
Other borrowings......................... 19,936 446 4.51% 7,670 172 4.52%
Debentures and notes payable............. -- -- -- 3,006 147 9.86%
---------- ------- ---- ---------- ------- ----
Total Interest Bearing
Liabilities.................. 754,269 14,213 3.80% 643,141 12,003 3.76%
Noninterest Bearing Liabilities:
Demand deposits........................ 354,637 273,071
Other liabilities...................... 11,257 10,926
Trust preferred securities............... 28,750 --
Shareholders' equity..................... 87,794 74,066
---------- ----------
482,438 358,063
---------- ----------
Total Liabilities and
Shareholders' Equity......... $1,236,707 $1,001,204
========== ==========
Net Interest Income & Margin... $33,305 5.98% $26,217 5.94%
======= ==== ======= ====
Net Interest Income & Margin
(tax equivalent)............. $33,564 6.03% $26,495 6.00%
======= ==== ======= ====
</TABLE>
Provision for Credit Losses -- The provision for credit losses for the
first six months of 1998 was $2.7 million, as compared to $1.5 million for the
same period in 1997, an increase of $1.2 million or 83.3%. This increase in the
provision for credit losses is due to an increase in net charge-offs as well as
to provide for loan growth. After net charge-offs of $1.7 million and provisions
for the first six months of 1998, the
8
<PAGE> 10
Company's allowance for credit losses increased by $980 thousand from $7.6
million on December 31, 1997, to $8.6 thousand on June 30, 1998. Please refer to
the subsequent discussion of Allowances for Credit Losses 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 six-month period
ended June 30, 1998 was $6.5 million, as compared to $5.0 million for the same
period in 1997, an increase of $1.5 million or 29.2%. The increase is due
primarily to growth in the Company's deposit base, resulting in increased fee
income. Also, the Company recorded equity earnings of $462 thousand from SCMC
during the first half of 1998, compared to $55 thousand for the first half of
1997. Finally, in June of 1998, Humble obtained a condemnation award, net of
legal fees, of $478 thousand for damages to real property seized by the Texas
Department of Transportation.
Non-interest Expense -- Non-interest expenses increased $4.9 million, or
24.2%, to $25.3 million for the first six months of 1998 as compared to $20.3
million for the same period in 1997.
Salaries and employee benefits for the six-month period ended June 30, 1998
were $13.0 million, as compared to $11.2 million for the same period in 1997, an
increase of $1.8 million or 16.0%. The increase is due to an increase in the
number of employees. Full time equivalent employees increased by 73, from 469 in
June 1997 to 542 in June 1998 or 15.6%. The increases in headcount were the
result of supporting a larger customer base. The remaining increase in personnel
costs is attributable to normal market adjustments and cost-of-living pay
increases.
Technology expense for the six-month period ended June 30, 1998, was $2.3
million as compared to $1.2 million for the same period in 1997, an increase of
$1.1 million or 97.3%. 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
provide the infrastructure for future expansion. Also, costs associated with the
acquisition and conversion of Humble totaling $197 thousand were accrued during
the second quarter of 1998.
Professional fees for the six months ended June 30, 1998, were $895
thousand as compared to $617 thousand for the same period in 1997, an increase
of $278 thousand or 45%. The majority of this increase is due to $194 thousand
in professional fees relating to the acquisition of Humble.
Minority interest expense represents 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 $4.3 million for the six-month period ended
June 30, 1998, as compared to $3.9 million for the same period in 1997, an
increase of $305 thousand or 7.7%, well below the overall growth rate for the
bank as a whole.
The provision for income taxes as a percent of net income before taxes
decreased from 32.9% for the first half of 1997 to 31.4% for the first half of
1998. This decrease is related to a $240 thousand adjustment recorded in the
second quarter of 1998 to reduce the valuation allowance for deferred tax
assets.
Three Months Ended June 30, 1998 Compared To Same Period In 1997
Net Income -- Net income for the three-month period ended June 30, 1998,
was $4.3 million as compared to $3.4 million for the same period in 1997, an
increase of approximately $876 million or 25.8%. This increase was a result of
the overall growth in the asset base of the Company.
