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 quarterly period ended September 30, 2004
| ¨ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-20750
STERLING BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| Texas | 74-2175590 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 2550 North Loop West, Suite 600 Houston, Texas |
77092 | |
| (Address of principal executive office) | (Zip Code) |
713-466-8300
(Registrant’s telephone number, including area code)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes x No ¨
As of November 2, 2004, there were outstanding 44,926,552 shares of common stock, par value $1.00 per share, of the registrant.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
Financial Statements | |||
| Consolidated Balance Sheets | 2 | |||
| Consolidated Statements of Income | 3 | |||
| Consolidated Statements of Shareholders’ Equity | 4 | |||
| Consolidated Statements of Cash Flows | 5 | |||
| Notes to Consolidated Financial Statements | 6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 30 | ||
| Item 4. |
Controls and Procedures | 30 | ||
| PART II. |
OTHER INFORMATION | |||
| Item 1. |
Legal Proceedings | 30 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 30 | ||
| Item 3. |
Defaults Upon Senior Securities | 30 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 30 | ||
| Item 5. |
Other Information | 30 | ||
| Item 6. |
Exhibits | 30 | ||
| 32 | ||||
1
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 94,802 | $ | 136,764 | ||||
| Interest-bearing deposits in financial institutions |
1,175 | 1,358 | ||||||
| Trading assets |
123,880 | 172,825 | ||||||
| Available-for-sale securities, at fair value |
531,702 | 522,936 | ||||||
| Held-to-maturity securities, at amortized cost |
78,087 | 42,157 | ||||||
| Loans held for sale |
7,036 | 26,308 | ||||||
| Loans held for investment |
2,219,397 | 2,130,731 | ||||||
| Total loans |
2,226,433 | 2,157,039 | ||||||
| Allowance for credit losses |
(27,959 | ) | (30,722 | ) | ||||
| Loans, net |
2,198,474 | 2,126,317 | ||||||
| Premises and equipment, net |
41,683 | 48,541 | ||||||
| Real estate acquired by foreclosure |
3,731 | 2,124 | ||||||
| Goodwill |
62,480 | 62,933 | ||||||
| Core deposit intangibles, net |
1,954 | 2,326 | ||||||
| Accrued interest receivable |
10,986 | 12,046 | ||||||
| Other assets |
85,095 | 76,553 | ||||||
| TOTAL ASSETS |
$ | 3,234,049 | $ | 3,206,880 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| LIABILITIES: |
||||||||
| Deposits: |
||||||||
| Noninterest-bearing demand |
$ | 879,125 | $ | 834,313 | ||||
| Interest-bearing demand |
919,822 | 929,577 | ||||||
| Certificates and other time deposits |
593,236 | 654,479 | ||||||
| Total deposits |
2,392,183 | 2,418,369 | ||||||
| Other borrowed funds |
377,750 | 324,160 | ||||||
| Subordinated debt |
47,360 | 46,533 | ||||||
| Junior subordinated debt |
82,475 | 82,475 | ||||||
| Accrued interest payable and other liabilities |
26,916 | 42,747 | ||||||
| Total liabilities |
2,926,684 | 2,914,284 | ||||||
| COMMITMENTS AND CONTINGENCIES |
— | — | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Convertible preferred stock, $1 par value, 1,000,000 shares authorized, 20,000 issued and outstanding |
20 | 20 | ||||||
| Common stock, $1 par value, 100,000,000 shares authorized, 44,916,625 and 44,642,109 issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
44,917 | 44,642 | ||||||
| Capital surplus |
51,565 | 48,953 | ||||||
| Retained earnings |
209,893 | 197,819 | ||||||
| Accumulated other comprehensive income, net of tax |
970 | 1,162 | ||||||
| Total shareholders’ equity |
307,365 | 292,596 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 3,234,049 | $ | 3,206,880 | ||||
See Notes to Consolidated Financial Statements.
