<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 SEPTEMBER 30, 2000
[ ] 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 September 30, 2000:
CLASS OF STOCK SHARES OUTSTANDING
------------------------------ ------------------
Common Stock, Par Value $1.00 26,198,809
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED FINANCIAL STATEMENTS
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 114,252 $ 91,139
Interest-bearing deposits in financial institutions 221 135
Securities purchased with an agreement to resell 33,099 40,834
Available-for-sale securities, at fair value 325,401 359,127
Held-to-maturity securities, at amortized cost 148,462 166,112
Loans held for sale 126,084 70,404
Loans held for investment 1,173,685 1,124,577
Allowance for credit losses (14,902) (13,187)
----------- -----------
Loans held for investment, net 1,158,783 1,111,390
Accrued interest receivable 11,497 11,330
Real estate acquired by foreclosure 1,445 1,323
Premises and equipment, net 44,261 41,003
Goodwill, net 6,067 6,030
Other assets 72,550 60,653
----------- -----------
TOTAL ASSETS $ 2,042,122 $ 1,959,480
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
Noninterest-bearing $ 543,713 $ 481,757
Interest-bearing 602,479 581,687
Certificates of deposit and other time deposits 383,301 352,107
----------- -----------
Total deposits 1,529,493 1,415,551
Securities sold under agreements to repurchase and other borrowed funds 320,523 362,332
Accrued interest payable and other liabilities 9,919 17,003
----------- -----------
Total liabilities 1,859,935 1,794,886
COMPANY-OBLIGATED MANDITORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST 28,750 28,750
MINORITY INTEREST IN STERLING CAPITAL MORTGAGE COMPANY 1,729 1,301
Shareholders' equity:
Convertible preferred stock, $1 par value, 1 million shares authorized 65 89
Common stock, $1 par value, 50 million shares authorized 26,199 26,030
Capital surplus 29,326 28,658
Retained earnings 96,606 80,927
Accumulated other comprehensive income--net unrealized loss on
available-for-sale securities, net of tax (488) (1,161)
----------- -----------
Total shareholders' equity 151,708 134,543
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,042,122 $ 1,959,480
=========== ===========
</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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $31,280 $25,370 $ 89,064 $ 72,204
Securities:
Taxable 6,995 4,047 21,776 9,819
Tax-exempt 808 845 2,461 2,259
Federal funds sold and securities purchased under agreements
to resell 1,421 847 3,110 2,986
Deposits in financial institutions 10 3 27 75
------- ------- -------- --------
Total interest income 40,514 31,112 116,438 87,343
Interest expense:
Demand and savings deposits 4,924 3,437 13,703 9,390
Certificates and other time deposits 5,402 4,065 14,845 12,121
Other borrowed funds 5,384 1,227 14,812 1,539
------- ------- -------- --------
Total interest expense 15,710 8,729 43,360 23,050
------- ------- -------- --------
NET INTEREST INCOME 24,804 22,383 73,078 64,293
------- ------- -------- --------
Provision for credit losses 2,206 1,928 6,379 5,714
------- ------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 22,598 20,455 66,699 58,579
Noninterest income:
Customer service fees 2,602 2,527 7,659 7,050
Gain on sale of mortgage loans 3,050 2,703 7,811 7,866
Other 4,525 1,954 11,743 6,154
------- ------- -------- --------
Total noninterest income 10,177 7,184 27,213 21,070
Noninterest expense:
Salaries and employee benefits 12,880 10,942 37,118 31,238
Occupancy expense 3,401 2,819 9,603 8,527
Net losses (gains) and carrying costs of real estate acquired
by foreclosure 20 6 226 (67)
FDIC assessment 97 67 226 331
Technology 975 796 2,755 2,677
Postage and delivery charges 427 383 1,243 1,215
Supplies 367 366 1,128 1,188
Professional fees 528 350 1,432 1,448
Minority interest expense:
Company-obligated mandatorily redeemable trust preferred
securitites of subsidiary trust 667 667 2,001 2,001
Sterling Capital Mortgage Company 209 95 428 261
Other 3,175 2,760 9,312 8,725
------- ------- -------- --------
Total noninterest expense 22,746 19,251 65,472 57,544
NET INCOME BEFORE INCOME TAXES 10,029 8,388 28,440 22,105
Provision for income taxes 3,115 2,657 8,831 6,876
------- ------- -------- --------
NET INCOME $ 6,914 $ 5,731 $ 19,609 $ 15,229
======= ======= ======== ========
EARNINGS PER SHARE:
Basic $ 0.26 $ 0.22 $ 0.75 $ 0.59
======= ======= ======== ========
Diluted $ 0.26 $ 0.22 $ 0.74 $ 0.58
======= ======= ======== ========
</TABLE>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
STERLING BANCSHARES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,609 $ 15,229
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization and accretion of premiums and discounts
on securities, net 93 356
Provision for credit losses 6,379 5,714
Write-downs, less gains on sale, of real estate acquired by
foreclosure and repossessed assets 137 (219)
Depreciation and amortization 5,365 4,726
Net change in loans held for sale, excluding loans sold with University
of Houston office location (55,680) 28,746
Gain on the sale of University of Houston office location -- (450)
Gain on the sale of credit card portfolio (211) --
Net increase in accrued interest receivable and other assets (12,688) (27,960)
Increase (decrease) in accrued interest payable and other liabilities (6,656) 2,205
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (43,652) 28,347
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in securities purchased under agreements to resell 7,735 (4,443)
Proceeds from maturity and paydowns of held-to-maturity securities 17,426 21,939
Purchases of held-to-maturity securities -- (32,046)
Proceeds from maturity and paydowns of available-for-sale securities 40,743 27,458
