-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UpOg+pjfr+7x2X76l9mbDuQ32z6Y2HSp5EZBtQp7HCMzdN+6OKvYQNSVN3em8gsL iBmn5p2cOMZpRN2CNrLuuw== 0000950129-96-001899.txt : 19960816 0000950129-96-001899.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950129-96-001899 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING BANCSHARES INC CENTRAL INDEX KEY: 0000891098 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 742175590 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20750 FILM NUMBER: 96613370 BUSINESS ADDRESS: STREET 1: 15000 NORTHWEST FRWY STE 308 CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7134668300 10-Q 1 STERLING BANCSHARES, INC. - DATED 06/30/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------- FORM 10 - Q ---------- [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter ended June 30, 1996 [ ] 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 June 30, 1996: Class of Stock Shares Outstanding - ----------------------------- ------------------ Common Stock, Par Value $1.00 7,950,096 2 STERLING BANCSHARES, INC. INDEX TO FORM 10-Q
PART I. - FINANCIAL INFORMATION No. Page No. - --- ------- Item 1. Financial Statements The June 30, 1996 and 1995 financial statements included herein are unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management of the registrant, necessary to a fair statement of the results for the interim periods. Consolidated Balance Sheets at June 30, 1996 and 1995 and at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Earnings for the Six Months and Year-to- Date Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Interim Consolidated Financial Statements for the Period Ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Significant Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Capital Resources and Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Supplemental Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 PART II. - OTHER INFORMATION Item 2. - Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 4. - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 19 Item 6. - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2 3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS STERLING BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 1996 1995 1995 1994 ------------------------------------------------ (dollars in thousands) ASSETS Cash and due from banks 55,652 43,756 60,075 49,759 Federal funds sold 10,000 - 5,000 10,013 Interest bearing deposits in financial institutions 1,240 258 1,135 401 Investment securities: Available-for-sale 4,552 57,769 3,931 65,883 Held-to-maturity 148,657 118,403 163,581 126,074 ------------------------------------------------ Total investment securities 153,209 176,172 167,512 191,957 Loans: Loans held for sale 34,419 6,902 7,868 5,311 Loans held for investment 414,015 351,649 384,777 323,249 ------------------------------------------------ Total loans 448,434 358,551 392,645 328,560 Allowance for credit losses (6,334) (6,236) (5,907) (5,810) ------------------------------------------------ Total loans, net 442,100 352,315 386,738 322,750 Real estate acquired by foreclosure and certain other real estate 2,028 1,369 1,716 1,706 Premises and equipment, net 17,481 13,807 14,823 12,941 Goodwill 2,003 2,330 2,166 2,493 Accrued interest receivable and other assets 7,164 6,713 8,184 6,634 ------------------------------------------------ $690,877 $596,720 $647,349 $598,654 LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits: Noninterest bearing 203,908 176,187 190,333 178,372 Interest bearing 262,785 191,203 237,778 214,887 Certificates of deposit and other time deposits 158,538 145,890 146,613 145,076 ------------------------------------------------ Total deposits 625,231 513,280 574,724 538,335 Federal funds purchased and securities sold 3,689 28,558 12,083 8,520 under agreements to repurchase Accrued interest payable and other liabilities 3,070 3,159 5,051 4,126 Notes payable 4,800 6,400 5,600 7,200 Senior debentures - 600 200 850 ------------------------------------------------ Total liabilities 636,790 $551,997 $597,658 $559,031 ================================================ Shareholders' equity: Preferred stock, $1 par value, 1 million shares auth. 49 - 49 - Common stock, $1 par value, 20 million shares auth. 7,951 7,849 7,859 7,818 Capital surplus 15,436 14,351 14,985 14,204 Retained earnings 30,820 23,083 27,005 19,829 Net unrealized gain (loss) on available-for-sale securities - (560) - (2,228) Net unrealized gain (loss) on held-to-maturity securities transferred from available-for-sale (169) - (207) - ------------------------------------------------ Total shareholders' equity 54,087 44,723 49,691 39,623 ------------------------------------------------ Total liabilities and shareholders' equity $690,877 $596,720 $647,349 $598,654 ================================================
See Notes to Interim Consolidated Financial Statements. 3 4 STERLING BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ------------------------------------------------ (dollars in thousands) Interest income: Loans, including fees: Taxable $ 10,250 $ 8,860 $20,070 $17,008 Tax-exempt - 23 - 46 Federal funds sold 206 - 310 36 Deposits in financial institutions 130 18 150 23 Investment securities: Taxable 2,057 2,432 4,266 4,939 Tax-exempt 284 291 566 579 ---------------------------------------------- Total interest income 12,927 11,624 25,362 22,631 Interest expense: Demand and savings deposits 2,005 1,095 3,873 2,558 Certificates and other time deposits 1,899 1,938 3,740 3,318 Federal funds purchased and repurchase agreements 96 497 225 766 Debentures and notes payable 91 160 221 328 ---------------------------------------------- Total interest expense 4,091 3,690 8,059 6,970 NET INTEREST INCOME 8,836 7,934 17,303 15,661 Provision for credit losses 520 231 1,033 517 ---------------------------------------------- NET INTEREST INCOME AFTER PROVISION 8,316 7,703 16,270 15,144 Noninterest income: Customer service fees 1,217 1,263 2,526 2,494 Other 632 648 1,253 1,194 ---------------------------------------------- Total noninterest income 1,849 1,911 3,779 3,688 Noninterest expenses: Salaries and employee benefits 4,067 3,802 8,023 7,374 Net occupancy expense 558 512 1,097 1,099 Losses (gains) and carrying costs of real estate acquired by foreclosure 56 30 102 2 FDIC assessment - 281 1 569 Equipment expense 360 544 681 1,077 Legal and professional fees 132 47 235 197 Data processing 208 155 456 370 Telephone 186 117 332 248 Supplies 136 176 252 362 Other 848 860 1,700 1,560 ---------------------------------------------- Total noninterest expenses 6,551 6,524 12,879 12,858 EARNINGS BEFORE INCOME TAXES 3,614 3,090 7,170 5,974 Provision for income taxes 1,083 972 2,236 1,872 ---------------------------------------------- NET EARNINGS $ 2,531 $ 2,118 $ 4,934 $ 4,102 ==============================================
See Notes to Interim Consolidated Financial Statements. 4 5 STERLING BANCSHARES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1996 1995 ----------------------- (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 4,934 $ 4,102 Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization and accretion of premiums and discounts on investment securities, net 125 213 Provision for credit losses 1,033 517 (Gain) loss on sale of premises and equipment (6) - (Gain) loss on sale of real estate acquired by foreclosure (3) (42) Depreciation and amortization 1,192 1,174 Writedown of real estate acquired by foreclosure 34 120 Increase in accrued interest receivable and other assets 1,000 210 Decrease in accrued interest payable and other liabilities (1,981) (2,115) ----------------------- Total adjustments 1,394 77 ----------------------- Net cash provided by operating activities 6,328 4,179 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity and paydowns of held-to-maturity investment securities 14,857 8,266 Purchase of held-to-maturity investment securities - (774) Proceeds from maturity and paydowns of available-for-sale investment securities - 10,692 Purchase of available-for-sale investment securities (621) (85) Net increase in loans (56,462) (29,978) Proceeds from sale of real estate acquired by foreclosure 418 155 Capital additions to real estate acquired by foreclosure (23) - Net (increase) decrease in interest-bearing deposits in financial institutions (105) 143 Proceeds from sale of premises and equipment 20 - Purchase of premises and equipment (4,372) (1,877) Net cash used in investing activities ---------------------- (46,288) (13,458) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposit accounts 50,507 (25,055) Net (decrease) increase in repurchase agreements/funds purchased (8,394) 20,038 Repayments of notes payable (800) (800) Proceeds from issuance of common stock 532 166 Dividends paid (1,108) (836) Repayment of senior debentures (200) (250) ---------------------- Net cash provided by (used in) financing activities 40,537 (6,737) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 577 (16,016) CASH AND CASH EQUIVALENTS: Beginning of period $65,075 $59,772 ---------------------- End of period $65,652 $43,756 ======================
See Notes to Interim Consolidated Financial Statements. 5 6 STERLING BANCSHARES, INC., AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (Unaudited) (1) Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1996, are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of Sterling Bancshares, Inc. (the "Company"), for the year ended December 31, 1995. (2) Earnings per Share Earnings per share is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during the period. Dilutive common stock options have been included in the calculations. The weighted average shares used in the calculation of fully diluted earnings per share for the quarter ended June 30, 1996, are as follows:
Three Months Six Months Six Months Ended Ended Ended June 30, June 30, June 30, 1996 1996 1995 ------------ ---------- ---------- Common shares (See below) 7,922,234 7,902,332 7,832,400 Common share equivalents (See below) 241,176 247,423 150,870 ---------- ---------- ---------- 8,163,410 8,149,755 7,983,270 ========== ========== ========== Net earnings $2,531,820 $4,934,355 $4,102,639 Earnings per share (See below) $ 0.31 $ 0.61 $ 0.51
