EX-99.1 3 dex991.txt PRESS RELEASE EXHIBIT 99.1 NEWS RELEASE For More Information Contact: For Immediate Release - October 17, 2002 Eugene Putnam, Chief Financial Officer 713-507-7292 Sterling Bancshares Reports 5% Increase in Operating Earnings Per Share HOUSTON, Texas -- Sterling Bancshares, Inc. (Nasdaq: SBIB) today reported operating income for the third quarter of 2002 of $9.2 million or $.21 per diluted share, up 5% from the $.20 per diluted share earned in the third quarter of 2001. Operating income for the third quarter of 2002 excluded $1.1 million in before-tax charges related to the previously announced acquisition of ENB Bankshares, Inc. while operating income for the third quarter of 2001 also excluded $1.2 million in before-tax charges related to the acquisition of Lone Star Bancorporation Inc. Including the $1.1 million in before-tax charges relating to the acquisition of ENB Bankshares, Inc. in the third quarter of 2002, reported net income for the quarter ended September 30, 2002 totaled $8.5 million or $.19 per diluted share. For a reconciliation between operating income and reported income, see the table titled Reconciliation of Operating Income on page 14. For the third quarter of 2002, reported return on average assets was 1.09% and return on average common equity was 13.91%. For the first nine months of 2002, operating income was $26.9 million or $.60 per diluted share, up 7% from the $.56 per diluted share earned in the first nine months of 2001. Operating income in the first nine months of 2002 excluded the $1.1 million in before-tax charges related to the acquisition of ENB Bankshares, Inc. while the operating income in the first nine months of 2001 excluded $2.2 million in before-tax charges related to the acquisitions of CaminoReal Bancshares and Lone Star Bancorporation Inc. Including the $1.1 million in before-tax charges related to the acquisition of ENB Bankshares, Inc., reported net income for the first nine months of 2002 was $26.2 million. For the first nine months of 2002, reported return on average assets was 1.22% and return on average common equity was 15.07%. During the third quarter of 2002 Sterling Capital Mortgage Company recorded a pre-tax expense of $4.7 million to reflect the impairment of mortgage servicing rights. This non-cash charge negatively impacted third quarter 2002 reported and operating earnings by approximately $.05 per share. "Core operating results were very good during the third quarter," commented J. Downey Bridgwater, President and Chief Executive Officer. "We continued to see good loan growth, excellent core deposit generation and stable credit quality. While the extraordinary levels of -more- Sterling Bancshares, Inc., News Release October 17, 2002 Page 2 mortgage refinancings caused a decline in the value of our mortgage servicing portfolio, our fundamental business trends and the quality of our earnings were very solid." During the third quarter of 2002, Sterling announced the signing of a definitive agreement to sell three offices in South Texas. Net income from these discontinued operations for the third quarter of 2002 and the first nine months of 2002 included $.3 million and $.9 million respectively. All data presented in the text portion of this press release includes results of the discontinued operations. Results excluding discontinued operations are presented in the financial tables accompanying this press release. Tax equivalent net interest income was $38.8 million in the third quarter of 2002, up 19% from the third quarter of 2001. For the first nine months of 2002, tax equivalent net interest income was $107.9 million, up 17% from the first nine months of 2001. The tax equivalent net interest margin for the third quarter of 2002 was 5.63%. Average loans held for investment for the third quarter of 2002 were $1.9 billion, up 19% from the third quarter of last year. Average deposits for the quarter ended September 30, 2002 were $2.4 billion, a 14% increase from the same period a year ago. Noninterest income was $27.7 million in the third quarter of 2002, up 95% from the third quarter of last year. For the first nine months of 2002, noninterest income was $66.8 million, up 44% from the first nine months of 2001. Noninterest income represented 42% of total revenue in the third quarter of 2002. Noninterest expense for the third quarter of 2002, excluding the one-time merger related charge was $48.9 million, up from the $29.9 million in the third quarter of 2001. For the first nine months of 2002, noninterest expenses, excluding the one-time merger charge were $124.3 million, up from the $92.3 million reported in the first nine months of 2001. Net charge-offs in the third quarter of 2002 were $2.2 million or .38% of average loans, compared to $2.0 million or .45% of average loans in the third quarter of last year. For the first nine months of 2002, net charge-offs were $6.6 million or .42% of average loans, compared to $5.9 million or .48% of average loans for the first nine months of 2001. The provision for loan losses was $3.4 million for the third quarter of 2002 and $9.2 million for the first nine months of 2002, up from $3.1 million and $8.6 million respectively in 2001. The allowance for loan losses at September 30, 2002 was $26.1 million and represented 1.39% of loans held for investment, up from 1.37% a year ago. Nonperforming assets were $20.0 million at September 30, 2002 or .75% of loans and foreclosed properties. Nonperforming assets at September 30, 2002 comprised .57% of total