Proceeds from sale of available-for-sale securities 6,136 --
Purchases of available-for-sale securities (11,986) (219,549)
Net increase in loans held for investment (54,473) (138,743)
Proceeds from sale of real estate acquired by foreclosure 442 1,276
Net (increase) decrease in interest-bearing deposits in financial institutions (86) 245
Proceeds from sale of University of Houston office location -- 5,269
Proceeds from sale of premises and equipment 377 3,098
Purchase of premises and equipment (8,565) (8,706)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,251) (344,202)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 113,942 71,066
Net increase (decrease) in repurchase agreements/funds purchased (41,809) 201,727
Proceeds from issuance of common stock and preferred stock 1,425 1,870
Repayment of notes payable -- (1,883)
Purchase of treasury stock (612) --
Dividends paid (3,930) (3,336)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 69,016 269,444
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,113 (46,411)
CASH AND CASH EQUIVALENTS:
Beginning of period 91,139 139,690
--------- ---------
End of period $ 114,252 $ 93,279
========= =========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 14,700 $ 7,700
========= =========
Interest paid $ 43,659 $ 23,001
========= =========
Noncash investing and financing activities:
Acquisitions of real estate through foreclosure of collateral $ 745 $ 550
========= =========
</TABLE>
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
STERLING BANCSHARES, INC., AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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
nine-month period ended September 30, 2000, 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,
1999.
2. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") were computed based on the following (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------------- ------------------- -------------------- ---------------------
PER PER PER PER
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
--------- ------- --------- ------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Net income $6,914 $5,731 $19,609 $15,229
========= ========= ========== =========
Basic:
Weighted average shares
outstanding 26,177 $0.26 25,920 $0.22 26,123 $0.75 25,737 $ 0.59
======= ======= ======= =========
Diluted:
Add incremental shares for:
Assumed exercise of
outstanding options 369 349 289 341
Assumed conversion of
preferred stock 83 173 74 184
--------- --------- ---------- ---------
Total 26,629 $0.26 26,442 $0.22 26,486 $0.74 26,262 $ 0.58
========= ======= ========= ======= ========== ======= ========= =========
</TABLE>
5
<PAGE> 6
3. SHAREHOLDERS' EQUITY
The following table displays the changes in shareholders' equity for the
three and nine-month periods ended September 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
----------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity, beginning of period $144,656 $125,008 $134,543 $116,933
Comprehensive income:
Net income $6,914 $ 5,731 $19,609 $15,229
Net change in net unrealized
losses on AFS securities 1,447 1,116 673 82
-------- --------- --------- ----------
Total comprehensive income 8,361 6,847 20,282 15,311
Issuance of common stock, 233 278 1,040 1,839
Issuance of preferred stock 385 - 385 31
Cash dividends paid (1,315) (1,169) (3,930) (3,336)
Purchase of treasury stock (612) - (612) -
ESOP indebtedness repayments - - - 186
---------- ----------- ----------- -----------
Equity, end of period $151,708 $130,964 $151,708 $130,964
========== =========== =========== ===========
</TABLE>
4. OPERATING SEGMENTS
Sterling Bank (the "Bank") has an 80 percent ownership interest in Sterling
Capital Mortgage Company ("SCMC") and reports its financial position and
results of operations on a consolidated basis. The commercial banking and
mortgage banking segments are managed separately because each business
requires different marketing strategies and each offers different products
and services.
The Company evaluates each segment's performance based on the profit or
loss from its operations before income taxes, excluding non-recurring
items. Intersegment financing arrangements are accounted for at current
market rates as if they were with third parties.
Summarized financial information by operating segment as of and for the
nine-month periods ended September 30, follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------- -------------------------------------------
COMMERCIAL MORTGAGE COMMERCIAL MORTGAGE
BANKING BANKING TOTAL BANKING BANKING TOTAL
---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 73,078 $ -- $ 73,078 $ 64,293 $ -- $ 64,293
Noninterest income 13,272 13,941 27,213 11,317 9,753 21,070
---------- ------- ---------- ---------- ------ ----------
Total revenue 86,350 13,941 100,291 75,610 9,753 85,363
Provision for credit losses 6,379 -- 6,379 5,714 -- 5,714
Noninterest expense 54,449 11,023 65,472 49,713 7,831 57,544
---------- ------- ---------- ---------- ------ ----------
Income before income taxes 25,522 2,918 28,440 20,183 1,922 22,105
Provision for income taxes 7,625 1,206 8,831 6,020 856 6,876
---------- ------- ---------- ---------- ------ ----------
Net income $ 17,897 $ 1,712 $ 19,609 $ 14,163 $1,066 $ 15,229
========== ======= ========== ========== ====== ==========
Total assets $2,034,921 $ 7,201 $2,042,122 $1,796,784 $4,457 $1,801,241
========== ======= ========== ========== ====== ==========
</TABLE>
Intersegment interest was paid to the Company by SCMC in the amount of $5.2
million for the nine-month period ended September 30, 2000. Total loans of
$126 million in the mortgage warehouse provided to SCMC by the Bank were
eliminated in consolidation as of September 30, 2000.