Note: Common shares, common share equivalents, and earnings per share for 1995 have been adjusted to reflect a three-for-two stock split effective February 14, 1996. See discussion item (3) below for additional information regarding the stock split. (3) Capital Stock Common Stock The Company plans to pay quarterly dividends at the annual rate of $0.28 per share during 1996. Dividends of $0.07 per share for the first and second quarters were paid February 14, 1996, and May 10, 1996. The third quarter dividend, also $0.07 per share, was declared July 15, 1996, and paid on August 8, 1996, to shareholders of record July 29, 1996. As of June 30, 1996, an additional 509,148 shares of common stock were issuable (without regard to vesting restrictions) upon exercise of the Company's outstanding employee stock options under the 1994 Stock Incentive Plan and the 1984 Stock Option Plan, and pursuant to outstanding subscriptions under the Company's 1994 Employee Stock Purchase Plan. 6 7 The Company's Non-Employee Director Compensation Plan provides, subject to an annual possibility of modification by the Company, that payment of outside directors will be effected by issuance of shares of the Company's stock in lieu of cash fees. Accordingly, in April 1996 the Company issued 11,250 shares as payment in full of outside director fees for director and committee services during the period April 1996 through March 1997, inclusive. The Company expects to continue a policy of such payments during future periods. Preferred Stock The Company's Board of Directors has approved issuance of three series of the Company's Convertible Preferred Stock. Each of the three series is to be issued in conjunction with the opening of one of three new offices of Sterling Bank (see "Significant Developments" on page 8 of this Form 10-Q). The convertibility ratio of the Convertible Preferred Stock to Common Stock will depend upon the performance of the new office in reaching certain defined deposit goals. The shares will be offered pursuant to Private Placement Memoranda to qualified investors who are bona fide Texas residents approved by the executive officer of the respective new banking offices, and who are either residents or businesspersons in the neighboring community. The intent of the Company is to create a common interest between management of the new offices and members of the neighboring community, and to promote acceptance of the new banking office by its nearby businesses. Accordingly, 49,500 shares of Series A stock were sold to 29 investors in the Company's new Cypress office during a subscription period that ended October 20, 1995. The subscription period for Series B shares, related to the Company's new Upper Kirby office, began May 1, 1996, and will terminate September 15, 1996. No more than 150,000 shares of Series B Convertible Preferred Stock will be issued; and none will be issued prior to the termination date of the offering. Similarly, Series C shares will be offered for sale to potential investors in the new Cypress Station office which is scheduled to open in late 1996 or early 1997. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIGNIFICANT DEVELOPMENTS Sterling Bank Begins Mortgage Company Relationship Pending regulatory approval, the Company's banking subsidiary, Sterling Bank (the "Bank"), has announced its plan to acquire a minority interest in Charter Mortgage Company, an originator of single family residential mortgage loans headquartered in Houston. As part of the transaction, Charter Mortgage Company has changed its name to Sterling Capital Mortgage Company ("SCMC") effective July 22, 1996. SCMC has offices in most large Texas housing markets, including Houston, Dallas-Fort Worth, Austin and El Paso, as well as an office in Phoenix, Arizona. Beginning in June, the Bank entered into a Temporary Mortgage Loan Purchasing Program with SCMC. Under the program, the Bank provides SCMC the funds needed to close the single family residential loans it originates, provided such loans have been pre-sold to qualified investors. Upon receipt of permanent funding from the investors, the Bank will receive interest income for each mortgage loan for the period it is temporarily owned by the Bank based upon the mortgage rate of each such loan, in addition to repayment of principal. Three New Offices Under Development The Bank continues its planned expansion of banking services in the greater Houston market. The first of three new community banking offices, the Cypress office, opened in September 1995 near the intersection of Jones and Grant Roads in the northwest part of the greater Houston area. A second new banking office opened August 12, 1996, at the intersection of Westheimer Road and Kirby Drive in the Upper Kirby district of Houston. The Bank intends to open a third new office in the Cypress Station area of north Houston near the intersection of Interstate Highway 45 and FM 1960 by late 1996 or early 1997. The Bank has hired two employees, including an executive officer for the location, and has purchased a site, with construction expected to begin in August. Convertible Preferred Stock Series B Offered On July 17, 1995, the Company's Board of Directors authorized issuance of three new series of Convertible Preferred Stock (designated as Series A, Series B, and Series C) to be offered to persons the Company believes will be beneficial to the development and support of the three new banking offices discussed above. In conjunction with the opening of the new Upper Kirby office expected in July, the Series B shares were offered in a Confidential Private Placement Memorandum to qualified investors beginning May 1, 1996. The offering is scheduled to terminate September 15, 1996. Additional information regarding the offering and the new offices is discussed under Preferred Stock in Footnote 3 to the Company's unaudited financial statements in Part I and in Item 2 of Part II of this Form 10-Q. FINANCIAL CONDITION Investments in Subsidiaries Sterling Bank, which operates 12 community banking offices in the greater Houston area, and which intends to add a 13th banking office during late 1996 or early 1997, constitutes the Company's only subsidiary. Total Assets The total consolidated assets of the Company as of June 30, 1996, were $690.9 million, as compared to $596.7 million on the same date in 1995, an increase of $94.2 million or 15.8%. 8 9 Federal Funds Sold and Federal Funds Purchased The Bank had federal funds sold as of June 30, 1996, in the amount of $10.0 million. On the same date in 1995, the Bank had no federal funds sold. The Bank had no federal funds purchased at June 30, 1996, as compared $19.0 million at June 30, 1995. The net federal funds position shifted by $29.0 million between June 30, 1995 and 1996, primarily a result of the increase in deposits realized over this time period. Loans As of June 30, 1996, loans (excluding student and residential mortgage loans held for resale in the amounts of $34.4 million in 1996 and $6.9 million in 1995) were $414.0 million, as compared to $351.6 million on the same date in 1995, an increase of $62.4 million or 17.7% due primarily to continued strong loan demand. When compared to total loans of $384.8 million on December 31, 1995, the June 30, 1996, loan balance represents a year-to-date $29.2 million increase in internal loan production, net of payoffs, an annualized percentage increase of 15.3%. At June 30, 1996, loans as a percentage of assets and deposits were 59.9% and 66.2%, respectively. The following table summarizes the Bank's loan portfolio by type of loan as of June 30, 1996 (in thousands):
June 30, 1996 Percent Balance of Total ------------- -------- Commercial, financial and industrial 155,899 37.66% Real estate - commercial 107,352 25.93% Real estate - residential mortgage 45,009 10.87% Real estate - construction 37,417 9.04% Installment and other 71,643 17.30% Less unearned discount (3,305) (0.80)% ------- ------- Total loans 414,015 100.00% ======= =======
Investment Securities The Bank's investment portfolio as of June 30, 1996, totaled $153.2 million, as compared to $176.2 million on the same date in 1995. The decrease of $23.0 million or 13.1% is a result of the Bank's reinvestment of cash provided by its investment securities to other uses. Funds provided by the reduction in investment securities were used primarily to fund the Bank's strong loan growth. As required by generally accepted accounting principles, the Bank has designated its total securities portfolio into (a) Held-to-maturity and (b) Available-for-sale. As of June 30, 1996, the "Held-to-maturity" ("HTM") portfolio totaled $148.7 million and included substantially all of the investment securities maintained by the Bank for investment purposes. The Available-for-sale ("AFS") portfolio totaled $4.5 million and consisted of the Bank's portfolio of investment assets which were held for reasons other than solely for investment, such as the Bank's stock in the regional Federal Home Loan Bank (the "FHLB"). Due to the nature of the securities classified as AFS, there was no net unrealized gain or loss in the AFS portfolio as of June 30, 1996. The Bank tracks but does not record market changes on its HTM portfolio. At June 30, 1996, the market value of the HTM portfolio was $146.1 million. The Company analyzes its interest rate risk position by use of a simulation model. As of June 30, 1996, the simulation model indicates that, in the event of a 200 basis point increase in underlying market interest rates, the Company's net interest income would increase 3.90%. Correspondingly, in the event of a 200 basis point decrease in market interest rates, the Company's net interest income would decrease by 4.64%. The results of this "rate stress test", which assumes a parallel shift in the yield curve, indicate that the present mix of earning assets and paying liabilities constitutes an Asset/Liability portfolio with reasonable protection from income shocks caused by changes in interest rates. The simulation model also provides a detailed GAP analysis, which the 9 10 Company uses as a secondary source in analyzing its Asset/Liability mix. The GAP measurement of Rate Sensitive Assets (RSA) to Rate Sensitive Liabilities (RSL) indicates a positive GAP of 1.0410 through the first year and a positive 1.0752 through three years cumulative. Allowance for Credit Losses Following is a summary of the changes in the allowance for credit losses for the six months ended June 30, 1996, and the relationship of the allowance account to total loans at June 30, 1996, and December 31,1995 (in thousands): Allowance for credit losses, December 31, 1995 $5,907 Chargeoffs (859) Recoveries 253 Provision for credit losses 1,033 ------ Allowance for credit losses, June 30, 1996 $6,334 ======
June 30, December 31, 1996 1995 -------- ------------ Loans outstanding at period-end $414,015 $384,777 Allowance for credit losses $ 6,334 $ 5,907 Allowance as a percent of period-end loans 1.53% 1.54%
In order to determine the adequacy of the allowance for credit losses, management considers the risk classification and delinquency status of loans and other factors. Management also establishes specific allowances for credits which management believes require allowances greater than those allocated according to their risk classification. An unallocated allowance is also established based on the Bank's historical chargeoff experience over the last ten years. The Bank may reduce the provision for credit losses where appropriate to adjust for significant recoveries. The Bank will continue to monitor the adequacy of the allowance for credit losses to determine the appropriate accrual for the Bank's bad debt expense. Risk Elements 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 $2,028,000 of real estate acquired by foreclosure ("ORE") at June 30, 1996, the largest of which is carried at $683,000 and consists of one commercial property in North Houston. This property actually was not foreclosed upon, but rather is a tract of unimproved land previously acquired by the Bank for future expansion. Because the Bank recently opted to acquire a second, more preferable, tract nearby, the first tract has been recategorized as ORE and is being marketed for sale. No loss is anticipated. The Bank carries all properties at the lower of the book value of the loan at foreclosure or the current fair market appraised values, less estimated closing costs. The Bank defines potential problem loans as those loans not classified as nonperforming, but where information known by management indicates serious doubt that the borrower may not be able to comply with the present payment terms. Management identifies these loans through its continuous loan review process and defines potential problem loans as those loans classified as substandard, doubtful, or loss, excluding all nonperforming loans. As of June 30, 1996, the Bank has no material foreign outstandings or loan concentrations. The Bank, however, continues to monitor the potential risk of foreign borrowers and concentrations of credit. 10 11 The following schedule summarizes consolidated nonperforming loans, nonperforming assets and potential problem loans at year-end 1995 and at June 30, 1996.