2
STERLING BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||||
| 2004 |
2003 |
2004 |
2003 | ||||||||||
| Interest income: |
|||||||||||||
| Loans, including fees |
$ | 34,635 | $ | 40,396 | $ | 100,892 | $ | 121,592 | |||||
| Securities: |
|||||||||||||
| Taxable |
5,560 | 2,162 | 15,557 | 7,087 | |||||||||
| Non-taxable |
520 | 529 | 1,439 | 1,773 | |||||||||
| Trading assets |
1,084 | 857 | 3,537 | 2,590 | |||||||||
| Federal funds sold |
25 | 27 | 68 | 113 | |||||||||
| Deposits in financial institutions |
13 | 17 | 44 | 53 | |||||||||
| Total interest income |
41,837 | 43,988 | 121,537 | 133,208 | |||||||||
| Interest expense: |
|||||||||||||
| Demand and savings deposits |
1,239 | 987 | 3,272 | 3,736 | |||||||||
| Certificates and other time deposits |
3,006 | 3,461 | 9,646 | 11,514 | |||||||||
| Other borrowed funds |
1,047 | 1,491 | 2,314 | 4,417 | |||||||||
| Notes payable |
— | 137 | — | 457 | |||||||||
| Subordinated debt |
678 | 589 | 1,893 | 1,305 | |||||||||
| Junior subordinated debt |
1,616 | 1,590 | 4,794 | 4,787 | |||||||||
| Total interest expense |
7,586 | 8,255 | 21,919 | 26,216 | |||||||||
| Net interest income |
34,251 | 35,733 | 99,618 | 106,992 | |||||||||
| Provision for credit losses |
2,115 | 4,150 | 8,396 | 14,698 | |||||||||
| Net interest income after provision for credit losses |
32,136 | 31,583 | 91,222 | 92,294 | |||||||||
| Noninterest income: |
|||||||||||||
| Customer service fees |
3,589 | 4,061 | 11,198 | 12,361 | |||||||||
| Net gain on the sale of banking offices |
— | — | — | 3,240 | |||||||||
| Net gain on the sale of securities |
310 | — | 4,581 | 374 | |||||||||
| Net gain (loss) on trading assets |
(192 | ) | 405 | 310 | 1,032 | ||||||||
| Other |
3,088 | 3,012 | 8,700 | 8,834 | |||||||||
| Total noninterest income |
6,795 | 7,478 | 24,789 | 25,841 | |||||||||
| Noninterest expense: |
|||||||||||||
| Salaries and employee benefits |
17,510 | 16,583 | 52,372 | 49,916 | |||||||||
| Occupancy expense |
3,945 | 3,996 | 11,285 | 11,708 | |||||||||
| Technology |
1,643 | 1,289 | 4,568 | 3,718 | |||||||||
| Professional fees |
1,333 | 1,317 | 3,790 | 3,300 | |||||||||
| Postage, delivery and supplies |
746 | 831 | 2,437 | 2,636 | |||||||||
| Marketing |
250 | 195 | 1,175 | 1,080 | |||||||||
| Core deposit intangible amortization |
125 | 111 | 372 | 339 | |||||||||
| Other |
3,943 | 3,607 | 12,643 | 10,827 | |||||||||
| Total noninterest expense |
29,495 | 27,929 | 88,642 | 83,524 | |||||||||
| Income from continuing operations before income taxes |
9,436 | 11,132 | 27,369 | 34,611 | |||||||||
| Provision for income taxes |
2,950 | 3,707 | 8,576 | 11,454 | |||||||||
| Income from continuing operations |
6,486 | 7,425 | 18,793 | 23,157 | |||||||||
| Income from discontinued operations before income taxes |
— | 44,426 | — | 44,719 | |||||||||
| Provision for income taxes |
— | 24,510 | — | 24,657 | |||||||||
| Income from discontinued operations |
— | 19,916 | — | 20,062 | |||||||||
| Net income |
$ | 6,486 | $ | 27,341 | $ | 18,793 | $ | 43,219 | |||||
| Earnings per share from continuing operations: |
|||||||||||||
| Basic |
$ | 0.14 | $ | 0.17 | $ | 0.42 | $ | 0.53 | |||||
| Diluted |
$ | 0.14 | $ | 0.17 | $ | 0.42 | $ | 0.52 | |||||