5. SIGNIFICANT DEVELOPMENTS
EXPANSION - On October 24, 2000, Sterling Bancshares, Inc. announced that
it has entered into a definitive agreement to acquire CaminoReal Bancshares
of Texas, Inc., San Antonio, Texas and its subsidiary bank, CaminoReal
Bank, National Association. CaminoReal Bancshares is privately held and is
the bank holding company of CaminoReal Bank, National Association, which
operates four
6
<PAGE> 7
banking offices in San Antonio and four banking offices in the nearby South
Texas cities of Eagle Pass, Carrizo Springs, Crystal City and Pearsall. As
of September 30, 2000, CaminoReal Bancshares had total assets of $291
million, loans of $149 million, and deposits of $256 million. Subject to
receipt of all requisite regulatory approvals, the Company anticipates
closing the transaction in the first quarter of 2001. This acquisition will
be accounted for using the purchase method of accounting.
ADOPTION OF SFAS NO. 133 - Effective October 1, 2000, the Company adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for
derivative instruments and requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Upon implementation of SFAS No.
133, $56.1 million of securities classified as held-to-maturity were
redesignated as available-for-sale. The securities had a fair value of
$56.1 million. The Company currently has no derivative instruments.
Management believes the implementation of this pronouncement will not have
a material effect on the Company's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q and other documents filed by the Company with the
Securities and Exchange Commission contain certain forward-looking
statements. By their nature, forward-looking statements are subject to
risks and uncertainties. Forward-looking statements include information
about possible or assumed future financial results of the Company and are
not guarantees of future performance. Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or
current facts. They often include words such as "believe," "expect,"
"anticipate," "intend," "plan," "estimate," or words of similar meaning, or
future or conditional verbs such as "will," "would," "should," "could," or
"may." Forward looking-statements speak only as of the date they are made.
The Company does not undertake to update forward-looking statements to
reflect circumstances or events that occur after the date the
forward-looking statements are made.
Many possible events, circumstances or other factors could affect the
future financial performance of the Company. Accordingly, actual results
may differ materially from what is expressed or forecasted in, or implied
by, any forward-looking statement. There are a broad range of factors,
events, and developments that could affect the Company's future financial
results. The Company's earnings and overall financial performance are
sensitive to business and economic conditions. For example, deteriorating
national or local economic conditions could decrease the demand for loan,
deposit and other financial services and/or increase loan delinquencies and
defaults. Changes in market rates and prices may adversely impact the value
of securities, loans, deposits and other financial instruments. Liquidity
requirements could also be negatively influenced by fluctuations in assets
and liabilities or off-balance sheet exposures. Fiscal and governmental
policies of the United States federal government also affect the Company's
business and earnings prospects. Changes in these policies are beyond the
Company's control and are difficult to predict. Competitive factors may
also have a significant impact on the Company's business and financial
results. Legislative and regulatory developments may also have a
significant impact on the Company's future operations. The foregoing
discussion is merely a brief overview of the key factors that may affect
the Company's future business prospects and financial results and is not a
complete list or discussion of the full range of events, developments,
facts and circumstances that may influence the Company's operations,
earnings or financial condition.
7
<PAGE> 8
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SAME PERIOD IN 1999
NET INCOME - Net income for the nine-month period ended September 30, 2000, was
$19.6 million as compared to $16.1 million operating net income for the same
period in 1999, an increase of approximately $3.5 million or 21.6%. Results for
the year-ago period are before a $900 thousand after-tax charge related to the
acquisition of B.O.A. Bancshares. This increase is attributable to: (1) solid
average loan and deposit growth of 15.6% and 7.8%, respectively; (2)
implementation of a leverage program whereby the Bank borrowed $250 million and
invested the proceeds in securities; and (3) maintenance of a strong tax
equivalent net interest margin of 5.58% for the period.
NET INTEREST INCOME - Net interest income for the nine-month period ended
September 30, 2000, was $73.1 million, as compared to $64.3 million for the same
period in 1999, an increase of $8.8 million or 13.7%. The increase in net
interest income is attributable primarily to growth in loans as well as the
implementation of a leverage program during the third quarter of 1999. Average
earning assets for the nine months ended September 30, 2000, were $1.8 billion,
up $366 million, or 26.0% from $1.4 billion for the same period in 1999. The
leverage program accounted for $250 million of the increase in average earning
assets. The yield on average earning assets for the nine-month period ended
September 30, 2000, was 8.77%, as compared to 8.30% for the same period in 1999.
Throughout the second half of 1999 and the first half of 2000, the Board of
Governors of the Federal Reserve System ("Federal Reserve") increased the
discount rate six times. The cost of interest bearing liabilities increased 123
basis points to 4.54% for the nine months ended September 30, 2000 as compared
to 3.31% for the same period in 1999. This increase was due to the Federal
Reserve rate increases as well as new FHLB advances resulting from the leverage
program. Primarily as a result of the leverage program, the Company's 5.58% tax
equivalent net interest margin for the first nine months of 2000 decreased from
the 6.20% net interest margin recorded during the same period in 1999. The
average margin on the leverage program was 123 basis points for the nine-month
period ended September 30, 2000. Excluding the leverage program, the net
interest margin would have been 6.26% for the first nine-months of 2000.
