<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 33-78046
FIRST STERLING BANKS, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-2104977
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
</TABLE>
Post Office Box 2147
Marietta, Georgia 30061
(Address of principal executive officers)
770-499-2265
(Issuer's Telephone Number)
Westside Financial Corporation
P. O. Box 2147
Marietta, GA 30061
(Former name, former address and former fiscal year)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 30, 1996 1,321,081
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Consolidated Balance Sheet
September 30, 1996 3
Consolidated Statements of Income
Three Months Ended September 30, 1996 4
and 1995 and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of 7-9
Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 7,877,234
Interest-bearing deposit in banks 109,606
Investment securities:
Held to maturity (fair value $3,440,656) 3,498,600
Available for sale, at estimated market value 18,805,170
Corporate securities 72,500
Federal funds sold 13,435,000
Loans 82,490,114
Less allowance for loan losses 1,086,818
Loans, net 81,403,296
Premises and equipment, net 5,206,741
Other assets 1,832,321
------------
Total assets $132,240,468
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 19,526,559
Interest-bearing demand 34,179,015
Savings 3,829,769
Certificates of deposit 59,087,872
------------
Total deposits $116,623,215
Federal funds purchased and securities sold
under agreement to repurchase 652,149
Accrued expenses 670,014
Total liabilities $117,945,378
------------
Stockholders' equity
Common stock, 10,000,000 shares authorized;
1,321,081 shares issued and outstanding 11,513,610
Retained earnings 3,286,133
Unrealized gain on investment securities, net of tax (89,653)
Less cost of 25,000 shares of treasury stock (415,000)
------------
Total stockholders' equity $ 14,295,090
------------
Total liabilities and stockholders equity $132,240,468
------------
------------
</TABLE>
-3-
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1996 and 1995 and
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 2,154,461 $ 1,828,321 $ 6,220,654 $ 5,404,120
Interest on investment securities:
Taxable 305,329 327,099 911,908 890,573
Nontaxable 25,276 14,348 72,116 37,366
Interest on Federal funds sold 132,259 155,287 312,499 441,595
Interest on securities purchased
under agreement to resell -- -- 1,089 583
Interest on interest-bearing deposits 1,393 -- 1,393 --
----------- ----------- ---------- ----------
Total interest income 2,618,718 2,325,055 7,519,659 6,774,237
Interest expense
Interest on deposits 1,092,750 1,019,517 3,191,367 2,857,338
Interest on Federal funds purchased 829 -- 829 --
Interest on securities sold under
agreement to purchase 1,222 -- 1,222 --
----------- ----------- ---------- ----------
Total interest expense 1,094,801 1,019,517 3,193,418 2,857,338
Net interest income 1,523,917 1,305,538 4,326,241 3,916,899
Provision for loan losses 17,000 55,000 137,500 127,000
----------- ----------- ---------- ----------
Net interest income after
provision for loan losses 1,506,917 1,250,538 4,188,741 3,789,899
----------- ----------- ---------- ----------
Other operating income
Service charges on deposit accounts 93,987 75,488 268,625 260,833
Gain on sale of loans 181,020 41,123 205,567 106,305
Other income 56,602 22,412 140,291 62,841
----------- ----------- ---------- ----------
Total other income 331,609 139,023 614,483 429,979
----------- ----------- ---------- ----------
Other operating expenses
Salaries and other employee benefits 601,082 463,898 1,579,729 1,356,565
Occupancy and equipment expenses 136,708 107,274 372,480 334,277
Stationery and supplies 33,296 22,870 76,072 72,222
FDIC assessments 1,000 (4,718) 3,000 95,185
Audit and accounting 30,375 12,616 74,890 56,033
Directors fees 36,150 25,925 108,625 56,100
Other operating expense 291,516 224,286 787,214 731,507
Securities (gains) losses -- -- 4,157 (500)
Merger expense 52,118 -- 52,118 --
----------- ----------- ---------- ----------
Total operating expenses 1,182,245 852,151 3,058,285 2,701,389
----------- ----------- ---------- ----------
Income before income taxes 656,281 537,410 1,744,939 $1,518,489
Applicable income taxes 241,406 188,333 619,605 $ 406,588
----------- ----------- ---------- ----------
Net Income $ 414,875 $ 349,077 $ 1,125,334 $1,111,901