Net Interest Income -- Net interest income for the three-month period ended
June 30, 1998, was $17.2 million, as compared to $13.8 million for the same
period in 1997, an increase of $3.5 million or 25.1%. 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 three months ended June 30, 1998, were $1.2 billion, up $225.2
million, or 24.3% from $926.1 million for the same period in 1997. The yield on
average earning assets for the three-month period ended June 30, 1998, was
8.52%, as compared to 8.70% for the same period in 1997. This decrease is due
primarily to an increase in mortgage loans held for resale, which have a lower
yield than most other loan types. For the first three months of 1998, average
total loans
9
<PAGE> 11
represented 72.9% of average total interest earning assets, compared to 67.1%
for the same period in 1997. The cost of interest bearing liabilities declined 4
basis points from 3.82% in 1997 to 3.78% in 1998. Even though average rates on
earning assets declined, the Company's 6.00% net interest margin for the second
quarter of 1998 increased from the 5.96% net interest margin recorded during the
same period in 1997. This is the result of growth in average non-interest
bearing demand deposits of $85.3 million, or 30.0%, reinvestment of earnings and
issuance of stock resulting in an increase of average equity of $14.3 million,
or 18.9%, and the issuance of the Trust Preferred Securities of $28.8 million.
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 June 30, 1998 and 1997, respectively:
CONSOLIDATED YIELD ANALYSIS
THREE MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997
----------------------------- ------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
---------- -------- ----- ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest bearing deposits in financial institutions.... $ 6,622 $ 95 5.75% $ 26,899 $ 371 5.53%
Federal funds sold..................................... 21,009 283 5.40% 38,086 504 5.31%
Securities purchased under agreements to resell........ 29,390 520 7.10% -- -- --
Investment securities (taxable)........................ 228,462 3,495 6.14% 216,738 3,371 6.24%
Investment securities (tax-exempt)..................... 27,010 324 4.81% 23,430 290 4.96%
Loans (taxable)........................................ 838,029 19,718 9.44% 620,084 15,533 10.05%
Loans (tax-exempt)..................................... 767 15 7.84% 885 17 7.70%
---------- ------- ----- ---------- ------- ------
Total Interest Earning Assets.................. 1,151,289 24,450 8.52% 926,122 20,086 8.70%
Noninterest Earning Assets:
Cash and due from banks................................ 67,088 70,878
Premises and equipment, net............................ 31,170 29,854
Other assets........................................... 19,146 18,073
Allowance for credit losses............................ (8,458) (7,769)
---------- ----------
Total Noninterest Earning Assets............... 108,946 111,036
---------- ----------
Total Assets................................... $1,260,235 $1,037,158
========== ==========
Interest Bearing Liabilities:
Demand and savings deposits............................ $ 485,336 $ 3,616 3.22% $ 435,887 $ 3,419 3.15%
Certificates and other time deposits................... 261,839 3,386 4.58% 214,825 2,735 5.11%
Other borrowings....................................... 19,540 221 4.54% 9,356 107 4.59%
Debentures and notes payable........................... -- -- -- 2,154 54 10.06%
---------- ------- ----- ---------- ------- ------
Total Interest Bearing Liabilities............. 766,715 7,223 3.78% 662,222 6,315 3.82%
Noninterest Bearing Liabilities:
Demand deposits...................................... 369,490 284,151
Other liabilities.................................... 5,411 15,220
Trust preferred securities............................. 28,750 --
Shareholders' equity................................... 89,869 75,565
---------- ----------
493,520 374,936
---------- ----------
Total Liabilities and Shareholders' Equity..... $1,260,235 $1,037,158
========== ==========
Net Interest Income & Margin................... $17,227 6.00% $13,771 5.96%
======= ===== ======= ======
Net Interest Income & Margin (tax
equivalent).................................. $17,379 6.05% $13,908 6.02%
======= ===== ======= ======
</TABLE>
10
<PAGE> 12
Provision for Credit Losses -- The provision for credit losses for the
second quarter of 1998 was $1.8 million, as compared to $735 thousand for the
same period in 1997, an increase of $1.0 million or 140%. This increase in the
provision for credit losses is due to an increase in net charge-offs as well as
to provide for loan growth.