8
<PAGE> 9
The following schedule gives a comparative analysis of the Company's daily
average interest earning assets and interest bearing liabilities for the
nine-month periods ended September 30, 2000 and 1999, respectively:
CONSOLIDATED YIELD ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- ------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
------------ --------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest bearing deposits in financial institutions $ 545 $ 27 6.62% $ 2,054 $ 75 4.88%
Federal funds sold 11,202 524 6.25% 33,281 1,288 5.17%
Securities purchased under agreements to resell 44,087 2,586 7.84% 35,538 1,698 6.39%
Securities (taxable) 427,207 21,776 6.81% 217,298 9,819 6.04%
Securities (tax-exempt) 74,059 2,461 4.44% 67,254 2,259 4.49%
Loans (taxable) 1,215,941 89,037 9.78% 1,051,682 72,172 9.18%
Loans (tax-exempt) 428 27 8.43% 595 32 7.19%
------------- ---------- -------- ------------ ---------- --------
Total Interest Earning Assets 1,773,469 116,438 8.77% 1,407,702 87,343 8.30%
NONINTEREST EARNING ASSETS:
Cash and due from banks 66,076 69,054
Premises and equipment, net 43,171 40,174
Other assets 93,399 55,878
Allowance for credit losses (14,248) (12,120)
------------- ------------
Total Noninterest Earning Assets 188,398 152,986
------------- ------------
TOTAL ASSETS $ 1,961,867 $ 1,560,688
============= ============
INTEREST BEARING LIABILITIES:
Demand and savings deposits $ 589,415 $ 13,703 3.11% $ 545,415 $ 9,390 2.30%
Certificates and other time deposits 371,984 14,845 5.33% 345,938 12,121 4.68%
Other borrowings 314,757 14,812 6.29% 39,286 1,539 5.24%
------------- ---------- -------- ------------ ---------- --------
Total Interest Bearing Liabilities 1,276,156 43,360 4.54% 930,639 23,050 3.31%
NONINTEREST BEARING LIABILITIES:
Demand deposits 500,914 465,137
Other liabilities 12,322 11,843
Trust preferred securities 28,750 28,750
Shareholders' equity 143,725 124,319
------------- ------------
685,711 630,049
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,961,867 $ 1,560,688
============= ============
NET INTEREST INCOME & MARGIN $ 73,078 5.50% $ 64,293 6.11%
========== ======== ========== ========
NET INTEREST INCOME & MARGIN (TAX EQUIVALENT) $ 74,090 5.58% $ 65,328 6.20%
========== ======== ========== ========
</TABLE>
PROVISION FOR CREDIT LOSSES - The provision for credit losses for the first nine
months of 2000 was $6.4 million, as compared to $5.7 million for the same period
in 1999, an increase of $665 thousand or 11.6%. The provision for credit losses
has been increased pursuant to loan growth. After net charge-offs of $4.7
million and provisions for the first nine months of 2000, the Company's
allowance for credit losses increased by $1.7 million from $13.2 million on
December 31, 1999 to $14.9 million on September 30, 2000. Also, $335 thousand of
additional provision in 1999 was recorded in order to align B.O.A. Bancshares'
allowance methodology with that of the Company. Please refer to FINANCIAL
CONDITION -- ALLOWANCES FOR CREDIT LOSSES for an additional discussion of
management's approach and methodology for estimating the allowance for credit
losses.
NONINTEREST INCOME - Total noninterest income for the nine-month period ended
September 30, 2000 was $27.2 million, as compared to $21.1 million for the same
period in 1999, an increase of $6.1 million or 29.2%.
9
<PAGE> 10
Noninterest income for the nine months ended September 30, 2000 and 1999,
respectively, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---------------------------------------- -----------------------------------------
COMMERCIAL MORTGAGE COMMERCIAL MORTGAGE
BANKING BANKING COMBINED BANKING BANKING COMBINED
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Customer service fees $ 7,659 $ -- $ 7,659 $ 7,050 $ -- $ 7,050
Bank-owned life insurance income 1,388 -- 1,388 214 -- 214
Gain on sale of
University of Houston office -- -- -- 450 -- 450
Gain on the sale of
credit card loan portfolio 237 -- 237 -- -- --
Gain on sale of mortgage loans -- 7,811 7,811 -- 7,866 7,866
Brokerage commissions 547 -- 547 263 -- 263
Other 3,441 6,130 9,571 3,340 1,887 5,227
------- ------- ------- ------- ------- -------
$13,272 $13,941 $27,213 $11,317 $ 9,753 $21,070
======= ======= ======= ======= ======= =======
</TABLE>
COMMERCIAL BANKING SEGMENT - Noninterest income from commercial banking for the
nine-month period ended September 30, 2000 was $13.3 million, as compared to
$11.3 million for the same period in 1999, an increase of $2.0 million or 17.3%.