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Per share of common stock based on
the average number of shares
during the period outstanding
Net Income $ 0.33 $ 0.27 $ 0.93 $ 0.89
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Average shares outstanding 1,276,154 1,304,456 1,216,251 1,242,019
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Cash dividends per share of common
stock $ .075 $ -- $ .195 $ .15
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
-4-
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,125,334 $ 1,111,901
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 308,644 224,157
Provision for loan losses 137,500 127,000
Gain on sale of loans (205,567) (106,305)
(Increase) decrease in interest receivable 8,521 (132,786)
Increase (decrease) in interest payable (6,071) 137,322
Other prepaids, deferrals and accruals, net (819,852) 220,557
----------- -----------
Total adjustments (576,825) 469,945
----------- -----------
Net cash provided by operating activities 548,509 1,581,846
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 1,270,143 ---
Proceeds from maturities of
investment securities 7,649,851 4,593,086
Purchase of investment securities (7,858,231) (10,367,235)
Net decrease in Federal funds sold 65,000 (6,930,000)
Net increase in interest-bearing deposits in banks (109,606) ---
Net increase in loans (9,196,296) (5,163,603)
Capital expenditures (766,030) (143,387)
----------- -----------
Net cash used in investing activities (8,945,169) (18,011,139)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,147,280 17,803,852
Net increase in securities sold under
agreement to repurchase 652,149
Dividend payments (241,438) (91,620)
Sale of common stock -- (330,000)
----------- -----------
Net cash provided by financing activities 10,557,991 17,382,232
----------- -----------
Net increase in cash and due from banks $ 2,161,331 $ 952,939
Cash and due from banks at beginning of year 5,715,903 5,580,455
----------- -----------
Cash and due from banks at end of period $ 7,877,234 $ 6,533,394
----------- -----------
----------- -----------
</TABLE>
-5-
<PAGE>
FIRST STERLING BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the nine month period ended September 30,
1996 are not necessarily indicative of the results to be expected
for the full year.
Note 2. On July 31, 1996 the merger of Eastside Holding Corporation with
Westside Financial Corporation was consummated, and Westside
Financial changed its name to First Sterling Banks, Inc.
Accordingly, the 1995 income and cash flow statements were restated
to reflect the combined entities.
During the third quarter, prior to the mer ger, the Company declared a
23% stock dividend payable to all shareholders of record July 30, 1996.
The number of new shares issued was 134,781. In accordance with
Generally Accepted Accounting Principles, prior period average shares
outstanding have been restated for the stock dividend.
-6-
<PAGE>
FIRST STERLING BANKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results of the Company and its bank subsidiaries, Westside Bank & Trust Company
and Eastside Bank & Trust Company, during the periods included in the
accompanying consolidated financial statements.
FINANCIAL CONDITION
The Company's balance sheet has grown 9.13% since December 1995. This increase
is primarily attributable to the increase in deposits. Total deposits have
increased $10,157,716 or 9.54% since December 1995. The majority of the deposit
growth can be attributed to Westside opening a new branch in mid July. Total
loans have increased 12.7% or $9,342,481 since December 1995. Net income has
increased slightly over the same period in 1995. As expected, the net interest
margin has narrowed slightly over the same period last year due largely to the
reduction in the prime rate.
LIQUIDITY
As of September 30, 1996, the liquidity ratios of both banks, as determined
under guidelines established by regulatory authorities, were satisfactory. The
Banks primary sources of funds are increases in deposits, loan repayments, sales
and maturities of investment securities and net income. In addition, Westside
joined the Federal Home Loan Bank in the first quarter of 1996 providing an
alternative source of funding and both banks maintain relationships with
correspondent banks which could provide funds on short notice, if needed.