Non-interest Income -- Total non-interest income for the three-month period
ended June 30, 1998 was $3.5 million, as compared to $2.6 million for the same
period in 1997, an increase of $938 thousand or 35.9%. The increase is due
primarily to growth in the Company's deposit base, resulting in increased fee
income. Also, the Company recorded equity earnings of $269 thousand from SCMC
during the second quarter of 1998, compared to $55 thousand for the second
quarter of 1997. Finally, in June of 1998, Humble obtained a condemnation award,
net of legal fees, of $478 thousand for damages to real property seized by the
Texas Department of Transportation.
Non-interest Expense -- Non-interest expenses increased $2.4 million, or
22.8%, to $13.0 million for the second quarter of 1998 as compared to $10.6
million for the same period in 1997.
Salaries and employee benefits for the three-month period ended June 30,
1998 were $6.5 million, as compared to $5.7 million for the same period in 1997,
an increase of $743 thousand or 13.0%. The increase is due to an increase in the
number of employees. Full time equivalent employees increased by 73, from 469 in
June 1997 to 542 in June 1998 or 15.6%. The increases in headcount were the
result of supporting a larger customer base.
Technology expense for the three-month period ended June 30, 1998, was $1.3
million as compared to $594 thousand for the same period in 1997, an increase of
$747 million or 126%. 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
provide the infrastructure for future expansion. Also, costs associated with the
acquisition and conversion of Humble totaling $197 thousand were accrued during
the second quarter of 1998.
Professional fees for the three months ended June 30, 1998, were $525
thousand as compared to $375 thousand for the same period in 1997, an increase
of $150 thousand or 40.0%. This increase is due to $194 thousand in professional
fees relating to the acquisition of Humble.
Minority interest expense represents 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 $2.2 million for the three-month period
ended June 30, 1998, as compared to $2.1 million for the same period in 1997, an
increase of $75 thousand or 3.6%, well below the overall growth rate for the
bank as a whole.
The provision for income taxes as a percent of net income before taxes
decreased from 33.0% for the second quarter of 1997 to 29.0% for the second
quarter of 1998. This decrease is related to the $240 thousand adjustment
recorded in the second quarter of 1998 to reduce the valuation allowance for
deferred tax assets.
FINANCIAL CONDITION
Investments in Subsidiaries -- Sterling Bank and Humble National Bank are
wholly owned banking subsidiaries. In September 1996, the Company purchased a
40% equity 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 June 30,
1998 were $1.3 billion, as compared to $1.2 billion as of December 31, 1997, an
increase of $55.1 million or 4.5%. The growth in total assets was due to a
combination of internal growth and the opening of two de novo offices.
Federal Funds Sold -- The Company had federal funds sold of $27.0 million
at June 30, 1998. Comparatively, the Company had $7.5 million in federal funds
sold on December 31, 1997, an increase of
11
<PAGE> 13
$19.5 million or 260%. The increase was due to maturities and paydowns of
investment securities that had not yet been reinvested.
Securities purchased under agreements to resell -- As of June 30, 1998,
securities purchased under agreements to resell totaled $36.5 million as
compared to $15.5 million as of December 31, 1997. The securities purchased are
SBA or USDA guaranteed loan certificates. The repurchase agreements generally
have a term of six months or less.
Investment Securities -- The Company's investment portfolio as of June 30,
1998, totaled $241.8 million, as compared to $291.6 million on December 31,
1997, a decrease of $49.9 million or 17.1%. The Company has designated its total
securities portfolio into held-to-maturity ("HTM") and available-for-sale
("AFS") categories. At June 30, 1998, the fair value of the HTM portfolio was
$168.0 million.
Loans Held for Sale -- Total loans held for sale increased from $70.2
million at December 31, 1997 to $101.9 million at June 30, 1998, an increase of
$31.7 million, or 45.1%. Loans held for sale included loans purchased from SCMC
of $92.0 million and $61.1 million and student loans of $9.9 million and $9.1
million at June 30, 1998 and December 31, 1997, respectively. Loans purchased
from SCMC increased by $30.9 million or 50.6% from December 31, 1997.
Loans Held for Investment -- As of June 30, 1998, loans held for investment
were $748.9 million. When compared to loans held for investment of $693.4
million on December 31, 1997, the June 30, 1998 loan balance represents a
year-to-date $55.4 million increase in internal loan production, net of loan
reductions, or an increase of 8.0%. At June 30, 1998, loans held for investment
as a percentage of assets and deposits were 58.0% and 65.1%, respectively.