During the latter half of 1999, the Bank purchased bank-owned life insurance
("BOLI") policies. Interest credits for these BOLI policies totaled $1.4 million
for the first nine months of 2000, as compared to $214 thousand for the same
period in 1999, an increase of $1.2 million. Customer service fees increased
$609 thousand or 8.6% primarily as a result of an overall increase in average
demand and savings accounts of 7.8%. Brokerage commissions increased 108%,
accounting for a total increase of $284 thousand due to increased sales volume.
Finally, during the first quarter of 2000, the Bank sold its credit card
portfolio to a correspondent bank for a net gain of $237 thousand. During the
first quarter of 1999, the Company sold its banking office at the University of
Houston for a gain of $450 thousand.
MORTGAGE BANKING SEGMENT - Noninterest income from the mortgage banking segment
increased 42.9% from $9.8 million for the first nine months of of 1999 to $13.9
million for the same period in 2000. The income from the mortgage banking
segment primarily consists of fees and gains on sale of mortgage loans. These
gains are from recurring loan production, as the average length of time a
mortgage loan is held in portfolio at SCMC is approximately twenty-five to
thirty days. The increase in noninterest income is primarily due to an increase
in loan funding volume as well as SCMC's acquisition of Alliance Capital
Mortgage located in Portland, Orgeon in April 2000 and Select Mortgage Company
located in Seattle, Washington in November 1999.
NONINTEREST EXPENSE - Noninterest expense increased $7.9 million, or 13.8%, to
$65.5 million for the first nine months of 2000 as compared to $57.5 million for
the same period in 1999.
10
<PAGE> 11
Noninterest expense for the nine months ended September 30, 2000 and 1999,
respectively, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- ---------------------------------------
COMMERCIAL MORTGAGE COMMERCIAL MORTGAGE
BANKING BANKING COMBINED BANKING BANKING COMBINED
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $31,416 $ 5,702 $37,118 $ 26,463 $ 4,775 $ 31,238
Occupancy expense 7,106 2,497 9,603 6,936 1,591 8,527
Net losses (gains) and carrying costs
of real estate acquired by foreclosure 226 -- 226 (67) -- (67)
FDIC assessment 226 -- 226 331 -- 331
Technology 2,663 92 2,755 2,634 43 2,677
Postage and delivery charges 1,021 222 1,243 1,054 161 1,215
Supplies 828 300 1,128 933 255 1,188
Professional fees 1,330 102 1,432 1,413 35 1,448
Minority interest expense 2,001 428 2,429 2,001 261 2,262
Other 7,632 1,680 9,312 8,015 710 8,725
------- ------- ------- -------- ------- --------
$54,449 $11,023 $65,472 $ 49,713 $ 7,831 $ 57,544
======= ======= ======= ======== ======= ========
</TABLE>
COMMERCIAL BANKING SEGMENT - Noninterest expenses related to commercial banking
for the nine-month period ended September 30, 2000 were $54.4 million, as
compared to $49.7 million for the same period in 1999, an increase of $4.7
million or 9.5%. During the second quarter of 1999, the Company recorded
noninterest expenses of $1 million related to the acquisition of B.O.A.
Bancshares. Excluding the special charges related to the acquisition,
noninterest expenses increased $5.7 million or 11.8%.
Salaries and employee benefits from commercial banking for the nine-month period
ended September 30, 2000, were $31.4 million, as compared to $26.5 million for
the same period in 1999, an increase of $5.0 million or 18.7%. The largest part
of the increase is attributable to the hiring of new employees to expand the
Bank's lending force and its credit analyst pool, personnel for the new Bellaire
bank office, and two new senior credit officers. Additionally, profit sharing
and incentive compensation expense increased as a result of the Company's
increased earnings.
MORTGAGE BANKING SEGMENT - Noninterest expenses related to mortgage banking for
the nine-month period ended September 30, 2000 were $11.0 million, as compared
to $7.8 million for the same period in 1999, an increase of $3.2 million or
40.8%. The increase in noninterest expense is primarily due the increase in loan
funding volume as well as SCMC's acquisition of Alliance Capital Mortgage and
Select Mortgage Company.
PROVISION FOR INCOME TAXES -The provision for income taxes as a percent of net
income before taxes remained constant at 31.1% for the first nine months of 1999
and for the same period in 2000.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SAME PERIOD IN 1999 NET INCOME
- Net income for the three-month period ended September 30, 2000, was $6.9
million as compared to $5.7 million operating net income for the same period in
1999, an increase of approximately of $1.2 million or 20.6%. This increase is
attributable to: (1) solid average loan and deposit growth of 14.4% and 8.1%,
respectively; (2) implementation of a leverage program whereby the Bank borrowed
$250 million and invested the proceeds in securities; and (3) maintenance of a
strong tax equivalent net interest margin of 5.52% for the period.
NET INTEREST INCOME - Net interest income for the three-month period ended
September 30, 2000, was $24.8 million, as compared to $22.4 million for the same
period in 1999, an increase of $2.4 million or 10.8%. The increase in net
interest income is attributable primarily to growth in loans as well as the
implementation of a leverage program during the third quarter of 1999. Average
earning assets
11
<PAGE> 12
for the three months ended September 30, 2000, were $1.8 billion, up $328
million, or 22.2% from $1.5 billion for the same period in 1999. The leverage
program accounted for $250 million of this increase. The yield on average
earning assets for the three-month period ended September 30, 2000, was 8.9%, as
compared to 8.33% for the same period in 1999. Throughout the second half of
1999 and the first half of 2000, the Federal Reserve increased the discount rate
six times. The cost of interest bearing liabilities increased 135 basis points
to 4.82% for the three month period ended September 30, 2000 as compared to
3.47% for the same period in 1999. This increase was due to the Federal Reserve
rate increases as well new FHLB advances resulting from the leverage program.