assets, compared to .59% at June 30, 2002 and .54% a year ago. At September 30, 2002, Sterling had total assets of $3.5 billion and total deposits of $2.6 billion. Equity capital of $241.0 million represented 6.98% of total assets. Book value per share was $5.47. -more- Sterling Bancshares, Inc., News Release October 17, 2002 Page 3 In conjunction with Sterling's third quarter earnings release, Downey Bridgwater, President and Chief Executive Officer and Eugene Putnam, Chief Financial Officer invite you to listen to its conference call that will be broadcast live over the Internet on Thursday, October 17, 2002 at 10:00AM EDT. To participate, please visit Sterling's web site at www.banksterling.com. Sterling Bancshares, Inc. is a Houston-based bank holding company that operates 39 community-banking offices in the greater metro areas of Dallas, Houston, San Antonio, and South Texas. Sterling also provides mortgage-banking services through its 80 percent-owned subsidiary, Sterling Capital Mortgage Company. Sterling's common stock is traded through the Nasdaq National Market System under the symbol SBIB. For more information on Sterling Bancshares, please visit the company's web site at www.banksterling.com. Except for historical information contained herein, this press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, the following: general business and economic conditions in the markets the Company serves may be less favorable than anticipated which could decrease the demand for loan, deposit and other financial services and increase loan delinquencies and defaults; changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments; the Company's liquidity requirements could be adversely affected by changes in its assets and liabilities; legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial securities industry; competitive factors may increase, including product and pricing pressures among financial services organizations; and changes in fiscal and governmental policies of the United States federal government could have an adverse effect on the Company's business. Please also read the additional risks and factors described from time to time in the Company's reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. -more- Sterling Bancshares, Inc. FINANCIAL HIGHLIGHTS (Dollars in thousands except per share data) Page 4
------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended % Nine Months Ended % 2002 2001 Change 2002 2001 Change ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS & DIVIDENDS Period Ended September 30 Net income $ 8,518 $ 7,873 8.2 % $ 26,199 $ 22,402 16.9 % Net income from continuing operations $ 8,229 $ 7,570 8.7 % $ 25,302 $ 21,862 15.7 Earnings per share Diluted $ 0.19 $ 0.18 5.6 $ 0.59 $ 0.52 13.5 Basic $ 0.19 $ 0.19 - $ 0.60 $ 0.53 13.2 Diluted cash $ 0.19 $ 0.19 - $ 0.59 $ 0.54 9.3 Earnings per share per continuing operations Diluted $ 0.18 $ 0.18 - $ 0.57 $ 0.51 11.8 Basic $ 0.19 $ 0.18 5.6 $ 0.58 $ 0.52 11.5 Diluted cash $ 0.19 $ 0.18 5.6 $ 0.57 $ 0.53 7.5 Average shares outstanding Diluted 44,872 43,224 3.8 44,779 42,942 4.3 Basic 43,917 42,263 3.9 43,849 42,052 4.3 Dividends paid per common share $ 0.040 $ 0.0367 9.1 $ 0.120 $ 0.1100 9.1 End of period common shares outstanding 43,931 42,318 3.8 End of period book value per share $ 5.47 $ 4.53 20.8 SELECTED RATIOS Net interest margin 5.63% 5.78% (15)bps 5.69% 5.82% (13)bps Annualized return on average assets 1.09% 1.23% (14) 1.22% 1.26% (4) Annualized return on average equity 13.91% 16.44% (253) 15.07% 16.77% (170) Annualized return on average tangible common equity (a) 18.40% 19.18% (78) 20.08% 18.94% 114 Tier 1 capital ratio 8.69% 10.22% (153) Total capital ratio 10.53% 11.21% (68) Tier 1 leverage ratio 8.29% 8.80% (51) Tangible common ratio 5.22% 6.57% (135) CONDENSED BALANCE SHEET Average Balances Loans available for sale 439,636 177,610 147.5 % 327,141 167,909 94.8 % Loans held for investment 1,850,024 1,558,697 18.7 1,750,926 1,491,510 17.4 ---------- ---------- --------- --------- Total loans 2,289,660 1,736,307 31.9 2,078,067 1,659,419 25.2 Securities 313,393 361,273 (13.3) 321,663 349,504 (8.0) Trading assets 112,743 62,346 80.8 106,239 34,098 211.6 Other earning assets 18,037 88,185 (79.5) 31,195 74,101 (57.9) Allowance for loan losses (25,117) (20,977) 19.7 (24,386) (19,577) 24.6 Goodwill 56,730 26,707 112.4 55,603 20,036 177.5 Other assets 331,282 284,634 16.4 309,615 264,540 17.0 ---------- ---------- --------- --------- Total assets 3,096,728 2,538,475 22.0 2,877,996 2,382,121 20.8 ========== ========== ========= ========= Noninterest earning deposits 862,041 706,271 22.1 808,196 647,388 24.8 Interest earning deposits 1,505,411 1,374,870 9.5 1,474,731 1,307,626 12.8 ---------- ---------- --------- --------- Total deposits 2,367,452 2,081,141 13.8 2,282,927 1,955,014 16.8 Other borrowings 358,135 183,164 95.5 244,191 173,857 40.5 Notes Payable 20,716 1,600 1,194.8 20,824 1,600 1,201.5 Other liabilities 41,523 25,118 65.3 37,199 21,726 71.2 ---------- ---------- --------- --------- Total liabilities 2,787,826 2,291,023 21.7 2,585,141 2,152,197 20.1 Trust preferred securities 65,938 57,500 14.7 60,343 51,287 17.7 Realized shareholders' equity 238,496 186,839 27.6 228,321 175,998 29.7 Accumulated other comprehensive income 4,468 3,113 43.5 4,191 2,639 58.8 ---------- ---------- --------- --------- Total liabilities and shareholders' equity 3,096,728 2,538,475 22.0 2,877,996 2,382,121 20.8 ========== ========== ========= =========