The following table summarizes the Company's held for investment loan
portfolio by type of loan as of June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
----------
<S> <C> <C>
Commercial, financial and industrial........................ $288,075 38.47%
Real estate -- commercial................................... 205,955 27.50%
Real estate -- residential mortgage......................... 95,084 12.70%
Real estate -- construction................................. 66,554 8.89%
Foreign commercial and industrial........................... 2,776 0.37%
Consumer and other.......................................... 91,714 12.25%
Less unearned discount.................................... (1,261) (0.17)%
-------- ------
Total loans held for investment................... $748,897 100.00%
======== ======
</TABLE>
Allowance for Credit Losses -- Following is a summary of the changes in the
allowance for credit losses for the six months ended June 30, 1998, and the
relationship of the allowance to total loans at June 30, 1998, and December 31,
1997 (in thousands):
<TABLE>
<S> <C>
Allowance for credit losses, December 31, 1997.............. $ 7,629
Chargeoffs.................................................. (1,892)
Recoveries.................................................. 207
Provision for credit losses................................. 2,665
-------
Allowance for credit losses, June 30, 1998.................. $ 8,609
=======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Loans held for investment at period-end..................... $748,897 $693,460
Allowance for credit losses................................. $ 8,609 $ 7,629
Allowance as a percent of period-end loans.................. 1.15% 1.10%
</TABLE>
12
<PAGE> 14
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 Company's historical charge-off experience over the last ten years. The
Company will continue to monitor the adequacy of the allowance for credit losses
to determine the appropriate accrual for the Company's provision for credit
losses.
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.
Twelve properties make up the $2.2 million of other real estate owned ("ORE") at
June 30, 1998. All properties are carried at the current fair market value, less
estimated selling and holding costs.
The Company defines potential problem loans as those loans for which
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. As of June
30, 1998, the Company has no material foreign loans outstanding or loan
concentrations.
The following table summarizes total non-performing assets and potential
problem loans at December 31, 1997 and at June 30, 1998:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans............................................ $ 3,579 $ 4,226
Restructured loans.......................................... 46 217
Accruing loans past due 90 days or more..................... 451 368
------- -------
Total nonperforming loans......................... 4,076 4,811
ORE and other foreclosed assets............................. 2,601 869
------- -------
Total nonperforming assets........................ $ 6,677 $ 5,680
======= =======
Total nonperforming loans as a % of gross loans............. 0.48% 0.63%
Total nonperforming assets as a % of total assets........... 0.52% 0.46%
Potential problem loans, other than those shown above
as nonperforming.......................................... $18,402 $12,769
</TABLE>
Premises and Equipment -- The Company's premises and equipment, net of
depreciation, as of June 30, 1998, were $31.2 million, as compared to $31.0
million as of December 31, 1997, an increase of $230 thousand or 0.7%.
Deposits -- Total deposits as of June 30, 1998, were $1.2 billion, as
compared to $1.1 billion on December 31, 1997, an increase of $79.4 million, or
7.4%, resulting from growth in same location deposits, combined with the
additional deposits of the new banking offices in Pasadena and Fort Bend County.
Non-interest bearing demand deposits at June 30, 1998, were $403.3 million, as
compared to $359.1 million at December 31, 1997, an increase of $44.1 million or
12.3%. The percentage of non-interest bearing deposits to total deposits as of
June 30, 1998 continued to be strong at 35.0%.
13
<PAGE> 15
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' Equity -- The following table displays the changes in
shareholders' equity from December 31, 1997, to June 30, 1998 (in thousands):
<TABLE>
<S> <C> <C>
Equity, December 31, 1997.......................................... $83,444
Comprehensive Income:
Net income............................................. 8,120
Net change in net unrealized losses on AFS
securities............................................ 24
-----
Total comprehensive income............................... 8,144
Issuance of common stock......................................... 2,063
Cash dividends paid.............................................. (1,671)
-------
Equity, June 30, 1998.............................................. $91,980
=======
</TABLE>
The Company's risk-based capital ratios remain above the levels designated
by regulatory agencies under the prompt corrective action framework as "well
capitalized" on June 30, 1998, with Tier-1 Capital, Total Risk-Based Capital,
and Leverage Capital Ratios of 11.92%, 12.78%, and 9.48%, respectively.