June 30, December 31, 1996 1995 -------- ------------ (in thousands) Nonaccrual loans $ 2,052 $2,858 Restructured loans 77 103 Accruing loans past due 90 days or more 293 446 ------- ------ Total nonperforming loans 2,422 3,407 ORE and other foreclosed assets 2,131 1,745 ------- ------ Total nonperforming assets $ 4,553 $5,152 ======= ====== Total nonperforming loans as a % of gross loans 0.59% 0.89% Total nonperforming assets as a % of total assets 0.66% 0.80% Potential problem loans $11,004 $9,101 ======= ======
remises and Equipment The Bank's premises and equipment, net of depreciation, as of June 30, 1996, were $17.5 million, as compared to $13.8 million on the same date in 1995, an increase of $3.7 million or 26.8%. This increase is due primarily to renovation and improvements of the Bank's West, Gulf Freeway, and Westheimer banking offices during 1995 and includes upgrades to the electronic technology and telephone systems in all offices to handle increased volume. The Bank also completed the opening of the Cypress Office during the period. Additional increases in premises and equipment are expected during 1996 as the Bank completes facilities for the planned de novo banking offices discussed elsewhere in this Form 10-Q and continues to upgrade its computer and technology resources. Deposits Total deposits as of June 30, 1996, were $625.2 million, as compared to $513.3 million on the same date in 1995, an increase of $111.9 million or 21.8%, reflecting strong growth in the Bank's deposit base. When compared to total deposits of $574.7 million on December 31, 1995, the June 30, 1996, amount represents a year-to-date increase of $50.5 million, as the strong deposit growth experienced in the last months of 1995 continued through the first two quarters of 1996. Noninterest bearing demand deposits at June 30, 1996, were $203.9 million, as compared to $176.2 million at June 30, 1995, an increase of $27.7 million or 15.7%. When compared to noninterest bearing demand deposits of $190.3 million on December 31, 1995, the June 30 amount represents a year-to-date increase of $12.7 million, consistent with the overall growth in deposits. The percentage of noninterest bearing deposits to total deposits as of June 30, 1996, continued strong at 32.6%. Notes Payable In December 1993 and March 1994, the Company borrowed $6.6 million and $1.4 million, respectively, pursuant to an $8 million credit facility between the Company and a large regional bank. Proceeds of the borrowings were used in the Company's acquisition and merger of two Houston banks into the Bank. The note will accrue interest at a rate of 7.13% until the third quarter of 1996. Since September 30, 1994, the Company has paid regular quarterly principal payments in the amount of $400,000 (5% of the original principal balance), which will continue for 20 quarters. As of June 30, 1996, the Company had made eight regularly scheduled principal payments totaling $3.2 million, and the balance remaining on the note was $4.8 million. 11 12 Senior Debentures The Company's outstanding senior debentures were fully redeemed as of June 30, 1996, as compared to an existing balance of $600,000 on the same date in 1995. CAPITAL RESOURCES AND LIQUIDITY Shareholders' Equity The following table displays the changes in shareholders' equity from December 31, 1995, to June 30,1996: (in thousands) Equity, December 31, 1995 $49,691 Net earnings 4,934 Sale of common stock 532 Cash dividends paid (1,108) Net change in net unrealized loss on HTM securities transferred from AFS 38 ------- Equity, June 30, 1996 $54,087 =======
The Company's risk based capital ratios remain above the levels designated as "Well Capitalized" on June 30, 1996, with Tier-1 Capital, Total Risk-Based Capital, and Leverage Capital Ratios of 11.12%, 12.37%, and 7.85%, respectively. Liquidity Effective management of balance sheet liquidity is necessary to fund growth in earning assets and to pay liability maturities, depository customers' withdrawal requirements and shareholders' dividends. The Company has instituted Asset/Liability Management policies, including but not limited to a computer simulation model, to improve liquidity controls and to enhance its management of interest rate risk and financial condition. The Company has numerous sources of liquidity including a significant portfolio of shorter term assets, marketable investment securities (not to include those presently classified as "Held-to-maturity"), increases in customers' deposits, and access to borrowing arrangements. Available borrowing arrangements maintained by the Bank include informal federal funds lines with other commercial banks, an advancement arrangement with the FHLB, and reverse repurchase lines with other commercial banks and the FHLB. RESULTS OF OPERATIONS Net Income Net income for the six month period ended June 30, 1996, was $4,934,000, as compared to $4,102,000 for the same period in 1995, an increase of $832,000 or 20.3%. The Company attributes the increase to its maintenance of strong net interest margins and to its containment of operating expense increases despite the ongoing growth of the Bank. Thus, primarily as a result of the Bank's strong deposit and loan growth, average earning assets for the six months ending June 30, 1996, were $590.5 million, an increase of $64.7 million or 12.3% over average earning assets of $525.8 million at June 30, 1995. In addition, operating efficiencies realized during the first two quarters of 1996, combined with the reduction of the Federal Deposit Insurance Corporation (the "FDIC") assessment, contributed to the increase in net income. 12 13 Net Interest Income Net interest income for the six month period ended June 30, 1996, was $17.3 million, as compared to $15.6 million for the same period in 1995, an increase of $1.7 million or 10.9%. As discussed above, the Company attributes the growth in net interest income primarily to increases in average earning assets, enhanced by the maintenance of a strong net interest margin. The yield on average earning assets for the six month period ended June 30, 1996, was 8.64%, as compared to 8.68% for the same period in 1995, a decrease of 4 basis points. This decrease is due primarily to an increase in total loan volume coupled with a 23 basis point decrease in loan yield, combined with a change in the investment portfolio mix from longer term investment securities to lower yielding, more liquid federal funds sold and interest bearing deposits. At June 30, 1996, total loans represented 69.9% of total interest earning assets, compared to 65.3% for the same period in 1995. The cost of interest bearing liabilities rose 11 basis points from 3.71% to 3.82% for the same period. The Company's 5.99% net interest margin for the first six months of 1996 represents a decrease of 14 basis points from the 6.13% net interest margin registered during the same period in 1995. The data used in the analysis of the changes in net interest income is derived from the daily average levels of earning assets and interest-bearing liabilities as well as from the rates earned and paid on such amounts. The rates earned and paid on each major type of asset and liability are shown beside the average balance in the account for the period. The average yields on all interest-earning assets and the average cost of all interest-bearing liabilities also are summarized. The following schedule gives a comparative analysis of the Company's daily average interest-earning accounts and interest-bearing accounts for the six-month periods ended June 30, 1996 and 1995: 13 14 CONSOLIDATED AVERAGE BALANCE SHEET SCHEDULE NET INTEREST INCOME AND NET INTEREST MARGIN (UNAUDITED) STERLING BANCSHARES, INC. AND SUBSIDIARIES
Six Months Ended June 30, (dollars in thousands 1996 1995 Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate -------------------------------- --------------------------------- Interest Earning Assets: Interest bearing deposits in financial institutions $ 5,941 $ 150 5.08% $ 779 $ 23 5.95% Federal funds sold 11,500 310 5.42% 1,867 36 3.89% Investment securities (taxable) 137,935 4,266 6.22% 156,584 4,939 6.36% Investment securities (tax-exempt) 22,341 566 5.09% 23,042 579 5.07% Loans, net of unearned discount (taxable) 412,807 20,070 9.78% 342,480 17,008 10.01% Loans, net of unearned discount (tax-exempt) - - - 1,081 46 8.58% ----------------------------- ------------------------------ Total Interest Earning Assets $590,524 $25,362 8.64% $525,833 $22,631 8.68% Noninterest Earning Assets: Cash and due from banks $ 51,214 $ 40,317 Premises and equipment, net 17,168 13,582 Other assets 10,384 11,000 Allowance for credit losses (6,124) (6,031) ------- --------- Total Noninterest Earning Assets $72,642 $ 58,868 Total Assets $663,166 $584,701 ======= ======== Interest Bearing Liabilities: Demand and savings deposits $256,325 $3,873 3.04% $202,363 $2,558 2.55% Certificates and other time deposits 153,106 3,740 4.91% 143,908 3,318 4.65% Other borrowings 9,851 225 4.59% 25,032 766 6.17% Debentures and notes payable 5,306 221 8.38% 7,725 328 8.56% ---------------------------- ------------------------------ Total Interest Bearing Liabilities $424,588 $8,059 3.82% $379,028 $6,970 3.71% Noninterest Bearing Liabilities: Demand deposits $183,331 $160,867 Other liabilities 3,137 3,088 Shareholders' equity 52,110 41,718 -------- -------- Total Noninterest Bearing Liabilities $238,578 $205,673 Total Liabilities and Shareholders' Equity $663,166 $584,701 ======== ======== Net Interest Income & Margin $17,303 5.89% $15,661 6.01% ================= ================= Net Interest Income & Margin (tax equivalent) $17,599 5.99% $15,983 6.13% ================= =================
14 15 Provision for Credit Losses Provision for credit losses for the first six months of 1996 was $1,033,000, a compared to $517,000 for the same period in 1995, an increase of $516,000 or 99.8%. After net chargeoffs of $606,000 and provisions for the first six months of 1996, the Bank's allowance for credit losses increased by $427,000 from $5,907,000 on December 31, 1995, to $6,334,000 on June 30, 1996. Please refer to the earlier discussion of Allowances for Credit Losses and Nonperforming Loans for additional insight to management's approach and methodology in estimating the allowance for possible credit losses. Noninterest Income Total noninterest income remained relatively unchanged for the six month perio ended June 30, 1996, at $3.8 million, as compared to $3.7 million for the same period in 1995, an increase of $0.1 million or 2.7%. Noninterest Expense Noninterest expenses were flat at $12.9 million for the first six months of 1996 as compared to $12.8 for the same period in 1995. Year-to-year improvements in equipment, FDIC assessment, and supplies expenses were offset by higher costs for salaries and other expenses. Salaries and employee benefits for the six month period ended June 30, 1996, were $8.0 million, as compared to $7.4 million for the same period in 1995, an increase of $600,000 or 8.1%. The increase is due in part to strong net incom growth, which caused corresponding increases in the Company's profit-sharing and incentive plan costs of approximately $137,000 between the 1995 and 1996 periods. An additional portion of the increase is due to an increase in the number of employees, caused primarily by additional staffing of the central operations areas as well as inception of staffing of the new Cypress office, which opened in mid 1995, and the new Upper Kirby and Cypress Station offices. At June 30, 1996, the Company employed 339 full time equivalent employees, as compared to 322 at June 30, 1995. The remaining increase in personnel costs may be attributed to normal merit and cost-of-living pay increases, which averaged less than 3%. The Company's ratio of total assets per full-time equivalent employee as of June 30, 1996, increased to $2,038,000 from $1,853,000 on the same date in 1995. Net occupancy expenses for the period ended June 30, 1996, were $1.1 million, unchanged from the same period in 1995. Rental reduction at the Westheimer office offset renovation and reconstruction expenses incurre at the Westheimer and Gulf Freeway offices in addition to expenses related to the new Cypress office. Management expects increases in net occupancy expense during the remainder of 1996 as additional expenses are recognized due to the new Upper Kirby and Cypress Station offices and to planned renovation and reconstruction of the Guardian and Champions offices. The FDIC assessment for the six month period ended June 30, 1996, was $1,000, as compared to $569,000 for the same period in 1995, a decrease of $568,000 or 99.8%. The decrease is due to a reduction, effective in September of 1995, but retroactive to the second quarter of 1995 in the FDIC premium on deposits. This reduction resulted in a decrease of the Bank's FDIC assessment rate from $0.23 to $.00 per $100 of deposits. Sterling now pays approximately $500 per quarter to the FDIC for membership. Equipment expense for the six month period ended June 30, 1996, was $681,000, as compared to $1,077,000 for the same period in 1995, a decrease of $396,000 or 36.8%. The decrease is reflective primarily of higher-than-normal expenditures occurring in the first six months of 1995 as the Company merged the four banking offices of two acquired institutions into the Bank. The Company expects that in future periods equipment expenses will rise due to planned purchases relating to opening the new Upper Kirby and Cypress Station Offices and to the renovation work targeted for existing offices as noted above. 15 16 Data processing expense for the six month period ended June 30, 1996, was $456,000, as compared to $370,000 for the same period in 1995, an increase of $86,000 or 23.2%. The company expects ongoing increases in its data processing expenses for the remainder of 1996 as it completes local and wide-area network construction, the primary cause of the year-to-date increase over the prior year, and also as it continues implementation of its long-term technology strategy. All other noninterest expenses, including supplies expense, legal and professional fees, telephone expenses, and costs associated with foreclosed and repossessed assets, for the six month period ended June 30, 1996, were $2.6 million as compared to $2.4 million for the same period in 1995, an increase of $0.2 million or 8.3%. Increases in telephone and other expenses were partly offset by a $110,000 decrease in supplies expense, The decrease in supplies related to higher-than-normal supplies expenditures occurring in the first quarter of 1995 due to the Company's merger of the four banking offices of two acquired institutions into the Bank. The Company expects that in future periods other noninterest expenses will rise due to purchases related to opening the new Upper Kirby and Cypress Station offices and to the renovation and reconstruction of the Guardian and Champions offices, as well as to continued growth in loans and bookkeeping operations. SUPPLEMENTAL TABLES STERLING BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL HIGHLIGHTS (UNAUDITED) (in thousands except for per share data and ratios)