(a) The annualized return on average tangible equity is net income divided by average common equity excluding goodwill and core deposit intangibles. -more- Sterling Bancshares, Inc. FINANCIAL HIGHLIGHTS (Dollars in thousands except per share data) Page 5
------------------------------------------------------------------------------------------------------- As of September 30, % 2002 2001 Change ------------------------------------------------------------------------------------------------------- End of Period ------------- Loans available for sale 727,227 177,868 308.9% Loans held for investment 1,881,603 1,546,606 21.7 ----------- ----------- Total loans 2,608,830 1,724,474 51.3 Securities 307,622 351,212 (12.4) Trading assets 130,688 61,547 112.3 Other earning assets 3,167 96,858 (96.7) Allowance for loan losses (26,128) (21,431) 21.9 Goodwill 59,668 24,963 139.0 Assets related to discontinued operations 41,508 37,137 11.8 Other assets 329,890 265,793 24.1 ----------- ----------- Total assets 3,455,245 2,540,553 36.0 =========== =========== Noninterest earning deposits 965,153 747,821 29.1 Interest earning deposits 1,628,681 1,368,358 19.0 ----------- ----------- Total deposits 2,593,834 2,116,179 22.6 Other borrowings 408,098 112,568 262.5 Notes payable 21,471 1,600 1,241.9 Liabilities related to discontinued operations 37,067 32,859 12.8 Other liabilities 40,101 24,496 63.7 ----------- ----------- Total liabilities 3,100,571 2,287,702 35.5 Trust preferred securities 108,750 57,500 89.1 Minority interest 4,894 3,434 42.5 Realized shareholders' equity 236,477 187,405 26.2 Accumulated other comprehensive income 4,553 4,512 0.9 ----------- ----------- Total liabilities and shareholders' equity 3,455,245 2,540,553 36.0 =========== ===========
-more- Sterling Bancshares, Inc. SELECTED FINANCIAL HIGHLIGHTS (Dollars in thousands) Page 6
--------------------------------------------------------------------------------------------------------------------------------- 3rd QTR 2nd QTR 1st QTR 4th QTR 3rd QTR 2002 2002 2002 2001 2001 --------------------------------------------------------------------------------------------------------------------------------- CREDIT DATA Allowance for loans - beginning 24,217 23,798 22,927 21,431 20,293 Allowance from acquisitions 656 - - 863 - Provision for loan losses 3,439 3,088 2,623 3,092 3,120 Net charge-offs (2,184) (2,669) (1,752) (2,459) (1,982) ------------ ----------- ------------ ----------- ------------ Allowance for loan losses - ending 26,128 24,217 23,798 22,927 21,431 ============ =========== ============ =========== ============ Nonaccrual loans 15,120 14,936 12,551 14,179 11,585 Restructured loans - - 15 16 - Other real estate 4,421 2,368 1,677 1,837 1,887 Other repossessed assets 44 88 76 127 205 ------------ ----------- ------------ ----------- ------------ Total nonperforming assets 19,585 17,392 14,319 16,159 13,677 ============ =========== ============ =========== ============ Accruing loans past due 90 days or more 2,909 1,062 1,888 1,360 1,867 Nonperfoming assets to loans, ORE and ORA 0.75% 0.79% 0.72% 0.84% 0.78% Nonperforming loans to total loans 0.58% 0.68% 0.63% 0.74% 0.66% Allowance to period-end loans 1.00% 1.10% 1.19% 1.19% 1.23% Allowance to loans held for investment 1.39% 1.38% 1.40% 1.38% 1.37% Allowance to nonperforming assets 133.41% 139.24% 166.20% 142.02% 156.69% Net charge-offs to average loans (annualized) 0.38% 0.53% 0.37% 0.54% 0.45% Provision for loan losses to average loans (annualized) 0.60% 0.61% 0.56% 0.68% 0.71% SELECTED AVERAGE BALANCES Loans available for sale 439,636 311,533 231,392 213,988 177,610 Loans held for investment 1,850,024 1,726,479 1,670,994 1,582,103 1,558,697 Total loans 2,289,660 2,038,012 1,902,386 1,796,091 1,736,307 Securities 313,393 319,107 332,701 346,142 361,273 Trading assets 112,743 100,851 103,262 94,616 62,346 Other earning assets 18,037 29,497 46,288 79,549 88,185 Goodwill 56,730 55,245 54,812 36,006 26,707 Earning assets 2,733,833 2,487,467 2,384,637 2,316,398 2,248,111 Total assets 3,096,728 2,821,120 2,712,036 2,634,682 2,538,475 Noninterest earning deposits 862,041 804,519 756,798 769,357 706,271 Interest earning deposits 1,505,411 1,461,387 1,456,861 1,402,956 1,374,870 Total deposits 2,367,452 2,265,906 2,213,659 2,172,313 2,081,141 Other borrowings 358,135 210,922 161,353 178,857 183,164 Notes payable 20,716 20,879 20,879 7,887 1,600 Trust preferred securities 65,938 57,500 57,500 57,500 57,500 Shareholders' equity 242,964 230,998 223,472 197,959 189,952 FUNDINGS AT MORTGAGE COMPANY Original production 756,252 705,706 474,572 473,155 492,523 Refinanced 481,673 146,252 201,934 358,350 122,649 ------------ ----------- ------------ ----------- ------------ Total 1,237,925 851,958 676,506 831,505 615,172 ============ =========== ============ =========== ============
-more- Sterling Bancshares, Inc. CONSOLIDATED BALANCE SHEET (Dollars in thousands) Page 7