Liquidity -- Effective management of balance sheet liquidity is necessary
to fund growth in earning assets and to pay liability maturities, depository
customers' withdrawal requirements and shareholders' dividends. The Company has
instituted Asset/Liability Management policies, including but not limited to a
computer simulation model, to improve liquidity controls and to enhance its
management of interest rate risk and financial condition. The Company has
numerous sources of liquidity including a significant portfolio of shorter-term
assets, marketable investment securities (excluding those presently classified
as "held-to-maturity"), increases in customers' deposits, and access to
borrowing arrangements. Available borrowing arrangements maintained by the
Company include federal funds lines with other commercial banks and an
advancement arrangement with the Federal Home Loan Bank ("FHLB").
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".
14
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. Not applicable.
ITEM 2. CHANGES IN SECURITIES
There were no changes in securities during the six months ended June 30,
1998.
ITEM 3. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
Any proposal of stockholders to be included in the Company's proxy
statement relating to the Company's 1999 Annual Meeting of Stockholders pursuant
to Rule 14a-8 under the Exchange Act must be received by the Company at its
principal executive offices no later than December 23, 1998; such proposal must
also comply with the Company's Bylaws and Rule 14a-8 if the proposal is to be
considered for inclusion in the Company's proxy statement for such meeting. The
Company must receive notice of any stockholder proposal to be brought before the
meeting outside the process of Rule 14a-8 at the Company's principal executive
offices not less than 45 days nor more than 180 days prior to the meeting;
provided, if the Company gives notice or prior public disclosure of the date of
the annual meeting less than 50 days before the meeting, such stockholders
notice must be received not later than the close of business on the seventh day
following the date on which the Company's notice of the date of the annual
meeting was mailed or public disclosure made. The form of such stockholder
notice must also comply with the Company's Bylaws.
ITEM 5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
Included as Note (3) 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,
27.1, 27.2 and 27.3 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
15
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
Included as Note (3) to Interim Consolidated Financial Statements on page 6
of this Form 10-Q.
EXHIBIT 27. FINANCIAL DATA SCHEDULE
The required Financial Data Schedules have been included as Exhibits 27,
27.1, 27.2 and 27.3 of the Form 10-Q filed electronically with the Securities
and Exchange Commission.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 85,314
<INT-BEARING-DEPOSITS> 5,880
<FED-FUNDS-SOLD> 27,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,924
<INVESTMENTS-CARRYING> 165,832
<INVESTMENTS-MARKET> 168,031
<LOANS> 850,762
<ALLOWANCE> (8,609)
<TOTAL-ASSETS> 1,292,164
<DEPOSITS> 1,151,207
<SHORT-TERM> 15,956
<LIABILITIES-OTHER> 4,271
<LONG-TERM> 0
0