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1996 1996 1995 1995 1995 ------------------------------------------------------ Common Stock Data (A): Earnings per common share: primary 0.31 0.30 0.30 0.29 0.27 Earnings per common share: fully diluted 0.31 0.30 0.30 0.29 0.27 Dividends paid per common share 0.07 0.07 0.05 0.05 0.05 Book value per common share [EOP] (no dilution) 6.68 6.29 6.32 5.96 5.70 Tangible book value [EOP] (no dilution) 6.43 6.01 6.05 5.67 5.40 Market price [EOP]: High 15.50 14.00 12.17 12.00 9.00 Low 13.31 11.25 11.00 8.67 7.83 Close 14.00 14.00 11.67 11.50 8.83 Market price capitalization (mktprice x #shrs) [EOP] 111,301 110,642 91,688 90,321 69,183 Market price / book value [EOP] 209.58% 222.58% 184.60% 192.95% 154.97% Common share dividend 554 554 419 419 420 Dividend payout ratio (DPCS / EPCS) 22.58% 23.33% 17.78% 18.60% 20.00% Dividend yield (DPCS / mktprice) [EOP] 2.00% 2.00% 1.83% 1.86% 2.42% Price / earnings ratio (mktprice / 4 qtrs. earnings) 11.70 12.14 10.57 10.88 8.69 Common shares [EOP] 7,950 7,903 7,859 7,854 7,832 Common shares: primary (average) 8,163 8,121 8,086 8,042 7,929 Common shares: fully diluted (average) 8,163 8,144 8,086 8,079 7,990 Preferred shares: [EOP] 49 49 49 - - Income Statement: Interest income 12,927 12,435 12,280 11,822 11,624 Interest expense 4,091 3,968 3,850 3,737 3,690 ------------------------------------------------------ Net interest income 8,836 8,467 8,430 8,086 7,934 Provision for loan losses 520 513 216 186 231 Noninterest income 1,849 1,930 1,935 1,913 1,911 Noninterest expense 6,551 6,328 6,579 6,344 6,524 Provision for income taxes 1,083 1,153 1,146 1,129 972 ------------------------------------------------------ Net income 2,531 2,403 2,424 2,340 2,118 ======================================================
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock split in the form of 50% stock dividend paid in February 1996. 16 17 STERLING BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL HIGHLIGHTS, CONTINUED (UNAUDITED) (in thousands except for per share data and ratios)
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1996 1996 1995 1995 1995 ------------------------------------------------------ Balance Sheet - End of Period: Federal Funds Sold 10,000 10,000 5,000 - - Interest bearing deposits in other financial institutions 1,240 9,192 1,135 139 258 Investment securities available-for-sale 4,552 3,994 3,931 58,088 57,769 Investment securities held-to-maturity 148,657 155,989 163,581 114,650 118,403 Loans held for sale 34,419 9,680 7,868 6,848 6,902 Loans, net of unearned income 414,015 404,109 384,777 361,370 351,649 ------------------------------------------------------ Total interest-earning assets 612,883 592,964 566,292 541,095 534,981 Allowance for loan losses (6,334) (6,256) (5,907) (6,187) (6,236) Cash and due from banks 55,652 46,684 60,075 49,725 43,756 Other real estate 2,028 1,833 1,716 1,718 1,369 Other assets 24,645 24,237 23,007 20,906 20,520 Goodwill 2,003 2,085 2,166 2,248 2,330 ------------------------------------------------------ Total assets 690,877 661,547 647,349 609,505 596,720 Noninterest-bearing deposits 203,908 184,875 190,333 175,300 176,187 Interest-bearing deposits 421,323 406,402 384,391 356,153 337,093 ------------------------------------------------------ Total deposits 625,231 591,277 574,724 531,453 513,280 Federal funds purchased and securities sold under agreements to repurchase 3,689 9,494 12,083 21,231 28,558 Note payable and senior debentures 4,800 5,200 5,800 6,400 7,000 ------------------------------------------------------ Total other interest-bearing liabilities 8,489 14,694 17,883 27,631 35,558 Other liabilities 3,070 3,884 5,051 3,618 3,159 Total shareholders' equity 54,087 51,692 49,691 46,803 44,723 Problem Assets & Potential Problem Loans [EOP] Nonaccrual loans 2,052 2,159 2,858 2,482 2,673 Restructured loans 77 90 103 129 139 Accruing loans past due 90 days or more 293 698 446 458 675 ------------------------------------------------------ Total nonperforming loans 2,422 2,947 3,407 3,069 3,487 ORE & other repossessed assets 2,131 1,899 1,745 1,824 1,397 ------------------------------------------------------ Total nonperforming assets 4,553 4,846 5,152 4,893 4,884 Potential problem loans 11,004 10,643 9,101 N/A N/A Nonperforming loans as a % of total loans 0.59% 0.73% 0.89% 0.85% 0.99% Nonperforming assets as a % of total assets 0.66% 0.73% 0.80% 0.80% 0.82% Reconciliation of the Allowance for Credit Losses: Allowance for credit losses, beginning of period 6,256 5,907 6,187 6,236 6,047 Chargeoffs (582) (277) (572) (294) (102) Recoveries 140 113 76 59 60 Provision for credit losses 520 513 216 186 231 ------------------------------------------------------ Allowance for credit losses, end of period 6,334 6,256 5,907 6,187 6,236 ====================================================== Reserve for credit losses [EOP]/: Total loans 1.53 1.55 1.54 1.71 1.77 Nonaccrual loans 308.67 289.76 206.68 249.27 233.30 Nonaccrual and accruing loans past due 90 days 270.11 218.97 178.78 210.44 186.26 Selected Ratios: Overhead ratio 61.31% 60.86% 63.47% 63.45% 66.27% Stockholders' equity / total assets [EOP] 7.83% 7.81% 7.68% 7.68% 7.49% Loans / deposits [EOP] 66.22% 68.35% 66.95% 68.00% 68.51% Loans / assets [EOP] 59.93% 61.09% 59.44% 59.29% 58.93%
17 18 STERLING BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL HIGHLIGHTS, CONTINUED (UNAUDITED) (in thousands except for per share data and ratios)
YTD YTD YTD YTD YTD 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1996 1996 1995 1995 1995 ------------------------------------------------------ Balance Sheet and Interest Margin [YTD AVG] Federal Funds Sold 11,500 7,445 1,857 1,238 1,867 Interest bearing deposits in other financial institutions 5,941 1,785 2,297 1,527 1,779 Investment securities (taxable) 137,935 141,891 153,005 154,929 156,584 Investment securities (tax exempt) 22,341 22,450 22,930 23,044 23,042 Loans, net of unearned income (taxable) 412,807 404,637 356,665 348,815 342,480 Loans, net of unearned income (tax exempt) - - 795 1,059 1,081 ------------------------------------------------------ Total interest-earning assets 590,524 578,208 537,549 530,612 525,833 Cash and due from banks 51,214 49,946 42,575 41,259 40,317 Bank premises and equipment, net 17,168 16,446 14,116 13,871 13,582 Other assets 10,384 10,436 10,281 10,915 11,000 Allowance for loan losses (6,124) (5,986) (6,080) (6,059) (6,031) ------------------------------------------------------ Total assets 663,166 649,050 598,441 590,598 584,701 ====================================================== Noninterest-bearing deposits 183,331 176,967 168,987 164,785 160,867 Interest-bearing deposits 409,431 401,660 351,374 345,239 346,271 ------------------------------------------------------ Total deposits 592,762 578,627 520,361 510,024 507,138 Federal funds purchased and securities sold under agreements to repurchase 9,851 10,811 23,518 26,774 25,032 Note payable and senior debentures 5,306 5,532 6,990 7,456 7,725 ------------------------------------------------------ Total interest-bearing liabilities 424,588 418,003 381,882 379,469 379,028 Other liabilities 3,137 3,075 2,955 3,277 3,088 Total shareholders' equity 52,110 51,005 44,617 43,067 41,718 ------------------------------------------------------ Total liabilities and shareholders' equity 663,166 649,050 598,441 590,598 584,701 ====================================================== Yield on interest earning assets 8.64% 8.63% 8.69% 8.68% 8.68% Yield on interest bearing liabilities 3.82% 3.81% 3.81% 3.77% 3.71% Net interest margin 5.89% 5.87% 5.99% 5.98% 6.01% Net interest margin (tax equivalent) 5.99% 5.98% 6.10% 6.10% 6.13% Selected Ratios: Return on average assets [YTD] 1.50% 1.49% 1.48% 1.46% 1.41% Return on average stockholders' equity [YTD] 19.04% 18.95% 19.87% 20.00% 19.83% Stockholders' equity / total assets [YTD] 7.86% 7.86% 7.46% 7.29% 7.13%
18 19 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES Convertible Preferred Stock Authorized and Issued The Convertible Preferred Stock authorized by the Company's Board of Directors and designated as Series A, Series B, and Series C has a liquidation preference over the Company's Common Stock. The stock is subject to certain limitations and restrictions as to sale. The subscription period for Series A shares ended October 20, 1995, with issuance of 49,500 shares to 29 investors. Pursuant to a Confidential Private Placement Memorandum of May 1, 1996, the Company has offered up to 150,000 shares of Series B shares for issue to qualified investors who are bona fide Texas residents. The offering of Series B shares is presently scheduled to end on September 15, 1996, with certificates to be issued on that date or shortly thereafter. Series C shares are expected to be issued beginning in late 1996 or early 1997. Prior to conversion into shares of the Company's Common Stock, the Convertible Preferred Shares will pay no dividend. Convertibility of the Series A, B, and C shares is related to the performance of the Cypress, Upper Kirby, and Cypress Station offices, respectively, and in any event the earliest possible conversion date does not occur until two years after the initial office opening date (September 1997 for Series A and later dates for the two other offices). The ratios for the conversion of the Preferred Stock into Common Stock is contingent upon the deposit performances of the respective offices, and ranges from 1:1 (that is, one share of Common for each share of Preferred, the ratio being adjusted to reflect stock splits occurring during the period in which the Preferred Shares are outstanding) if deposit goals (as defined in the Confidential Private Placement Memorandum) are not met, to 1.25:1 (similarly adjusted for any splits or capital changes) if deposit goals are met prior to two years of operation. Because of the size and structure of the offering, management does not expect material dilution of the Company's per share earnings regardless of which conversion ratio becomes applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the regularly scheduled annual meeting of shareholders held on April 22, 1996, there were 6,477,805 shares present or represented by proxy, which was equal to 81.965% of all voting shares outstanding. Two votes were taken. Proposal #1 involved the election by security holders of six Class I Directors to the Company's Board of Directors to serve terms until the 1999 annual meeting of shareholders or until their successors have been elected and qualified. In the vote on Proposal #1, all nominees listed in the proxy statement were elected. In Proposal #2, security holders authorized an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of the Company's Common Stock, $1.00 par value, from 10,000,000 to 20,000,000 shares. Further details of the vote, including vote totals, were previously disclosed in the Company's Form 10-Q filed in May 1996 and are incorporated herein by reference. 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 4. Instruments Defining the Rights of Security Holders, including Indentures 4.1) Articles of Incorporation of Jersey Village Bancshares, Inc., dated September 19, 1980 4.2) Amendment to Articles of Incorporation dated April 22, 1996 4.3) Amendment to Articles of Incorporation dated March 14, 1985 4.4) Amendment to Articles of Incorporation dated August 14, 1992 4.5) Statement of Resolution Establishing Series A Convertible Preferred Stock 4.6) Statement of Resolution Establishing Series B Convertible Preferred Stock Exhibit 11. Computation of Earnings Per Share Included as Note (2) to Interim Consolidated Financial Statements on page 6 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. b) Reports of Form 8-K No reports on Form 8-K were filed during the period ending June 30, 1996. 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: ----------------------------------------------------- Seth A. McMeans (Executive Officer and Principal Financial Officer) 20 21 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- Exhibit 4. Instruments Defining the Rights of Security Holders, including Indentures 4.1) Articles of Incorporation of Jersey Village Bancshares, Inc., dated September 19, 1980 4.2) Amendment to Articles of Incorporation dated April 22, 1996 4.3) Amendment to Articles of Incorporation dated March 14, 1985 4.4) Amendment to Articles of Incorporation dated August 14, 1992 4.5) Statement of Resolution Establishing Series A Convertible Preferred Stock 4.6) Statement of Resolution Establishing Series B Convertible Preferred Stock Exhibit 11. Computation of Earnings Per Share Included as Note (2) to Interim Consolidated Financial Statements on page 6 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.