------------------------------------------------------------------------------------------------------------------------------------ Period end as of Increase/(Decrease) ----------------------------- -------------------------- 9/30/2002 9/30/2001 Amount % ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 117,073 $ 106,239 $ 10,834 10.2 % Interest-bearing deposits in financial institutions 1,669 1,329 340 25.6 Securities purchased with an agreement to resell 1,890 82,577 (80,687) (97.7) Trading assets 130,688 61,547 69,141 112.3 Available-for-sale securities, at fair value 243,222 270,708 (27,486) (10.2) Held-to-maturity securities, at amortized cost 64,400 80,504 (16,104) (20.0) Loans held for sale 727,227 177,868 549,359 308.9 Loans held for investment: Commercial and industrial 559,577 487,569 72,008 14.8 Real estate: Commercial 612,958 487,204 125,754 25.8 Mortgage 194,064 169,745 24,319 14.3 Construction and development 361,843 261,025 100,818 38.6 Consumer/other 153,172 141,150 12,022 8.5 Unearned premium (discount) (11) (87) 76 (87.4) ------------- -------------- ------------- Loans held for investment 1,881,603 1,546,606 334,997 21.7 Allowance for credit losses (26,128) (21,431) (4,697) 21.9 ------------- -------------- ------------- Loans, net 1,855,475 1,525,175 330,300 21.7 Accrued interest receivable 14,160 12,222 1,938 15.9 Real estate acquired by foreclosure 4,421 1,887 2,534 134.3 Premises and equipment, net 56,665 54,453 2,212 4.1 Goodwill, net 59,668 24,963 34,705 139.0 Core deposit intangible 2,225 - 2,225 - Mortgage servicing rights 19,384 13,459 5,925 44.0 Other assets 115,570 90,485 25,085 27.7 Assets related to discontinued operations 41,508 37,137 4,371 11.8 ------------- -------------- ------------- TOTAL ASSETS $ 3,455,245 $ 2,540,553 $ 914,692 36.0 ============= ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits: Noninterest-bearing $ 965,153 $ 747,821 $ 217,332 29.1 Interest-bearing 874,734 829,452 45,282 5.5 Certificates of deposit and other time deposits: Jumbo 498,617 289,410 209,207 72.3 Nonjumbo 255,330 249,496 5,834 2.3 ------------- -------------- ------------- Total deposits 2,593,834 2,116,179 477,655 22.6 Securities sold under agreements to repurchase and other borrowed funds 408,098 112,568 295,530 262.5 Note payable 21,471 1,600 19,871 1,241.9 Accrued interest payable and other liabilities 40,101 24,496 15,605 63.7 Liabilities related to discontinued operations 37,067 32,859 4,208 12.8 ------------- -------------- ------------- Total liabilities 3,100,571 2,287,702 812,869 35.5 COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST 108,750 57,500 51,250 89.1 MINORITY INTEREST IN STERLING CAPITAL MORTGAGE COMPANY 4,894 3,434 1,460 42.5 Shareholders' equity: Convertible preferred stock, $1 par value, 1 million shares authorized 59 39 20 51.3 Common stock, $1 par value, 100 million shares authorized 43,931 42,318 1,613 3.8 Capital surplus 44,414 24,348 20,066 82.4 Retained earnings 148,073 120,700 27,373 22.7 Accumulated other comprehensive income--net unrealized gain on available-for-sale securities, net of tax 4,553 4,512 41 0.9 ------------- -------------- ------------- Total shareholders' equity 241,030 191,917 49,113 25.6 ------------- -------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,455,245 $ 2,540,553 $ 914,692 36.0 ============= ============== =============
-more- Sterling Bancshares, Inc. CONSOLIDATED INCOME STATEMENT (Dollars in thousands) Page 8
--------------------------------------------------------------------------------------------------------------- Quarter ended September 30, Increase/(Decrease) 2002 2001 Amount % --------------------------------------------------------------------------------------------------------------- Interest income: Loans, including fees $ 40,606 $ 36,968 $ 3,638 9.8 % Securities: Taxable 3,230 4,196 (966) (23.0) Tax-exempt 697 814 (117) (14.4) Federal funds sold and securities purchased under agreements to resell 76 1,164 (1,088) (93.5) Trading assets 1,229 1,120 109 9.7 Deposits in financial institutions 27 22 5 22.7 ------------------------ -------- Total interest income 45,865 44,284 1,581 3.6 Interest expense: Demand and savings deposits 1,999 4,407 (2,408) (54.6) Certificates and other time deposits 4,035 6,165 (2,130) (34.5) Other borrowed funds 1,651 1,794 (143) (8.0) Note payable 202 20 182 910.0 ------------------------ -------- Total interest expense 7,887 12,386 (4,499) (36.3) ------------------------ -------- Net interest income 37,978 31,898 6,080 19.1 Provision for credit losses 3,439 3,120 319 10.2 ------------------------ -------- Net interest income after Provision for credit Losses 34,539 28,778 5,761 20.0 Noninterest income: Customer service fees 3,893 3,753 140 3.7 Gain on sale of mortgage loans 9,320 6,489 2,831 43.6 Mortgage origination income 8,802 526 8,276 1,573.4 Other 5,365 3,089 2,276 73.7 ------------------------ -------- Total noninterest income 27,380 13,857 13,523 97.6 Noninterest expense: Salaries and employee benefits 24,393 15,020 9,373 62.4 Occupancy expense 6,207 4,499 1,708 38.0 Net loss and carrying costs of real estate acquired by foreclosure 229 35 194 554.3 Mortgage servicing rights amortization and impairment 6,141 258 5,883 2,280.2 Technology 1,580 1,291 289 22.4 Postage and delivery charges 893 684 209 30.6 Supplies 746 566 180 31.8 Professional fees 1,398 737 661 89.7 Minority interest expense: Company-obligated mandatorily redeemable trust preferred securities of subsidiary trusts 1,462 1,329 133 10.0 Sterling Capital Mortgage Company 81 617 (536) (86.9) Conversion costs related to acquisitions 973 1,194 (221) (18.5) Other 5,424 4,553 871 19.1 ------------------------ -------- Total noninterest expense 49,527 30,783 18,744 60.9 Income from continuing operations before income taxes 12,392 11,852 540 4.6 Provision for income taxes 4,163 4,282 (119) (2.8) ------------ ----------- -------- Income from continuing operations 8,229 7,570 659 8.7 Income from discontinued operations before income taxes 433 437 (4) (0.9) Provision for income taxes 144 134 10 7.5 ------------ ----------- -------- Income from discontinued operations 289 303 (14) (4.6) ------------ ----------- -------- Net Income $ 8,518 $ 7,873 $ 645 8.2 ============ =========== ======== Earnings per share: Basic $ 0.19 $ 0.19 $ - - ============ =========== ======== Diluted $ 0.19 $ 0.18 $ 0.01 5.6 ============ =========== ======== Diluted cash $ 0.19 $ 0.19 $ - - ============ =========== ======== Earnings per share from continuing operations: Basic $ 0.19 $ 0.18 $ 0.01 5.6 ============ =========== ======== Diluted $ 0.18 $ 0.18 $ - - ============ =========== ======== Diluted cash $ 0.19 $ 0.18 $ 0.01 5.6 ============ =========== ======== Weighted average basic shares 43,917 42,263 1,654 3.9 Weighted average diluted shares 44,872 43,224 1,648 3.8 ------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, Increase/(Decrease) 2002 2001 Amount % ------------------------------------------------------------------------------------------------------------------- Interest income: Loans, including fees $111,825 $ 110,209 $ 1,616 1.5 % Securities: Taxable 10,594 12,924 (2,330) (18.0) Tax-exempt 2,217 2,504 (287) (11.5) Federal funds sold and securities purchased under agreements to resell 415 2,934 (2,519) (85.9) Trading assets 3,222 1,917 1,305 68.1 Deposits in financial institutions 86 57 29 50.9 ------------------------ -------- Total interest income 128,359 130,545 (2,186) (1.7) Interest expense: Demand and savings deposits 6,601 13,904 (7,303) (52.5) Certificates and other time deposits 12,457 20,512 (8,055) (39.3) Other borrowed funds 3,372 5,830 (2,458) (42.2) Note payable 602 86 516 600.0 ------------------------ -------- Total interest expense 23,032 40,332 (17,300) (42.9) ------------------------ -------- Net interest income 105,327 90,213 15,114 16.8 Provision for credit losses 9,150 8,592 558 6.5 ------------------------ -------- Net interest income after Provision for credit Losses 96,177 81,621 14,556 17.8 Noninterest income: Customer service fees 11,662 10,153 1,509 14.9 Gain on sale of mortgage loans 20,990 17,964 3,026 16.8 Mortgage origination income 17,808 6,624 11,184 168.8 Other 15,525 11,024 4,501 40.8 ------------------------ -------- Total noninterest income 65,985 45,765 20,220 44.2 Noninterest expense: Salaries and employee benefits 66,319 51,299 15,020 29.3 Occupancy expense 17,094 12,891 4,203 32.6 Net loss and carrying costs of real estate acquired by foreclosure 300 132 168 127.3 Mortgage servicing rights amortization and impairment 7,983 445 7,538 1,693.9 Technology 4,119 3,959 160 4.0 Postage and delivery charges 2,392 1,848 544 29.4 Supplies 1,959 1,459 500 34.3 Professional fees 3,427 2,060 1,367 66.4 Minority interest expense: Company-obligated mandatorily redeemable trust preferred securities of subsidiary trusts 4,117 3,390 727 21.4 Sterling Capital Mortgage Company 662 1,475 (813) (55.1) Conversion costs related to acquisitions 973 2,224 (1,251) (56.3) Other 14,995 12,739 2,256 17.7 ------------------------ -------- Total noninterest expense 124,340 93,921 30,419 32.4 Income from continuing operations before income taxes 37,822 33,465 4,357 13.0 Provision for income taxes 12,520 11,603 917 7.9 ------------ ----------- -------- Income from continuing operations 25,302 21,862 3,440 15.7 Income from discontinued operations before income taxes 1,345 778 567 72.9 Provision for income taxes 448 238 210 88.2 ------------ ----------- -------- Income from discontinued operations 897 540 357 66.1 ------------------------ -------- Net Income $ 26,199 $ 22,402 $ 3,797 16.9 ======================== ======== Earnings per share: Basic $ 0.60 $ 0.53 $ 0.07 13.2 ============ =========== ======== Diluted $ 0.59 $ 0.52 $ 0.07 13.5 ============ =========== ======== Diluted cash $ 0.59 $ 0.54 $ 0.05 9.3 ============ =========== ======== Earnings per share from continuing operations: Basic $ 0.58 $ 0.52 $ 0.06 11.5 ============ =========== ======== Diluted $ 0.57 $ 0.51 $ 0.06 11.8 ============ =========== ======== Diluted cash $ 0.57 $ 0.53 $ 0.04 7.5 ============ =========== ======== Weighted average basic shares 43,849 42,052 1,797 4.3 Weighted average diluted shares 44,779 42,942 1,837 4.3
-more- Sterling Bancshares, Inc. CONSOLIDATED INCOME STATEMENT (Dollars in thousands) Page 9
------------------------------------------------------------------------------------------------------------------------------ 3rd QTR 2nd QTR 1st QTR 4th QTR 3rd QTR 2002 2002 2002 2001 2001 ------------------------------------------------------------------------------------------------------------------------------ Interest income: Loans, including fees $ 40,606 $ 36,770 $ 34,450 $ 34,711 $ 36,968 Securities: Taxable 3,230 3,613 3,751 3,691 4,196 Tax-exempt 697 739 781 800 814 Federal funds sold and securities purchased under agreements to resell 76 124 215 644 1,164 Trading assets 1,229 943 1,050 870 1,120 Deposits in financial institutions 27 30 29 22 22 ---------- ---------- ---------- ---------- ---------- Total interest income 45,865 42,219 40,276 40,738 44,284 Interest expense: Demand and savings deposits 1,999 2,280 2,323 2,794 4,407 Certificates and other time deposits 4,035 3,975 4,447 5,304 6,165 Other borrowed funds 1,651 995 726 1,031 1,794 Note payable 202 197 203 49 20 ---------- ---------- ---------- ---------- ---------- Total interest expense 7,887 7,447 7,699 9,178 12,386 ---------- ---------- ---------- ---------- ---------- Net interest income 37,978 34,772 32,577 31,560 31,898 Provision for credit losses 3,439 3,088 2,623 3,092 3,120 ---------- ---------- ---------- ---------- ---------- Net interest income after Provision for credit