28,927
<COMMON> 21,810
<OTHER-SE> 69,993
<TOTAL-LIABILITIES-AND-EQUITY> 1,292,164
<INTEREST-LOAN> 38,002
<INTEREST-INVEST> 7,942
<INTEREST-OTHER> 1,574
<INTEREST-TOTAL> 47,518
<INTEREST-DEPOSIT> 13,767
<INTEREST-EXPENSE> 14,213
<INTEREST-INCOME-NET> 33,305
<LOAN-LOSSES> 2,665
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 25,251
<INCOME-PRETAX> 11,843
<INCOME-PRE-EXTRAORDINARY> 8,120
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,120
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 5.98
<LOANS-NON> 3,579
<LOANS-PAST> 451
<LOANS-TROUBLED> 46
<LOANS-PROBLEM> 18,402
<ALLOWANCE-OPEN> 7,629
<CHARGE-OFFS> (1,892)
<RECOVERIES> 207
<ALLOWANCE-CLOSE> 8,609
<ALLOWANCE-DOMESTIC> 4,952
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,657
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997<F1> SEP-30-1997 JUN-30-1997
<CASH> 78,609 114,552 73,582 97,370
<INT-BEARING-DEPOSITS> 418 409 488 42
<FED-FUNDS-SOLD> 49,104 22,996 19,584 12,244
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 68,107 93,669 92,178 66,191
<INVESTMENTS-CARRYING> 173,983 197,970 204,880 214,534
<INVESTMENTS-MARKET> 176,143 200,097 206,212 214,349
<LOANS> 819,133 763,653 695,262 671,902
<ALLOWANCE> (8,198) (7,629) (7,595) (7,724)
<TOTAL-ASSETS> 1,231,596 1,237,049 1,130,125 1,106,248
<DEPOSITS> 1,090,121 1,071,783 999,246 960,598
<SHORT-TERM> 19,473 44,501 14,585 33,790
<LIABILITIES-OTHER> 5,517 8,571 6,949 5,598
<LONG-TERM> 0 0 0 0
0 0 0 0
28,927 28,927 28,927 28,927
<COMMON> 22,277 21,496 15,159 22,066
<OTHER-SE> 65,281 61,771 65,259 55,269
<TOTAL-LIABILITIES-AND-EQUITY> 1,231,596 1,237,049 1,130,125 1,106,248
<INTEREST-LOAN> 18,269 63,856 46,341 29,631
<INTEREST-INVEST> 4,123 16,490 11,805 7,226
<INTEREST-OTHER> 676 2,349 1,885 1,363
<INTEREST-TOTAL> 23,068 82,695 60,031 38,220
<INTEREST-DEPOSIT> 6,765 24,831 18,157 11,684
<INTEREST-EXPENSE> 6,990 25,831 18,925 12,003
<INTEREST-INCOME-NET> 16,078 56,864 41,106 26,217
<LOAN-LOSSES> 901 3,041 2,170 1,454
<SECURITIES-GAINS> 0 0 0 0
<EXPENSE-OTHER> 12,251 44,721 32,190 20,333
<INCOME-PRETAX> 5,831 20,014 14,796 9,427
<INCOME-PRE-EXTRAORDINARY> 3,852 13,346 9,925 6,321
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,852 13,346 9,925 6,321
<EPS-PRIMARY> 0.18 0.62 0.46 0.30
<EPS-DILUTED> 0.17 0.59 0.44 0.28
<YIELD-ACTUAL> 5.96 5.92 5.89 5.94
<LOANS-NON> 4,087 4,226 3,217 3,220
<LOANS-PAST> 302 368 450 495
<LOANS-TROUBLED> 46 217 92 94
<LOANS-PROBLEM> 12,395 12,676 14,850 14,850
<ALLOWANCE-OPEN> 7,629 7,244 216 7,805
<CHARGE-OFFS> (418) (3,090) (9) (860)
<RECOVERIES> 86 435 2 70
<ALLOWANCE-CLOSE> 8,198 7,629 7,595 7,724
<ALLOWANCE-DOMESTIC> 4,028 2,828 3,463 3,595
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 4,170 4,801 4,132 4,129
<FN>
<F1>Restated for merger with Humble National Bank on June 30, 1998
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996<F1> SEP-30-1996
<CASH> 63,405 89,321 59,006
<INT-BEARING-DEPOSITS> 25,427 22 13,785
<FED-FUNDS-SOLD> 36,632 42,028 27,593
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 68,524 68,890 69,983
<INVESTMENTS-CARRYING> 171,773 151,329 145,590
<INVESTMENTS-MARKET> 170,103 150,889 147,889
<LOANS> 594,638 575,269 540,452
<ALLOWANCE> (7,805) (7,244) (7,306)
<TOTAL-ASSETS> 1,000,788 966,018 893,556
<DEPOSITS> 909,829 880,496 812,964