EX-4.1 2 ARTICLES OF INCORPORATION JERSEY VILLAGE 1 EXHIBIT 4.1 [Seal] The State of Texas Secretary of State CERTIFICATE OF INCORPORATION OF JERSEY VILLAGE BANCSHARES, INC. CHARTER NUMBER 533200 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT ARTICLES OF INCORPORATION FOR THE ABOVE CORPORATION, DULY SIGNED AND VERIFIED HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN HIM BY LAW, HEREBY ISSUES THIS CERTIFICATE OF INCORPORATION AND ATTACHES HERETO A COPY OF THE ARTICLES OF INCORPORATION. DATED SEP. 23, 1980 [Seal] \S\ G.W. STRAKE,JR. --------------------------------------- Secretary of State PRL 2 Filed in the Office of the Secretary of State of Texas SEP 23 1980 Clerk II Corporations Section ARTICLES OF INCORPORATION OF JERSEY VILLAGE BANCSHARES, INC. The undersigned, a natural person of the age of eighteen (18) years or more and a citizen of the State of Texas, acting as the sole incorporator of a corporation under the provisions of the Texas Business Corporation Act, adopts the following Articles of Incorporation: ARTICLE 1. The name of the Corporation is JERSEY VILLAGE BANCSHARES, INC. ARTICLE 2. The period of duration of the Corporation is perpetual. ARTICLE 3. The purpose for which the Corporation is organized is to engage in any or all lawful acts, activities or businesses for which a corporation may be organized under the Texas Business Corporation Act. ARTICLE 4. The total number of shares of all classes of stock which the Corporation shall be authorized to issue is 2,000,000 shares, divided into the following: (i) 1,000,000 shares of Cumulative Preferred Stock, of the par value of $1.00 per share (Preferred Stock); and (ii) 1,000,000 shares of Common Stock, of the par value of $1.00 per share (Common Stock). A description of the respective classes of stock and a statement of the designations, preferences, limitations and relative rights of said respective classes of stock are as follows: -2- EX-4.2 3 AMEND. TO ARTICLES OF INCORPORATION - 04/22/96 1 EXHIBIT 4.2 [Seal] The State of Texas Secretary of State CERTIFICATE OF AMENDMENT FOR STERLING BANCSHARES, INC. CHARTER NUMBER 00533200 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF AMENDMENT. DATED MAY 10, 1996 EFFECTIVE MAY 10, 1996 [Seal] \S\ Antonio O. Garza, Jr. --------------------------------------- Antonio O. Garza, Jr., Secretary of State 2 FILED IN THE OFFICE OF THE SECRETARY OF STATE OF TEXAS MAY 10 1996 CORPORATIONS SECTION ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF STERLING BANCSHARES, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation to increase the authorized number of shares of Common Stock, $1.00 par value per share, from 10,000,000 shares to 20,000,000 shares. ARTICLE ONE. The name of the corporation is Sterling Bancshares, Inc. ARTICLE TWO. The following amendment to the Articles of Incorporation was adopted by the shareholders of the Corporation on April 22, 1996: The first paragraph of Article 4 of the Articles of Incorporation is hereby amended in its entirety to be and read as follows: The total number of shares of all classes of stock which the Corporation shall be authorized to issue is 21,000,000 shares, divided into the following: (i) 1,000,000 shares of Preferred Stock, of the par value of $1.00 per share (Preferred Stock); and (ii) 20,000,000 shares of Common Stock, of the par value of $1.00 per share (Common Stock). ARTICLE THREE. The number of shares of the Corporation outstanding at the time of such adoption was 7,903,937 shares of Common Stock and 49,500 shares of Preferred Stock; and the number of shares entitled to vote thereon was 7,903,106 shares of Common Stock. ARTICLE FOUR. The number of shares of Common Stock voted for such amendment was 6,416,509; the number of shares voted against such amendment was 54,284; and the number of shares abstaining from voting on such amendment was 4,762. DATED: April 22, 1996 STERLING BANCSHARES, INC. By: /S/ Seth A. McMeans ------------------------------------ Name: Seth A. McMeans ------------------------------- Title: Chief Financial Officer & Secretary ------------------------------ -2- EX-4.3 4 AMEND. TO ARTICLES OF INCORPORATION - 03/14/85 1 EXHIBIT 4.3 [Seal] The State of Texas Secretary of State CERTIFICATE OF AMENDMENT FOR STERLING BANCSHARES, INC. FORMERLY JERSEY VILLAGE BANCSHARES, INC. CHARTER NUMBER 533200 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT ARTICLES OF AMENDMENT, DULY SIGNED AND VERIFIED HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, ISSUES THIS CERTIFICATE AND ATTACHES HERETO A COPY OF THE ARTICLES OF AMENDMENT. DATED MAR. 14, 1985 [Seal] \s\ illegible --------------------------------------- Secretary of State 2 FILED In the Office of the Secretary of State of Texas MAR 14 1985 Clerk II U Corporations Section ARTICLES OF AMENDMENT BY THE SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF JERSEY VILLAGE BANCSHARES, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation, which change the name of the corporation from Jersey Village Bancshares, Inc. to Sterling Bancshares, Inc. ARTICLE ONE. The name of the corporation is JERSEY VILLAGE BANCSHARES, INC. ARTICLE TWO. The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on February 19, 1985: Article One of the Articles of Incorporation is hereby amended to read as follows: The name of the corporation is STERLING BANCSHARES, INC. ARTICLE THREE. The number of shares of the corporation outstanding at the time of such adoption was 173,089 shares of Common Stock; and the number of shares entitled to vote thereon was 173,089 shares of Common Stock. ARTICLE FOUR. The number of shares of Common Stock voted for such amendment was 155,845; and the number of shares voted against such amendment was 0. DATED February 28, 1985. JERSEY VILLAGE BANCSHARES, INC. By: \S\ George Martinez ------------------------------------ George Martinez, President By: \S\ C.P. Bryan, Jr. ------------------------------------ C.P. Bryan, Jr., Secretary 3 THE STATE OF TEXAS * * COUNTY OF HARRIS * I, Ginger Fitzgerald, a Notary Public, do hereby certify that on this 28th day of February, 1985, personally appeared before me GEORGE MARTINEZ, who declared that he is the President of the corporation executing the foregoing document, and being first duly sworn, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. \S\ Ginger Fitzgerald ------------------------------------- Notary Public - State of Texas Expiration Date : 8/21/88 EX-4.4 5 AMEND. TO ARTICLES OF INCORPORATION - 08/14/92 1 EXHIBIT 4.4 LSM-AM(STK) [Seal] The State of Texas Secretary of State CERTIFICATE OF AMENDMENT FOR STERLING BANCSHARES, INC. CHARTER NUMBER 00533200 THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW. ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF AMENDMENT. DATED AUG. 20, 1992 EFFECTIVE AUG. 20, 1992 [Seal] \S\ John Hannah Jr. ---------------------------------------- Secretary of State 2 FILED In the Office of the Secretary of State of Texas AUG 20 1992 Corporations Section ARTICLES OF AMENDMENT BY THE SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF STERLING BANCSHARES, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation, which changes the number of authorized shares of common stock from 1,000,000 to 10,000,000 shares. ARTICLE ONE. The name of the corporation is Sterling Bancshares, Inc. ARTICLE TWO. The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on August 11, 1992: Article Four Paragraph One of the Articles of Incorporation is hereby amended to read as follows: The total number of shares of all classes of stock which the Corporation shall be authorized to issue is 11,000,000 shares, divided into the following: (i) l,000,000 shares of Cumulative Preferred Stock, of the par value of $1.00 per share (Preferred Stock); and (ii) 10,000,000 shares of Common Stock, of the par value of $1.00 per share (Common Stock). ARTICLE THREE. The number of shares of the corporation outstanding at the time of such adoption was 879,945 shares of Common Stock; and the number of shares entitled to vote thereon was 879,945 shares of Common Stock. ARTICLE FOUR. The number of shares of Common Stock voted for such amendment was 681, 598; and the number of shares voted against such amendment was 150. DATED August 14, 1992. STERLING BANCSHARES, INC. By: \S\ C. Frank Kurtin ------------------------------------- C. Frank Kurtin, Secretary 3 THE STATE OF TEXAS * * COUNTY OF HARRIS * I, Nellie Haaksma, a Notary Public, do hereby certify that on this 14th day of August, 1992, personally appeared before me C. FRANK KURTIN, who declared that he is the Secretary of the corporation executing the foregoing document, and being first duly sworn, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. \S\ Nellie J. Haaksma ---------------------------------------- Notary Public - State of Texas Expiration Date : 11/18/94 [SEAL] EX-4.5 6 STATEMENT OF RESOLUTION - SERIES A CONV. PREF. STK 1 EXHIBIT 4.5 [Seal] The State of Texas Secretary of State July 31, 1995 SNELL & SMITH/PAUL PRYZANT 1000 LOUISIANA, STE. 3650 HOUSTON, TX 77002 RE: STERLING BANCSHARES, INC. CHARTER NUMBER 00533200-00 IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ESTABLISHMENT OF A SERIES OF SHARES. THE APPROPRIATE EVIDENCE IS ATTACHED FOR YOUR FILES, AND THE ORIGINAL HAS BEEN FILED IN THIS OFFICE. PAYMENT OF THE FILING FEE IS ACKNOWLEDGED BY THIS LETTER. IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW. VERY TRULY YOURS, [Seal] \S\ Antonio O. Garza, Jr. ------------------------------------------ Antonio O. Garza, Jr., Secretary of State 2 FILED IN THE OFFICE OF THE SECRETARY OF STATE OF TEXAS JUL 21 1995 CORPORATIONS SECTION STERLING BANCSHARES, INC. STATEMENT OF RESOLUTION ESTABLISHING SERIES A CONVERTIBLE PREFERRED STOCK TO THE SECRETARY OF STATE OF THE STATE OF TEXAS: Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act and Article Four of its Articles of Incorporation, the undersigned corporation submits the following statement for the purpose of establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof: 1. The name of the corporation is Sterling Bancshares, Inc. (the "Corporation"). 2. The following resolution, establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof, was duly adopted by the Board of Directors of the Corporation on July 17, 1995: RESOLVED, that pursuant to the Articles of Incorporation of the Corporation, as amended, authorizing the Board of Directors to establish and designate series of the preferred stock, $1.00 par value, of the Corporation (the "Preferred Stock") and to fix and determine the relative rights and preferences of the shares of any such series, there is hereby designated a series of Preferred Stock to be called "Series A Convertible Preferred Stock" to consist of 100,000 shares and to have the following terms: 1. DEFINITIONS. "Bank" means Sterling Bank, a commercial bank chartered under the laws of the State of Texas and a wholly-owned subsidiary of the Corporation. "Board" means the Board of Directors of the Corporation. "Common Stock" means the shares of common stock, $1.00 par value, of the Corporation. -2- 3 "Corporation" means Sterling BancShares, Inc., a Texas corporation. -3- 4 "Deposit Goal" means the goal for the New Banking Office that the average monthly deposits credited to the New Banking Office for any consecutive three months exceed $20,000,000, with the calculations to be made as set forth in Section 4(b)(iii) herein. "New Banking Office" means the new banking office to be opened by the Bank at 13386 Jones Road, Houston, Texas 77070 on the Office Opening Date. "Office Opening Date" means the opening date for the New Banking Office which is anticipated to be August 15, 1995. "Person" means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization; "Preferred Stock" means the shares of preferred stock, $1.00 par value, of the Corporation. "Purchase Price" means the price per share of $13.04 at which the shares of Series A Convertible Preferred Stock are being offered and sold by the Corporation. "Series A Preferred Stock" means the Series A Convertible Preferred Stock, $1.00 par value per share, of the Corporation. 2. DIVIDENDS. The holders of outstanding shares of Series A Preferred Stock shall not be entitled to receive any dividends on the shares of Series A Preferred Stock. 