Losses 34,539 31,684 29,954 28,468 28,778 Noninterest income: Customer service fees 3,893 3,923 3,846 3,871 3,753 Gain on sale of mortgage loans 9,320 7,541 4,129 6,242 6,489 Mortgage origination income 8,802 5,613 3,393 3,768 526 Other 5,365 5,639 4,521 5,612 3,089 ---------- ---------- ---------- ---------- ---------- Total noninterest income 27,380 22,716 15,889 19,493 13,857 Noninterest expense: Salaries and employee benefits 24,393 23,047 18,879 17,223 15,020 Occupancy expense 6,207 5,747 5,141 5,247 4,499 Net loss and carrying costs of real estate acquired by foreclosure 229 5 66 44 35 Mortgage servicing rights amortization and impairment 6,141 1,042 800 1,320 258 Technology 1,580 1,333 1,206 1,368 1,291 Postage and delivery charges 893 782 716 702 684 Supplies 746 682 531 535 566 Professional fees 1,398 1,326 702 1,138 737 Minority interest expense: Company-obligated mandatorily redeemable trust preferred securities of subsidiary trusts 1,462 1,325 1,330 1,326 1,329 Sterling Capital Mortgage Company 81 366 215 798 617 Conversion costs related to acquisitions 973 - - 957 1,194 Other 5,424 5,105 4,468 5,201 4,553 ---------- ---------- ---------- ---------- ---------- Total noninterest expense 49,527 40,760 34,054 35,859 30,783 Income from continuing operations before income taxes 12,392 13,640 11,789 12,102 11,852 Provision for income taxes 4,163 4,556 3,801 4,426 4,282 ---------- ---------- ---------- ---------- ---------- Income from continuing operations 8,229 9,084 7,988 7,676 7,570 Income from discontinued operations before income taxes 433 448 465 466 437 Provision for income taxes 144 149 155 143 134 ---------- ---------- ---------- ---------- ---------- Income from discontinued operations 289 299 310 323 303 ---------- ---------- ---------- ---------- ---------- Net Income $ 8,518 $ 9,383 $ 8,298 $ 7,999 $ 7,873 ========== ========== ========== ========== ========== Earnings per share: Basic $ 0.19 $ 0.21 $ 0.19 $ 0.19 $ 0.19 ========== ========== ========== ========== ========== Diluted $ 0.19 $ 0.21 $ 0.19 $ 0.18 $ 0.18 ========== ========== ========== ========== ========== Diluted cash $ 0.19 $ 0.21 $ 0.19 $ 0.19 $ 0.19 ========== ========== ========== ========== ========== Earnings per share from continuing operations: Basic $ 0.19 $ 0.21 $ 0.18 $ 0.18 $ 0.18 ========== ========== ========== ========== ========== Diluted $ 0.18 $ 0.20 $ 0.18 $ 0.18 $ 0.18 ========== ========== ========== ========== ========== Diluted cash $ 0.19 $ 0.20 $ 0.18 $ 0.19 $ 0.18 ========== ========== ========== ========== ========== Weighted average basic shares 43,917 43,849 43,779 42,558 42,263 Weighted average diluted shares 44,872 44,797 44,658 43,346 43,224
-more- Sterling Bancshares, Inc. (Dollars in thousands) Page 10
Nine months ended ---------------------------------------------------------------------------------------- September 30, 2002 September 30, 2001 ------------------------------------------- ------------------------------------------- YIELD ANALYSIS Average Average Balance Interest Yield Balance Interest Yield ------------- ------------- ------------- ------------- ------------- ------------- Interest Earning Assets: Interest bearing deposits in financial institutions $ 2,082 $ 86 5.52% 1,176 $ 57 6.48% Federal funds sold 25,385 320 1.69% 25,841 854 4.42% Securities purchased under agreements to resell 3,728 95 3.41% 47,084 2,080 5.91% Trading Assets 106,239 3,222 4.05% 34,098 1,917 7.52% Investment securities (taxable) 253,507 11,299 5.96% 272,585 13,202 6.48% Investment securities (tax-exempt) 68,156 2,217 4.35% 76,919 2,504 4.35% Loans held for sale (taxable) 327,141 17,669 7.22% 167,909 9,579 7.63% Loans held for investment (taxable) 1,745,878 94,963 7.27% 1,487,494 101,294 9.10% Loans held for investment (tax-exempt) 5,048 231 6.12% 4,016 213 7.09% ---------------------------- ------------- ------------- ------------- ------------- Total Interest Earning Assets 2,537,164 130,102 6.86% 2,117,122 131,700 8.32% Noninterest Earning Assets: Cash and due from banks 95,391 86,814 Premises and equipment, net 55,054 53,070 Other assets 214,773 144,692 Allowance for credit losses (24,386) (19,577) ------------- ------------- Total Noninterest Earning Assets 340,832 264,999 ------------- ------------- Total Assets $ 2,877,996 2,382,121 ============= ============= Interest Bearing Liabilities: Demand and savings deposits $ 881,276 $ 6,766 1.03% 761,749 14,068 2.47% Certificates and other time deposits 593,455 12,632 2.85% 545,877 20,751 5.08% Other borrowings 244,191 3,372 1.85% 173,857 5,830 4.48% Note payable 20,824 602 3.87% 1,600 86 7.19% ------------- ------------- ------------- ------------- ------------- ------------- Total Interest Bearing Liabilities 1,739,746 23,372 1.80% 1,483,083 40,735 3.67% Noninterest Bearing Liabilities: Demand deposits 808,196 647,388 Other liabilities 37,199 21,726 ------------- ------------- Total Noninterest Bearing Liabilities 845,395 669,114 Trust preferred securities 60,343 51,287 Shareholders' equity 232,512 178,637 ------------- ------------- Total Liabilities and Shareholders' Equity $ 2,877,996 $ 2,382,121 ============= ============= Net Interest Income & Margin $ 106,730 5.62% $ 90,965 5.74% ============= ============= ============= ============= Net Interest Income & Margin (tax equivalent) $ 107,937 5.69% $ 92,165 5.82% ============= ============= ============= =============
The tax equivalent net interest margin excluding discontinued operations for the nine months ended September 30, 2002 and 2001 is 5.70% and 5.83%, respectively. -more- Sterling Bancshares, Inc. (Dollars in thousands) Page 11