<SHORT-TERM> 7,822 3,761 2,770
<LIABILITIES-OTHER> 7,010 7,622 6,041
<LONG-TERM> 3,600 4,000 4,400
0 0 0
88 88 49
<COMMON> 22,070 14,960 15,039
<OTHER-SE> 50,369 55,092 52,294
<TOTAL-LIABILITIES-AND-EQUITY> 1,000,788 925,465 893,556
<INTEREST-LOAN> 14,081 50,075 36,372
<INTEREST-INVEST> 3,565 13,033 9,836
<INTEREST-OTHER> 488 1,892 1,177
<INTEREST-TOTAL> 18,134 65,000 47,385
<INTEREST-DEPOSIT> 5,530 19,953 14,584
<INTEREST-EXPENSE> 5,688 20,656 15,159
<INTEREST-INCOME-NET> 12,446 44,344 32,226
<LOAN-LOSSES> 719 2,361 1,727
<SECURITIES-GAINS> 0 (9) 0
<EXPENSE-OTHER> 9,748 34,998 24,897
<INCOME-PRETAX> 4,365 16,585 12,707
<INCOME-PRE-EXTRAORDINARY> 2,929 11,467 8,789
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,929 11,467 8,789
<EPS-PRIMARY> 0.14 0.54 0.41
<EPS-DILUTED> 0.13 0.52 0.40
<YIELD-ACTUAL> 5.91 5.80 5.76
<LOANS-NON> 2,132 2,565 2,646
<LOANS-PAST> 639 368 1,156
<LOANS-TROUBLED> 95 45 58
<LOANS-PROBLEM> 12,738 13,786 11,432
<ALLOWANCE-OPEN> 7,244 6,632 6,632
<CHARGE-OFFS> (238) (2,211) (1,385)
<RECOVERIES> 80 462 332
<ALLOWANCE-CLOSE> 7,805 7,244 7,306
<ALLOWANCE-DOMESTIC> 3,353 3,074 2,967
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 4,452 4,170 4,339
<FN>
<F1>Restated for 3 for 2 stock splits, effective Feb 96, Feb 97, Feb 98 and merger with
First Houston Bancshares, Inc. on September 30, 1997 and Humble National Bank on June 30, 1998
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 MAR-31-1996 DEC-31-1995<F1>
<CASH> 61,045 52,219 68,013
<INT-BEARING-DEPOSITS> 1,335 9,287 1,230
<FED-FUNDS-SOLD> 24,761 15,108 21,693
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 65,514 69,970 63,307
<INVESTMENTS-CARRYING> 152,918 160,318 168,700
<INVESTMENTS-MARKET> 154,925 159,929 169,209
<LOANS> 514,349 467,855 448,155
<ALLOWANCE> (6,966) (6,994) (6,632)
<TOTAL-ASSETS> 851,310 6,768,266 806,804
<DEPOSITS> 773,318 732,989 721,025
<SHORT-TERM> 3,689 9,494 13,835
<LIABILITIES-OTHER> 5,252 4,944 6,218
<LONG-TERM> 4,800 5,200 5,600
0 12,320 11,372
49 0 0
<COMMON> 12,368 49 904
<OTHER-SE> 51,835 49,400 49,268
<TOTAL-LIABILITIES-AND-EQUITY> 851,310 814,396 806,804
<INTEREST-LOAN> 23,379 11,488 42,030
<INTEREST-INVEST> 6,622 3,428 13,862
<INTEREST-OTHER> 742 234 663
<INTEREST-TOTAL> 30,743 15,150 56,555
<INTEREST-DEPOSIT> 9,448 2,766 15,992
<INTEREST-EXPENSE> 2,281 4,866 17,981
<INTEREST-INCOME-NET> 20,849 10,284 38,574
<LOAN-LOSSES> 1,131 561 1,176
<SECURITIES-GAINS> 0 0 38
<EXPENSE-OTHER> 16,214 7,999 32,140
<INCOME-PRETAX> 8,052 4,029 14,148
<INCOME-PRE-EXTRAORDINARY> 5,572 2,747 9,744
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,572 2,747 9,744
<EPS-PRIMARY> 0.26 0.13 0.46
<EPS-DILUTED> 0.25 0.13 0.46
<YIELD-ACTUAL> 5.99 5.98 5.80
<LOANS-NON> 2,368 2,595 3,250
<LOANS-PAST> 894 1,618 619
<LOANS-TROUBLED> 71 90 121
<LOANS-PROBLEM> 11,004 4,846 12,496
<ALLOWANCE-OPEN> 6,632 6,632 6,500
<CHARGE-OFFS> (1,069) (317) (1,361)
<RECOVERIES> 272 118 371
<ALLOWANCE-CLOSE> 6,966 6,994 6,632
<ALLOWANCE-DOMESTIC> 2,640 3,146 2,706
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 4,326 3,848 3,926
<FN>
<F1>Restated for 3 for 2 stock splits, effective Feb 96, Feb 97, and Feb 98 and merger with
First Houston Bancshares, Inc. on September 30, 1997 and Humble national Bank on June 30, 1998
</FN>
</TABLE>