3. REDEMPTION. (a) The outstanding shares of Series A Preferred Stock are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series A Preferred Stock (the "Redemption Price") equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the "Redemption Date"), the holders of the outstanding shares of Series A Preferred Stock shall have an option to convert each share of Series A Preferred Stock into 1.25 shares of Common Stock. (b) Notice of any redemption of shares of Series A Preferred Stock, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their shares of Series A Preferred Stock into shares of Common Stock, shall be mailed to each holder of record of the shares to be redeemed, at such holder's address of record, not less than 35, nor more than 90, days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their -4- 5 shares of Series A Preferred Stock into shares of Common Stock, or to receive the Redemption Price, upon surrender of their certificates. (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such shares of Series A Preferred Stock as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the shares of Series A Preferred Stock into shares of Common Stock) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date. (d) Any shares of Series A Preferred Stock that have been redeemed shall, after such redemption, not be reissued as Series A Preferred Stock, but shall become authorized but unissued shares of Preferred Stock of the Corporation, and the certificates evidencing such shares shall be cancelled. 4. CONVERSION RIGHTS. The shares of Series A Preferred Stock shall be convertible into shares of Common Stock as follows: (a) No Optional Conversion. Other than prior to a redemption of the shares of Series A Preferred Stock as set forth in Section 3 above, the holders of shares of Series A Preferred Stock shall have no optional rights to convert such shares into shares of Common Stock. (b) Automatic Conversion. On the third anniversary of the Office Opening Date for the New Banking Office (unless accelerated as set forth below), each outstanding share of Series A Preferred Stock shall automatically be converted, without any further act of the Corporation or the holders of Series A Preferred Stock, into the number of fully paid and nonassessable shares of Common Stock specified below. (i) Second Anniversary after Offering Date. If the average monthly deposits credited to the New Banking Office exceed $20,000,000 in any consecutive three month period (the "Deposit Goal") prior to the second anniversary of the Office Opening Date, (A) the date of the automatic conversion into shares of Common Stock shall be the second anniversary of the Office Opening Date, and (B) each share of Series A Preferred Stock shall automatically be converted into 1.25 shares of Common Stock. If the Deposit Goal of the New Banking Office has not been met prior to the second anniversary of the Office Opening Date, the shares of Series A Preferred Stock will not be converted into shares of Common -5- 6 Stock until the third anniversary of the Office Opening Date. (ii) Third Anniversary after Office Opening Date. If the conversion of the shares of Series A Preferred Stock into shares of Common Stock has not previously taken place, then, on the third anniversary of the Office Opening Date, each outstanding share of Series A Preferred Stock shall automatically be converted into (A) 1.1 shares of Common Stock if the Deposit Goal of the New Banking Office has been met prior to the third anniversary of the Office Opening Date, and (B) 1.0 shares of Common Stock if the Deposit Goal for the New Banking Office has not been met prior to the third anniversary of the Office Opening Date. (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal for the New Banking Office shall have been met prior to a specified date if the average monthly deposits credited to the New Banking Office for any consecutive three months prior to such date exceed $20,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures: Deposits: For the purposes of making the Deposit Goal calculations, "deposits" means the book balances in all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and Certificates of Deposit), including the balances in such accounts in excess of $100,000; provided, however, that Large Certificates of Deposit (meaning those of $100,000 or more) shall be included in the total amount of deposits only to the extent that they do not exceed 10% of total deposits. Credit for Deposits: Deposits which are opened in the New Banking Office receive the credit for the account. The Bank's accounting system tracks and accounts for all depository accounts on a daily basis. Average Monthly Deposits: At the end of each calendar month, the Bank will calculate and record the average deposit balance of the New Banking Office for the month by adding the daily account balances in the various deposit accounts and dividing such sum by the number of days in such month. Balances for non-business days are deemed -6- 7 to be the same as that of the immediately previous business day. Three Month Average: After three full calendar months have expired, the Bank will calculate the three month average of the average monthly deposits for the New Banking Office by adding the three consecutive monthly averages for such Office and then dividing this sum by three. The calculation of the three month average of the average monthly deposits of the New Banking Office will be made after the end of each calendar month. All determinations regarding whether the Deposit Goal of the New Banking Office has been met as of any date shall be made by the Board of Directors of the Corporation, whose determinations in this regard shall be final and conclusive for all purposes. (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 4(b) above, the outstanding shares of Series A Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Series A Preferred Stock are delivered either to the Corporation or any transfer agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 4(b) above, as the case may be, and such date is referred to herein as the "Conversion Date." Subject to the provisions of Section 4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Series A Preferred Stock to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled as provided in Section 4(b) hereof. Subject to the provisions of Section 4(b), the person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. (d) Fractional Shares. No fractional shares of Common Stock or scrip shall be issued upon exchange of shares of Series A Preferred Stock. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the number of full shares of Common -7- 8 Stock issuable upon exchange thereof shall be increased to the next higher number of whole shares. (e) Rights After Conversion Date. From and after the Conversion Date (unless the Corporation defaults in issuing shares of Common Stock in exchange for the outstanding shares of Series A Preferred Stock on the Conversion Date), such shares of Series A Preferred Stock shall be deemed not to be outstanding and all rights of the holders of such shares as stockholders of the Corporation by reason of the ownership of such shares shall cease, except the right to receive shares of Common Stock as provided in Section 4(b) herein on presentation and surrender of the respective certificates evidencing such shares of Series A Preferred Stock. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing shares of Series A Preferred Stock (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be exchanged by the Corporation for shares of Common Stock as provided in this Section 4. (f) Authorized, But Unissued Shares. Any shares of Series A Preferred Stock that shall at any time have been converted into shares of Common Stock pursuant to this Section 4 shall, after such exchange, not be reissued as Series A Preferred Stock, but shall become authorized but unissued shares of Preferred Stock of the Corporation, and the certificates evidencing such shares shall be cancelled. (g) Reservation of Shares. The Corporation shall reserve at all times so long as any shares of Series A Preferred Stock remain outstanding, free from preemptive rights, out of its treasury stock or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the conversion of the shares of Series A Preferred Stock, sufficient shares of Common Stock to provide for the exchange of all outstanding shares of Series A Preferred Stock. (h) Fully Paid and Nonassessable Shares. All shares of Common Stock or other securities which may be issued upon exchange of the shares of Series A Preferred Stock will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result. 5. CONVERSION RATIO ADJUSTMENTS. The number of shares of Common Stock into which the shares of Series A Preferred Stock shall be converted pursuant to Section 4 (the "Conversion Ratios") and the securities or other property deliverable upon exchange of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: -8- 9 (a) Stock Dividends, Subdivisions or Split-Ups. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series A Preferred Stock is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then immediately after the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend or the effective date of such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any shares of Series A Preferred Stock thereafter exchanged shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Series A Preferred Stock been exchanged immediately prior thereto. (b) Combinations of Stock. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series A Preferred Stock is decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately increased so that the holder of any shares of Series A Preferred Stock thereafter converted shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Series A Preferred Stock been exchanged immediately prior thereto. (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. Subject to the last sentence of this Section 5(c), in case of any capital reorganization of the Corporation, or of any reclassification of the Common Stock, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Stock) to the holders of its Common Stock, each share of Series A Preferred Stock shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares of stock or other securities or property to which the Common Stock issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon exchange of such share of Series A Preferred Stock would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Stock remains outstanding) the shares of Common Stock into which such share of Series A Preferred Stock would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the -9- 10 rights and interests thereafter of the holders of the shares of Series A Preferred Stock shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any share of stock or other securities or property thereafter deliverable on the exchange of the shares of Series A Preferred Stock. If any conversion pursuant to this Section 5(c) is effected prior to the second anniversary of the Office Opening Date of the New Banking Office, the applicable Conversion Ratio to be adjusted shall be 1.25 shares of Common Stock for each share of Series A Preferred Stock, but if any conversion pursuant to this Section 5(c) is effected after the second anniversary, but prior to the third anniversary, of the Office Opening Date, the applicable Conversion Ratio to be adjusted shall be 1.1 shares of Common Stock for each share of Series A Preferred Stock. (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5 shall be made to the nearest one hundredth (1/100th) of a share of Common Stock, as the case may be. Any provision of this Section 5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a share of Common Stock or more. (e) Timing of Issuance of Additional Common Stock upon Certain Adjustments. In any case in which the provisions of this Section 5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any share of Series A Preferred Stock exchanged after such record date and before the occurrence of such event the additional shares of Common Stock or other property issuable or deliverable upon such exchange by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exchange before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment. (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5, the Corporation shall forthwith file, at the office of any transfer agent for the Series A Preferred Stock and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each holder of shares of Series A Preferred Stock at its address -10- 11 appearing on the Corporation's records. Each such statement shall be signed by the Corporation's independent public accountants. (g) Costs. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of shares of Common Stock of the Corporation or other securities or property upon exchange of any shares of Series A Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of the shares of Series A Preferred Stock in respect of which such shares are being issued. 