Quarter Ended -------------------------------------------------------------------------------------- September 30, 2002 September 30, 2001 ----------------------------------------- ------------------------------------------ YIELD ANALYSIS Average Average Balance Interest Yield Balance Interest Yield ------------- ------------ ---------- ------------- ------------ ---------- Interest Earning Assets: Interest bearing deposits in financial institutions $ 1,722 $ 27 6.22% 1,297 $ 22 6.73% Federal funds sold 14,398 60 1.65% 26,297 298 4.50% Securities purchased under agreements to resell 1,917 16 3.31% 60,591 866 5.67% Trading Assets 112,743 1,229 4.32% 62,346 1,120 7.13% Investment securities (taxable) 249,288 3,488 5.55% 285,914 4,400 6.11% Investment securities (tax-exempt) 64,105 697 4.31% 75,359 814 4.29% Loans held for sale (taxable) 439,636 7,871 7.10% 177,610 3,400 7.59% Loans held for investment (taxable) 1,844,976 32,967 7.09% 1,554,260 33,899 8.65% Loans held for investment (tax-exempt) 5,048 74 5.82% 4,437 76 6.80% ---------------------------- ---------- ------------- ------------ ---------- Total Interest Earning Assets 2,733,833 46,429 6.74% 2,248,111 44,895 7.92% Noninterest Earning Assets: Cash and due from banks 92,181 94,319 Premises and equipment, net 55,999 55,631 Other assets 239,832 161,391 Allowance for credit losses (25,117) (20,977) ------------- ------------- Total Noninterest Earning Assets 362,895 290,364 ------------- ------------- Total Assets $ 3,096,728 2,538,475 ============= ============= Interest Bearing Liabilities: Demand and savings deposits $ 886,260 $ 2,054 0.92% 820,334 4,473 2.16% Certificates and other time deposits 619,151 4,088 2.62% 554,536 6,269 4.49% Other borrowings 358,135 1,651 1.83% 183,164 1,794 3.89% Note payable 20,716 202 3.87% 1,600 20 4.96% ------------- ------------ ---------- ------------- ------------ ---------- Total Interest Bearing Liabilities 1,884,262 7,995 1.68% 1,559,634 12,556 3.19% Noninterest Bearing Liabilities: Demand deposits 862,041 706,271 Other liabilities 41,523 25,118 ------------- ------------- Total Noninterest Bearing Liabilities 903,564 731,389 Trust preferred securities 65,938 57,500 Shareholders' equity 242,964 189,952 ------------- ------------- Total Liabilities and Shareholders' Equity $ 3,096,728 $ 2,538,475 ============= ============= Net Interest Income & Margin $ 38,434 5.58% $ 32,339 5.71% ============ ========== ============ ========== Net Interest Income & Margin (tax equivalent) $ 38,816 5.63% $ 32,744 5.78% ============ ========== ============ ==========
The tax equivalent net interest margin excluding discontinued operations for the quarter ended September 30, 2002 and 2001 is 5.65% and 5.81%, respectively. -more- Sterling Bancshares, Inc. SEGMENT REPORTING (Dollars in thousands, except for per share data) Page 12
Nine Months Ended September 30, 2002 Nine Months Ended September 30, 2001 --------------------------------------------- --------------------------------------------- Commercial Mortgage Discontinued Commercial Mortgage Discontinued Banking Banking Operations Combined Banking Banking Operations Combined --------------------------------------------- --------------------------------------------- EARNINGS SUMMARY Interest income $128,359 $ - $ 1,743 $130,102 $ 130,545 $ - $ 1,155 $131,700 Interest expense 23,032 - 340 23,372 40,332 - 403 40,735 --------------------------------------------- --------------------------------------------- Net interest income 105,327 - 1,403 106,730 90,213 - 752 90,965 Provision for loan losses 9,150 - - 9,150 8,592 - - 8,592 Noninterest income 20,444 45,541 859 66,844 16,593 29,172 619 46,384 Noninterest expense 82,344 41,023 917 124,284 72,521 19,176 593 92,290 Conversion costs related to acquisition 973 - - 973 2,224 - - 2,224 --------------------------------------------- --------------------------------------------- Earnings before income taxes 33,304 4,518 1,345 39,167 23,469 9,996 778 34,243 Provision for income taxes 10,650 1,870 448 12,968 7,508 4,095 238 11,841 --------------------------------------------- --------------------------------------------- Net earnings $ 22,654 $ 2,648 $ 897 $ 26,199 $ 15,961 $ 5,901 $ 540 $ 22,402 ============================================= ============================================= EFFICIENCY RATIO 63.72% 90.08% N/A 70.88% 66.18% 65.73% N/A 66.22% ============================================= ============================================= Nine Months Ended September 30, 2002 Nine Months Ended September 30, 2001 --------------------------------------------- --------------------------------------------- Commercial Mortgage Discontinued Commercial Mortgage Discontinued Banking Banking Operations Combined Banking Banking Operations Combined --------------------------------------------- --------------------------------------------- NONINTEREST INCOME Customer service fees $ 11,662 $ - $ 716 $ 12,378 $ 10,153 $ - $ 560 $ 10,713 Gain on sale of mortgage loans - 20,990 - 20,990 - 17,964 - 17,964 Mortgage origination income - 17,808 - 17,808 - 6,624 - 6,624 Other 8,782 6,743 143 15,668 6,440 4,584 59 11,083 --------------------------------------------- --------------------------------------------- Total $ 20,444 $ 45,541 $ 859 $ 66,844 $ 16,593 $ 29,172 $ 619 $ 46,384 ============================================= ============================================= NONINTEREST EXPENSE Salaries and employee benefits $ 46,096 $ 20,223 $ 585 $ 66,904 $ 40,427 $ 10,872 $ 334 $ 51,633 Occupancy expense 11,187 5,907 125 17,219 9,787 3,104 100 12,991 Technology 3,721 398 20 4,139 3,689 270 9 3,968 Supplies 982 977 18 1,977 1,136 323 25 1,484 Goodwill amortization - - - - 639 208 26 873 Mortgage servicing rights amortization - 7,983 - 7,983 - 445 - 445 Professional fees 3,086 341 21 3,448 1,892 168 2 2,062 Minority interest expense 4,117 662 - 4,779 3,390 1,475 - 4,865 Conversion costs related to acquisitions 973 - - 973 2,224 - - 2,224 Other 13,155 4,532 148 17,835 11,561 2,311 97 13,969 --------------------------------------------- --------------------------------------------- Total $ 83,317 $ 41,023 $ 917 $125,257 $ 74,745 $ 19,176 $ 593 $ 94,514 ============================================= =============================================