Primarily as a result of the leverage program, the Company's 5.52% tax
equivalent net interest margin for the three-month period ended September 30,
2000 decreased from the 6.09% net interest margin recorded during the same
period in 1999. The average margin on the leverage program was 95 basis points
for the quarter. Excluding the leverage program, the net interest margin would
have been 6.20% for the third quarter of 2000.
The following schedule gives a comparative analysis of the Company's daily
average interest earning assets and interest bearing liabilities for the
three-month periods ended September 30, 2000 and 1999, respectively:
CONSOLIDATED YIELD ANALYSIS
THREE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
---------------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
-------------- ---------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest bearing deposits in financial institutions $ 602 $ 10 6.60% $ 291 $ 3 4.09%
Federal funds sold 13,279 225 6.74% 16,088 194 4.78%
Securites purchased under agreements to resell 58,362 1,196 8.15% 38,782 653 6.68%
Securities (taxable) 415,980 6,995 6.69% 257,614 4,047 6.23%
Securities (tax-exempt) 72,103 808 4.46% 76,113 845 4.40%
Loans (taxable) 1,249,459 31,272 9.96% 1,092,252 25,360 9.21%
Loans (tax-exempt) 369 8 8.63% 544 10 7.29%
-------------- ---------- --------- ------------ --------- --------
Total Interest Earning Assets 1,810,154 40,514 8.90% 1,481,684 31,112 8.33%
NONINTEREST EARNING ASSETS:
Cash and due from banks 67,214 62,335
Premises and equipment, net 43,937 40,607
Other assets 100,223 69,913
Allowance for credit losses (14,703) (13,178)
-------------- ------------
Total Noninterest Earning Assets 196,671 159,677
-------------- ------------
TOTAL ASSETS $2,006,825 $1,641,361
============== ============
INTEREST BEARING LIABILITIES:
Demand and savings deposits $ 591,126 $ 4,924 3.31% 555,986 $ 3,437 2.45%
Certificates and other time deposits 383,682 5,402 5.60% 352,336 4,065 4.58%
Other borrowings 322,245 5,384 6.65% 88,306 1,227 5.51%
-------------- ---------- --------- ------------ --------- --------
Total Interest Bearing Liabilities 1,297,053 15,710 4.82% 996,628 8,729 3.47%
NONINTEREST BEARING LIABILITIES:
Demand deposits 518,643 473,756
Other liabilities 11,962 13,281
Trust preferred securities 28,750 28,750
Shareholders' equity 150,417 128,946
-------------- ------------
709,772 644,733
-------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,006,825 $1,641,361
============== ============
NET INTEREST INCOME & MARGIN $24,804 5.45% $22,383 5.99%
========== ========= ========= ========
NET INTEREST INCOME & MARGIN (TAX EQUIVALENT) $25,126 5.52% $22,762 6.09%
========== ========= ========= ========
</TABLE>
12
<PAGE> 13
PROVISION FOR CREDIT LOSSES - The provision for credit losses for the
three-month period ended 2000 was $2.2 million, as compared to $1.9 million for
the same period in 1999, an increase of $278 thousand or 14.4%.
NONINTEREST INCOME - Total noninterest income for the three-month period ended
September 30, 2000, was $10.2 million, as compared to $7.2 million for the same
period in 1999, an increase of $3.0 million or 41.7%.
Noninterest income for the three months ended September 30, 2000 and 1999,
respectively, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- --------------------------------------
COMMERCIAL MORTGAGE COMMERCIAL MORTGAGE
BANKING BANKING COMBINED BANKING BANKING COMBINED
------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Customer service fees $2,602 $ -- $ 2,602 $2,527 $ -- $2,527
Bank-owned life insurance income 491 -- 491 214 -- 214
Gain on sale of mortgage loans -- 3,050 3,050 -- 2,703 2,703
Brokerage commissions 121 -- 121 86 -- 86
Other 1,226 2,687 3,913 1,045 609 1,654
------ ------- ------- ------ ------ ------
$4,440 $ 5,737 $10,177 $3,872 $3,312 $7,184
====== ======= ======= ====== ====== ======
</TABLE>
COMMERCIAL BANKING SEGMENT - Noninterest income from commercial banking
increased $568 thousand or 14.7% in the third quarter of 2000 compared to 1999.
During the latter half of 1999, the Bank purchased BOLI policies. Interest
credits for these BOLI policies totaled $491 thousand for the third quarter of
2000 as compared to $214 thousand for the same period in 1999.
MORTGAGE BANKING SEGMENT - Noninterest income from mortgage banking increased
$2.4 million, or 73.2%, in the third quarter of 2000 compared to the same period
in 1999. The increase in noninterest income is primarily due the increase in
loan funding volume as well as SCMC's acquisition of Alliance Capital Mortgage
and Select Mortgage Company.