6. VOTING. The holders of shares of Series A Preferred Stock shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series A Preferred Stock shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each share of Series A Preferred Stock held. 7. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series A Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Stock or on any other class of capital stock of the Corporation ranking junior to the Series A Preferred Stock upon liquidation. All outstanding shares of any other series of Preferred Stock shall rank at parity with the shares of Series A Preferred Stock. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be regarded as a "dissolution, liquidation or winding up of the Corporation" within the meaning of this Section 7(a). (b) After the payment to the holders of shares of Series A Preferred Stock of the full preferential amounts fixed hereby for shares of Series A Preferred Stock, the holders of Series A Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (c) If the assets of the Corporation available for distribution to the holders of shares of Series A Preferred Stock upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 7(a), no distribution shall be made on account of any shares of a class or series of capital stock of the Corporation ranking on a parity with the shares of Series A Preferred Stock, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of Series A Preferred stock, ratably, in -11- 12 proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. 8. REPORTS TO HOLDERS OF SERIES A PREFERRED STOCK. For so long as there shall remain outstanding any shares of Series A Preferred Stock, the Corporation shall furnish to each holder of record of Series A Preferred Stock (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Stock of the Corporation, and (ii) a monthly report setting forth the average monthly deposits for the New Banking Office. 9. CERTAIN COVENANTS. So long as any shares of Series A Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, the Corporation shall not amend, alter or repeal any provisions of this Statement of Resolution Establishing Series A Convertible Preferred Stock, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series A Preferred Stock. 10. EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law, the shares of Series A Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein. -12- 13 RESOLVED FURTHER, that the appropriate officers of the Corporation are authorized to make such filings and to take any other action they deem necessary to effect the foregoing resolution. Dated: July 19, 1995 STERLING BANCSHARES, INC. By: /S/ C. Frank Kurtin ------------------------------------ Name: C. FRANK KURTIN ----------------------------- Title: Secretary, Treasurer & CFO ---------------------------- -13- EX-4.6 7 STATEMENT OF RESOLUTION - SERIES B CONV. PREF. STK 1 EXHIBIT 4.6 STERLING BANCSHARES, INC. STATEMENT OF RESOLUTION ESTABLISHING SERIES B CONVERTIBLE PREFERRED STOCK TO THE SECRETARY OF STATE OF THE STATE OF TEXAS: Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act and Article Four of its Articles of Incorporation, the undersigned corporation submits the following statement for the purpose of establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof: 1. The name of the corporation is Sterling Bancshares, Inc. (the "Corporation"). 2. The following resolution, establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof, was duly adopted by the Board of Directors of the Corporation on July 17, 1995: RESOLVED, that pursuant to the Articles of Incorporation of the Corporation, as amended, authorizing the Board of Directors to establish and designate series of the preferred stock, $1.00 par value, of the Corporation (the "Preferred Stock") and to fix and determine the relative rights and preferences of the shares of any such series, there is hereby designated a series of Preferred Stock to be called "Series B Convertible Preferred Stock" to consist of 100,000 shares and to have the following terms: 1. DEFINITIONS. "Bank" means Sterling Bank, a commercial bank chartered under the laws of the State of Texas and a wholly-owned subsidiary of the Corporation. "Board" means the Board of Directors of the Corporation. "Common Stock" means the shares of common stock, $1.00 par value, of the Corporation. "Corporation" means Sterling BancShares, Inc., a Texas corporation. "Deposit Goal" means the goal for the New Banking Office that the average monthly deposits credited to the New Banking Office for any consecutive three months exceed $25,000,000, with the calculations to be made as set forth in Section 4(b)(iii) herein. "New Banking Office" means the new banking office to be opened by the Bank at 875 FM 1960 West, Houston, Texas 77090 on the Office Opening Date. 2 "Office Opening Date" means the opening date for the New Banking Office which is anticipated to be November 15, 1995. "Person" means an individual, a partnership, a joint venture, a corporation, an association, a trust, or any other entity or organization; "Preferred Stock" means the shares of preferred stock, $1.00 par value, of the Corporation. "Purchase Price" means the price per share of $__________ at which the shares of Series B Convertible Preferred Stock are being offered and sold by the Corporation. "Series B Preferred Stock" means the Series B Convertible Preferred Stock, $1.00 par value per share, of the Corporation. 2. DIVIDENDS. The holders of outstanding shares of Series B Preferred Stock shall not be entitled to receive any dividends on the shares of Series B Preferred Stock. 3. REDEMPTION. (a) The outstanding shares of Series B Preferred Stock are redeemable at the option of the Corporation, out of the assets of the Corporation legally available therefor, at any time or from time to time, in whole and not in part, at a redemption price per share of Series B Preferred Stock (the "Redemption Price") equal to the Purchase Price; provided, however, that for a period of not less than 30 days prior to the date fixed for redemption (the "Redemption Date"), the holders of the outstanding shares of Series B Preferred Stock shall have an option to convert each share of Series B Preferred Stock into 1.25 shares of Common Stock. (b) Notice of any redemption of shares of Series B Preferred Stock, specifying the date fixed for redemption, the redemption price and the place at which shareholders may obtain payment of the Redemption Price upon surrender of their certificates, and the option of the shareholders to convert their shares of Series B Preferred Stock into shares of Common Stock, shall be mailed to each holder of record of the shares to be redeemed, at such holder's address of record, not less than 35, nor more than 90, days prior to the Redemption Date. Such notice shall set forth the manner in which shareholders may convert their shares of Series B Preferred Stock into shares of Common Stock, or to receive the Redemption Price, upon surrender of their certificates. (c) Unless the Corporation defaults in the payment in full of the Redemption Price, (i) all rights of the holders of such shares of Series B Preferred Stock as shareholders of the Corporation by reason of the ownership of such shares (including, without limitation, the right to convert the shares of Series B Preferred Stock into shares of Common Stock) shall cease on the Redemption Date except the right to receive the amount payable upon redemption of such shares upon presentation and surrender of the respective certificates evidencing such shares, and (ii) such shares shall be deemed not to be outstanding after the Redemption Date. (d) Any shares of Series B Preferred Stock that have been redeemed shall, after such redemption, not be reissued as Series B Preferred Stock, but shall become authorized but unissued shares of Preferred Stock of the Corporation, and the certificates evidencing such shares shall be cancelled. -2- 3 4. CONVERSION RIGHTS. The shares of Series B Preferred Stock shall be convertible into shares of Common Stock as follows: (a) No Optional Conversion. Other than prior to a redemption of the shares of Series B Preferred Stock as set forth in Section 3 above, the holders of shares of Series B Preferred Stock shall have no optional rights to convert such shares into shares of Common Stock. (b) Automatic Conversion. On the third anniversary of the Office Opening Date for the New Banking Office (unless accelerated as set forth below), each outstanding share of Series B Preferred Stock shall automatically be converted, without any further act of the Corporation or the holders of Series B Preferred Stock, into the number of fully paid and nonassessable shares of Common Stock specified below. (i) Second Anniversary after Offering Date. If the average monthly deposits credited to the New Banking Office exceed $25,000,000 in any consecutive three month period (the "Deposit Goal") prior to the second anniversary of the Office Opening Date, (A) the date of the automatic conversion into shares of Common Stock shall be the second anniversary of the Office Opening Date, and (B) each share of Series B Preferred Stock shall automatically be converted into 1.25 shares of Common Stock. If the Deposit Goal of the New Banking Office has not been met prior to the second anniversary of the Office Opening Date, the shares of Series B Preferred Stock will not be converted into shares of Common Stock until the third anniversary of the Office Opening Date. (ii) Third Anniversary after Office Opening Date. If the conversion of the shares of Series B Preferred Stock into shares of Common Stock has not previously taken place, then, on the third anniversary of the Office Opening Date, each outstanding share of Series B Preferred Stock shall automatically be converted into (A) 1.1 shares of Common Stock if the Deposit Goal of the New Banking Office has been met prior to the third anniversary of the Office Opening Date, and (B) 1.0 shares of Common Stock if the Deposit Goal for the New Banking Office has not been met prior to the third anniversary of the Office Opening Date. (iii) Determination of Whether Deposit Goal Has Been Met. The Deposit Goal for the New Banking Office shall have been met prior to a specified date if the average monthly deposits credited to the New Banking Office for any consecutive three months prior to such date exceed $25,000,000. For the purposes of determining whether the Deposit Goal has been met, the Corporation will follow the following procedures: Deposits: For the purposes of making the Deposit Goal calculations, "deposits" means the book balances in all accounts which are insurable by the Federal Deposit Insurance Corporation (such as demand, savings, time, money market and NOW accounts and Certificates of Deposit), including the balances in such accounts in excess of $100,000; provided, however, that Large Certificates of Deposit (meaning those of $100,000 or more) shall be included -3- 4 in the total amount of deposits only to the extent that they do not exceed 10% of total deposits. Credit for Deposits: Deposits which are opened in the New Banking Office receive the credit for the account. The Bank's accounting system tracks and accounts for all depository accounts on a daily basis. Average Monthly Deposits: At the end of each calendar month, the Bank will calculate and record the average deposit balance of the New Banking Office for the month by adding the daily account balances in the various deposit accounts and dividing such sum by the number of days in such month. Balances for non-business days are deemed to be the same as that of the immediately previous business day. Three Month Average: After three full calendar months have expired, the Bank will calculate the three month average of the average monthly deposits for the New Banking Office by adding the three consecutive monthly averages for such Office and then dividing this sum by three. The calculation of the three month average of the average monthly deposits of the New Banking Office will be made after the end of each calendar month. All determinations regarding whether the Deposit Goal of the New Banking Office has been met as of any date shall be made by the Board of Directors of the Corporation, whose determinations in this regard shall be final and conclusive for all purposes. (c) Mechanics of Conversion. Upon the occurrence of the dates specified in Section 4(b) above, the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation shall not be obligated to issue to any holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Series B Preferred Stock are delivered either to the Corporation or any transfer agent designated by the Corporation. Conversion shall be deemed to have been effected on the date of the occurrence of the dates specified in Section 4(b) above, as the case may be, and such date is referred to herein as the "Conversion Date." Subject to the provisions of Section 4(b) above, as promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of Series B Preferred Stock to the Corporation or any transfer agent designated by the Corporation), the Corporation shall issue and deliver to such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled as provided in Section 4(b) hereof. Subject to the provisions of Section 4(b), the person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. -4- 5 (d) Fractional Shares. No fractional shares of Common Stock or scrip shall be issued upon exchange of shares of Series B Preferred Stock. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the number of full shares of Common Stock issuable upon exchange thereof shall be increased to the next higher number of whole shares. (e) Rights After Conversion Date. From and after the Conversion Date (unless the Corporation defaults in issuing shares of Common Stock in exchange for the outstanding shares of Series B Preferred Stock on the Conversion Date), such shares of Series B Preferred Stock shall be deemed not to be outstanding and all rights of the holders of such shares as stockholders of the Corporation by reason of the ownership of such shares shall cease, except the right to receive shares of Common Stock as provided in Section 4(b) herein on presentation and surrender of the respective certificates evidencing such shares of Series B Preferred Stock. Upon presentation and surrender, on or after the Conversion Date, of any certificate evidencing shares of Series B Preferred Stock (properly endorsed or assigned for transfer, if the Corporation shall so require), such shares shall be exchanged by the Corporation for shares of Common Stock as provided in this Section 4. (f) Authorized, But Unissued Shares. Any shares of Series B Preferred Stock that shall at any time have been converted into shares of Common Stock pursuant to this Section 4 shall, after such exchange, not be reissued as Series B Preferred Stock, but shall become authorized but unissued shares of Preferred Stock of the Corporation, and the certificates evidencing such shares shall be cancelled. (g) Reservation of Shares. The Corporation shall reserve at all times so long as any shares of Series B Preferred Stock remain outstanding, free from preemptive rights, out of its treasury stock or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the conversion of the shares of Series B Preferred Stock, sufficient shares of Common Stock to provide for the exchange of all outstanding shares of Series B Preferred Stock. (h) Fully Paid and Nonassessable Shares. All shares of Common Stock or other securities which may be issued upon exchange of the shares of Series B Preferred Stock will upon issuance by the Corporation be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof and the Corporation shall take no action which would cause a contrary result. 5. CONVERSION RATIO ADJUSTMENTS. The number of shares of Common Stock into which the shares of Series B Preferred Stock shall be converted pursuant to Section 4 (the "Conversion Ratios") and the securities or other property deliverable upon exchange of the Series B Preferred Stock shall be subject to adjustment from time to time as follows: (a) Stock Dividends, Subdivisions or Split-Ups. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series B Preferred Stock is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then immediately after the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend or the effective date of such subdivision or split-up, as the case may be, the Conversion Ratios shall be appropriately increased so that the holder of any shares of -5- 6 Series B Preferred Stock thereafter exchanged shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Series B Preferred Stock been exchanged immediately prior thereto. (b) Combinations of Stock. If the number of shares of Common Stock outstanding at any time after the date of issuance of the Series B Preferred Stock is decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the Conversion Ratios applicable thereto shall be appropriately increased so that the holder of any shares of Series B Preferred Stock thereafter converted shall be entitled to receive the number of shares of Common Stock of the Corporation which he would have owned immediately following such action had such shares of Series B Preferred Stock been exchanged immediately prior thereto. (c) Reorganization, Reclassification, Merger, Sale of All Assets, etc. Subject to the last sentence of this Section 5(c), in case of any capital reorganization of the Corporation, or of any reclassification of the Common Stock, or in case of the consolidation of the Corporation with or the merger of the Corporation with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Corporation to any other Person, or in the case of any distribution of cash or other assets or of notes or other indebtedness of the Corporation or any other securities of the Corporation (except Common Stock) to the holders of its Common Stock, each share of Series B Preferred Stock shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution, be convertible into the number of shares of stock or other securities or property to which the Common Stock issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution) upon exchange of such share of Series B Preferred Stock would have been entitled upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer or such distribution in place of (or in addition to, in the case of any such event after which Common Stock remains outstanding) the shares of Common Stock into which such share of Series B Preferred Stock would otherwise have been convertible; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holders of the shares of Series B Preferred Stock shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any share of stock or other securities or property thereafter deliverable on the exchange of the shares of Series B Preferred Stock. If any conversion pursuant to this Section 5(c) is effected prior to the second anniversary of the Office Opening Date of the New Banking Office, the applicable Conversion Ratio to be adjusted shall be 1.25 shares of Common Stock for each share of Series B Preferred Stock, but if any conversion pursuant to this Section 5(c) is effected after the second anniversary, but prior to the third anniversary, of the Office Opening Date, the applicable Conversion Ratio to be adjusted shall be 1.1 shares of Common Stock for each share of Series B Preferred Stock. (d) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 5 shall be made to the nearest one hundredth (1/100th) of a share of Common Stock, as the case may be. Any provision of this Section 5 to the contrary notwithstanding, no adjustment in the Conversion Ratios shall be made if the amount of such adjustment would be less than one hundredth of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made -6- 7 at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one hundredth of a share of Common Stock or more. (e) Timing of Issuance of Additional Common Stock upon Certain Adjustments. In any case in which the provisions of this Section 5 shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event issuing to the holder of any share of Series B Preferred Stock exchanged after such record date and before the occurrence of such event the additional shares of Common Stock or other property issuable or deliverable upon such exchange by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exchange before giving effect to such adjustment; provided, however, that the Corporation upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment. (f) Statement Regarding Adjustments. Whenever the Conversion Ratios shall be adjusted as provided in this Section 5, the Corporation shall forthwith file, at the office of any transfer agent for the Series B Preferred Stock and at the principal office of the Corporation a statement showing in detail the facts requiring such adjustment and the Conversion Ratios that shall be in effect after such adjustment, and the Corporation shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each holder of shares of Series B Preferred Stock at its address appearing on the Corporation's records. Each such statement shall be signed by the Corporation's independent public accountants. (g) Costs. The Corporation shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of shares of Common Stock of the Corporation or other securities or property upon exchange of any shares of Series B Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares or securities in the name other than that of the holder of the shares of Series B Preferred Stock in respect of which such shares are being issued. 6. VOTING. The holders of shares of Series B Preferred Stock shall have no right or power to vote on any matter except as required by law. In any matter on which the holders of Series B Preferred Stock shall, as a matter of law, be entitled to vote, the holders shall be entitled to one vote for each share of Series B Preferred Stock held. 7. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series B Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation an amount per share in cash equal to the Purchase Price before any payment or distribution shall be made on the Common Stock or on any other class of capital stock of the Corporation ranking junior to the Series B Preferred Stock upon liquidation. All outstanding shares of any other series of Preferred Stock shall rank at parity with the shares of Series B Preferred Stock. The consolidation or merger of the Corporation, or a sale, exchange or transfer of all or substantially all of its assets as an entirety, shall not be -7- 8 regarded as a "dissolution, liquidation or winding up of the Corporation" within the meaning of this Section 7(a). (b) After the payment to the holders of shares of Series B Preferred Stock of the full preferential amounts fixed hereby for shares of Series B Preferred Stock, the holders of Series B Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (c) If the assets of the Corporation available for distribution to the holders of shares of Series B Preferred Stock upon dissolution, liquidation or winding up of the Corporation are insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 7(a), no distribution shall be made on account of any shares of a class or series of capital stock of the Corporation ranking on a parity with the shares of Series B Preferred Stock, if any, upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of Series B Preferred stock, ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up. 8. REPORTS TO HOLDERS OF SERIES B PREFERRED STOCK. For so long as there shall remain outstanding any shares of Series B Preferred Stock, the Corporation shall furnish to each holder of record of Series B Preferred Stock (i) all reports or other correspondence sent by the Corporation to holders of record of the Common Stock of the Corporation, and (ii) a monthly report setting forth the average monthly deposits for the New Banking Office. 9. CERTAIN COVENANTS. So long as any shares of Series B Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, the Corporation shall not amend, alter or repeal any provisions of this Statement of Resolution Establishing Series B Convertible Preferred Stock, or otherwise amend, alter or repeal any provision of the Articles of Incorporation of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Series B Preferred Stock. 10. EXCLUSION OF OTHER RIGHTS. Unless otherwise required by law, the shares of Series B Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights other than those specifically set forth herein. -8- 9 RESOLVED FURTHER, that the appropriate officers of the Corporation are authorized to make such filings and to take any other action they deem necessary to effect the foregoing resolution. Dated: _____________, 1995 STERLING BANCSHARES, INC. By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- -9- EX-27 8 FINANCIAL DATA SCHEDULE
9 1000 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 55,652 1,240 10,000 0 4,552 148,657 150,664 448,434 (6,334) 690,877 625,231 3,689 3,070 4,800 7,951 0 49 0 690,877 20,070 4,832 460 25,362 7,613 446 17,303 1,033 0 12,879 7,170 4,934 0 0 4,934 0.61 0.61 5.99 2,052 293 71 11,004 (5,907) (859) 253 6,334 4,544 0 1,790
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