-more- Sterling Bancshares, Inc. SEGMENT REPORTING (Dollars in thousands, except for per share data) Page 13
Quarter Ended September 30, 2002 Quarter Ended September 30, 2001 ------------------------------------------------ ------------------------------------------------ Commercial Mortgage Discontinued Commercial Mortgage Discontinued Banking Banking Operations Combined Banking Banking Operations Combined ------------------------------------------------ ------------------------------------------------ EARNINGS SUMMARY Interest income $ 45,865 $ - $ 564 $ 46,429 $ 44,284 $ - $ 611 $ 44,895 Interest expense 7,887 - 108 7,995 12,386 - 170 12,556 ------------------------------------------------ ------------------------------------------------ Net interest income 37,978 - 456 38,434 31,898 - 441 32,339 Provision for loan losses 3,439 - - 3,439 3,120 - - 3,120 Noninterest income 6,899 20,481 280 27,660 5,962 7,895 314 14,171 Noninterest expense 28,670 19,884 303 48,857 25,879 3,710 318 29,907 Conversion costs related to acquisition 973 - - 973 1,194 - - 1,194 ------------------------------------------------ ------------------------------------------------ Earnings before income taxes 11,795 597 433 12,825 7,667 4,185 437 12,289 Provision for income taxes 3,890 273 144 4,307 2,568 1,714 134 4,416 ------------------------------------------------ ------------------------------------------------ Net earnings $ 7,905 $ 324 $ 289 $ 8,518 $ 5,099 $ 2,471 $ 303 $ 7,873 ================================================ ================================================ EFFICIENCY RATIO 62.33% 97.09% N/A 73.18% 66.38% 46.99% N/A 63.37% ================================================ ================================================ Quarter Ended September 30, 2002 Quarter Ended September 30, 2001 ------------------------------------------------ ------------------------------------------------ Commercial Mortgage Discontinued Commercial Mortgage Discontinued Banking Banking Operations Combined Banking Banking Operations Combined ------------------------------------------------ ------------------------------------------------ NONINTEREST INCOME Customer service fees $ 3,893 $ - $ 233 $ 4,126 $ 3,753 $ - $ 274 $ 4,027 Gain on sale of mortgage loans - 9,320 - 9,320 - 6,489 - 6,489 Mortgage origination income - 8,802 - 8,802 - 526 - 526 Other 3,006 2,359 47 5,412 2,209 880 40 3,129 ------------------------------------------------ ------------------------------------------------ Total $ 6,899 $ 20,481 $ 280 $ 27,660 $ 5,962 $ 7,895 $ 314 $ 14,171 ================================================ ================================================ NONINTEREST EXPENSE Salaries and employee benefits $ 15,945 $ 8,448 $ 198 $ 24,591 $ 14,333 $ 687 $ 167 $ 15,187 Occupancy expense 3,760 2,447 40 6,247 3,376 1,123 50 4,549 Technology 1,303 277 6 1,586 1,209 82 5 1,296 Supplies 348 398 4 750 451 115 16 582 Goodwill amortization - - - - 296 71 13 380 Mortgage servicing rights amortization - 6,141 - 6,141 - 258 - 258 Professional fees 1,239 159 4 1,402 651 86 - 737 Minority interest expense 1,462 81 - 1,543 1,329 617 - 1,946 Conversion costs related to acquisitions 973 - - 973 1,194 - - 1,194 Other 4,613 1,933 51 6,597 4,234 671 67 4,972 ------------------------------------------------ ------------------------------------------------ Total $ 29,643 $ 19,884 $ 303 $ 49,830 $ 27,073 $ 3,710 $ 318 $ 31,101 ================================================ ================================================
-more- Sterling Bancshares, Inc. RECONCILIATION OF OPERATING INCOME (Dollars in thousands) Page 14
------------------------------------------------------------------------------------------------------------------------------------ Quarter ended September 30, Nine months ended September 30, 2002 2001 % 2002 2001 % ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 8,518 $ 7,873 8.2% $ 26,199 $ 22,402 16.9% Plus: Conversion costs related to acquisitions 973 1,194 -18.5% 973 2,224 -56.3% Tax benefit related to conversion costs 341 428 -20.3% 341 778 -56.2% ------------- ------------ ------------- ------------ Net conversion costs related to acquisitions 632 766 -17.5% 632 1,446 -56.3% Additional provision related to acquisition 150 - - 150 - - Tax benefit related to additional provision 53 - - 53 - - ------------- ------------ ------------- ------------ Net additional provision related to acquisition 97 - - 97 - - Operating income $ 9,247 $ 8,639 7.0% $ 26,928 $ 23,848 12.9% ============= ============ ============= ============ Operating earnings per share Diluted $ 0.21 $ 0.20 5.0% $ 0.60 $ 0.56 7.1% Basic $ 0.21 $ 0.20 5.0% $ 0.61 $ 0.57 7.0%
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