NONINTEREST EXPENSE - Noninterest expense increased $3.5 million, or 18.2%, to
$22.7 million for the third quarter of 2000 as compared to $19.3 million for the
same period in 1999.
Noninterest expense for the three months ended September 30, 2000 and 1999, is
summarized as follow (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- ---------------------------------------
COMMERCIAL MORTGAGE COMMERCIAL MORTGAGE
BANKING BANKING COMBINED BANKING BANKING COMBINED
------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $10,555 $ 2,325 $12,880 $ 9,312 $ 1,630 $10,942
Occupancy expense 2,452 949 3,401 2,295 524 2,819
Net losses (gains) and carrying costs
of real estate acquired by foreclosure 20 -- 20 6 -- 6
FDIC assessment 97 -- 97 67 -- 67
Technology 947 28 975 762 34 796
Postage and delivery charges 345 82 427 341 42 383
Supplies 275 92 367 282 84 366
Professional fees 493 35 528 384 (34) 350
Minority interest expense 667 209 876 667 95 762
Other 2,580 595 3,175 2,490 270 2,760
------- ------- ------- ------- -------- -------
$18,431 $ 4,315 $22,746 $16,606 $ 2,645 $19,251
======= ======= ======= ======= ======== =======
</TABLE>
COMMERCIAL BANKING SEGMENT - Noninterest expenses related to commercial banking
for the three-month period ended September 30, 2000 were $18.4 million, as
compared to $16.6 million for the
13
<PAGE> 14
same period in 1999, an increase of $1.8 million or 11.0%.
Salaries and employee benefits from commercial banking for the three-month
period ended September 30, 2000 were $10.6 million, as compared to $9.3 million
for the same period in 1999, an increase of $1.2 million or 13.3%. The largest
part of the increase is attributable to the hiring of new employees to expand
the Bank's lending force and its credit analyst pool, personnel for the new
Bellaire bank office, and two new senior credit officers. Additionally, profit
sharing and incentive compensation expense increased as a result of the
Company's increased earnings.
Technology expenses from commercial banking for the three-month period ended
September 30, 2000 were $947 thousand, as compared to $762 thousand for the same
period in 1999, an increase of $185 thousand or 24.3%. The increase is the
result of the purchase of a third item processing sorter to improve
productivity. Additionally, a second mainframe computer system was added to
enhance the Bank's transactional processing capabilities.
Professional expenses from commercial banking for the three-month period ended
September 30, 2000 were $493 thousand, as compared to $384 million for the same
period in 1999, an increase of $109 thousand or 28.4%. The increase is primarily
related to an increase in legal fees.
MORTGAGE BANKING SEGMENT - Noninterest expenses related to mortgage banking for
the three-month period ended September 30, 2000 were $4.3 million, as compared
to $2.6 million for the same period in 1999, an increase of $1.7 million or
63.1%. The increase in noninterest expense is primarily due to the increase in
loan funding volume as well as SCMC's acquisition of Alliance Capital Mortgage
and Select Mortgage Company.
PROVISION FOR INCOME TAXES - The provision for income taxes as a percent of net
income before taxes decreased from 31.7% for the third quarter of 1999 to 31.1%
for the same period in 2000.
FINANCIAL CONDITION
TOTAL ASSETS - The total consolidated assets of the Company increased $83
million from December 31, 1999 to $2.0 billion.
CASH AND CASH EQUIVALENTS - The Company had cash and cash equivalents of $114.3
million at September 30, 2000. Comparatively, the Company had $91.1 million in
cash and cash equivalents on December 31, 1999, an increase of $23.1 million or
25.4%.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - As of September 30, 2000,
securities purchased under agreements to resell totaled $33.1 million as
compared to $40.8 million as of December 31, 1999. These securities are SBA or
USDA guaranteed loan certificates that are purchased by the Bank pursuant to a
third party warehouse facility. These repurchase agreements generally have a
term of nine months or less. The Company increased the approved warehouse
facility under which these securities were purchased from $60 million to $75
million.
SECURITIES - The Company's securities portfolio as of September 30, 2000,
totaled $473.9 million, as compared to $525.2 million on December 31, 1999, a
decrease of $51.4 million or 9.8%. The reduction is the result of paydowns and
maturities of securities.
LOANS HELD FOR SALE - Total loans held for sale increased from $70.4 million at
December 31, 1999, to $126.1 million at September 30, 2000, an increase of $55.7
million, or 79.1%. The increase is due to the increase in loans funded by the
Bank through an intercompany mortgage warehouse with SCMC.
14
<PAGE> 15
LOANS HELD FOR INVESTMENT - As of September 30, 2000, loans held for investment
were $1.17 billion. When compared to loans held for investment of $1.12 billion
on December 31, 1999, the loan balance at September 30, 2000 represents a
year-to-date increase of $49.1 million. At September 30, 2000, loans held
for investment as a percentage of assets and deposits were 57.5% and 76.7%, as
compared to 57.4% and 79.4% at December 31, 1999, respectively.
The following table summarizes the Company's held for investment loan portfolio
by type of loan as of September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
PERCENT OF TOTAL
----------------
<S> <C> <C>
Commercial, financial and industrial $ 410,323 31.57%
Real estate - commercial 376,360 28.96%
Real estate - residential mortgage 144,584 11.12%
Real estate - construction 120,329 9.26%
Foreign commercial and industrial 5,243 0.40%
Consumer and other 116,948 9.00%
Less unearned discount (102) -0.01%
-------------- ------------
Total loans held for investment 1,173,685 90.30%
Loans held for sale 126,084 9.70%
-------------- ------------
Total loans $ 1,299,769 100.00%
============== ============
</TABLE>
ALLOWANCE FOR CREDIT LOSSES - The following is a summary of the changes in the
allowance for credit losses for the nine months ended September 30, 2000 and
September 30,1999, respectively, (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
------------ -------------
<S> <C> <C> <C>
Allowance for credit losses, December 31, $ 13,187 $ 10,829
Charge-offs (5,274) (3,739)
Recoveries 610 525
Provision for credit losses 6,379 5,714
------------ -------------
Allowance for credit losses, September 30, $ 14,902 $ 13,329
============ =============
Net charge-offs as a percentage of average
loans (annualized) 0.51% 0.41%
============ =============
Provision for credit losses as a percentage of
average loans (annualized) 0.70% 0.73%
============ =============
</TABLE>
15
<PAGE> 16
The following is a summary of the relationship of the allowance to loans held
for investment at September 30, 2000, and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
<S> <C> <C>
Loans held for investment at period-end $1,173,685 $1,124,577
Allowance for credit losses $ 14,902 $ 13,187
Allowance as a percent of period-end loans held
for investment 1.27% 1.17%
</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 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 - Nonperforming, past-due, and restructured loans are fully or
substantially secured by assets, with any excess of loan balances over
collateral values specifically allocated in the allowance for credit losses.
Thirteen properties make up the $1.4 million of other real estate owned ("ORE")
at September 30, 2000. 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 creates serious doubt regarding a borrower's ability to
comply with the present payment terms. Management identifies these loans through
monitoring efforts by loan officers as well as its continuous loan review
process and defines potential problem loans as those loans classified as
"substandard", "doubtful", or "loss". As of September 30, 2000, the Company has
no material foreign loans outstanding or loan concentrations.
16
<PAGE> 17
The following table summarizes total nonperforming assets and potential problem
loans at September 30, 2000 and at December 31, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans $ 7,201 $ 5,501
Restructured loans - 218
Accruing loans past due 90 days or more 106 351
--------- -----------
Total nonperforming loans 7,307 6,070
Other real estate ("ORE") and other foreclosed assets 1,552 1,566
--------- -----------
Total nonperforming assets $ 8,859 $ 7,636
========= ===========
Total nonperforming assets as a percent of loans,
ORE and other foreclosed assets 0.68% 0.64%
Allowance for loan losses as a percentage of
nonperforming assets 168.21% 172.70%
Potential problem loans, other than those shown
above as nonperforming $ 34,595 $ 24,483
</TABLE>
PREMISES AND EQUIPMENT - The Company's premises and equipment, net of
depreciation, as of September 30, 2000, were $44.3 million as compared to $41.0
million as of December 31, 1999, an increase of $3.3 million or 7.9%. The
increase is primarily due to the purchase of another item processing sorter and
mainframe computer system, the build-out for the new Bellaire bank office which
opened in April 2000, and the purchase of land in Houston for a proposed new
location.
DEPOSITS - Total deposits as of September 30, 2000, were $1.5 billion, as
compared to $1.4 billion on December 31, 1999, an increase of $113.9 million, or
8.0%. Noninterest bearing demand deposits at September 30, 2000, were $543.7
million, as compared to $481.8 million at December 31, 1999, an increase of
$62.0 million or 12.9%. The percentage of noninterest bearing deposits to total
deposits as of September 30, 2000 was 35.5%.
CAPITAL RESOURCES AND LIQUIDITY
SHAREHOLDERS' EQUITY - The Company's risk-based capital ratios remain above the
levels designated by regulatory agencies as "well capitalized" on September 30,
2000, with Tier-1 Capital, Total Risk-Based Capital, and Leverage Capital Ratios
of 10.78%, 11.62%, and 8.83%, respectively.
LIQUIDITY - Effective management of balance sheet liquidity is necessary to fund
growth in earning assets and to pay liability maturities, depository withdrawals
and shareholders' dividends. The Company has instituted asset/liability
management policies, including 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 short-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").
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes since December 31, 1999. 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. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is presently involved in any
material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
There were no changes in securities during the nine months ended September 30,
2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
Any proposal of stockholders to be included in the Company's proxy statement
relating to the Company's 2001 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 24, 2000; 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. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
Included as Note 2 to the Interim Consolidated Financial Statements on page 5 of
this Form 10-Q.
EXHIBIT 27. FINANCIAL DATA SCHEDULE
The required Financial Data Schedule has been included as Exhibit 27 of the Form
10-Q filed electronically with the Securities and Exchange Commission.
18
<PAGE> 19
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
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11 -- COMPUTATION OF EARNINGS PER SHARE. Included as Note 2 to the
Interim Consolidated Financial Statements on page 5 of this
Form 10-Q.
27 -- FINANCIAL DATA SCHEDULE. The required Financial Data Schedule has
been included as Exhibit 27 of the Form 10-Q filed electronically
with the Securities and Exchange Commission.