CAPITAL
At September 30, 1996, the capital ratios of the Company and the Banks were
adequate based on regulatory minimum capital requirements. The minimum capital
requirements for banks and bank holding companies require a leverage capital to
total assets ratio of at least 4%, core capital to risk-weighted assets ratio of
at least 4% and total capital to risk-weighted assets of 8%. The following
table reflects the Bank's compliance with regulatory capital requirements at
September 30, 1996:
<TABLE>
<CAPTION>
WESTSIDE BANK EASTSIDE BANK
------------- -------------
<S> <C> <C>
Leverage capital ratio: 11.35% 11.41%
Risk based capital ratios:
Core capital 13.73% 14.57%
Total capital 14.89% 15.56%
</TABLE>
-7-
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net income for the quarter ended September 30, 1996 increased $65,798 or 18.85%
over the same period in 1995. The increase in earning assets resulted in an
increase in net interest income of $218,379 or 16.73% over the same period in
1995. Interest income increased $293,663 or 12.63%, while interest expense only
increased $75,284 or 7.38%. Other operating income increased $192,586 or
138.53%, due largely to the increase in gains on the sale of SBA loans.
Operating expenses increased 38.74% or $330,094. Increased overhead associated
with opening a new branch attributed for much of this increase.
The provision for loan losses is down $38,000 over the same period in 1995. In
connection with the merger with Eastside Holding Corporation during the first
six months, the provision was increased in order to maintain the same ratio as
was present at October 31, 1995. The merger was consummated on July 31, 1996
and assuming no material deterioration is detected in the loan portfolios, it is
likely the provision for the remainder of 1996 will be less than 1995.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Net interest income for the nine month period ended September 30, 1996 was
$4,326,241 a 10.45% increase over the $3,916,899 reported September 30, 1995.
The increase in net interest income is primarily attributable to the increase in
loans. Average earning assets increased $10,946,187 or 11.35% over the same
period in 1995. Related interest income increased $745,422 or 11.00%. Average
interest bearing liabilities increased $7,864,788 or 9.92%, related interest
expense increased $336,080 or 11.76% over the same period in 1995. The
year-to-date net interest margin is down slightly at 5.37% compared to 5.43% at
September 30, 1995. The prime rate reductions in late December and early
February had an immediate impact on earning assets while deposit rates have been
slower to reprice. Both banks are located in metro Atlanta, a highly
competitive deposit and loan market.
Other operating income for the nine month period ended September 30, 1996
increased 42.91% over the same period in 1995. Again, this is largely
attributable to the increase on gains recognized on the sale of SBA loans.
Salaries and employee benefits have increased 16.45% over the same period in
1995. The major contributing factor being an increase in the bonus accrual,
based on the 1995 actual bonus and staff additions for the new branch. Salary
expense is expected to increase even more in the fourth quarter of 1996 as a
result of opening and fully staffing the branch office.
Directors fees have increased $52,525 over the same period in 1995. Eastside
Bank did not begin paying directors fees until June 1995. In addition, fees
were increased in 1996 based on a competitive market survey of other community
banks in the area and taking into account each banks performance.
Other operating expenses increased a moderate 6.30% over September 30, 1995.
Data processing expense and depreciation on computer hardware and software is up
significantly over 1995 as a result of Westside Bank changing data processors
and upgrading hardware and software.
Pre-tax income for the period ending September 30, 1996 increased $226,450 or
14.91% over the same period in 1995. The increase in earnings is attributable
-8-
<PAGE>
to the Banks continued growth and the increase in earnings assets. Management
does expect the net interest margin to narrow somewhat and additional expenses
related to the opening of a branch, and the merger with Eastside Holding
Corporation will continue to have an impact on 1996 earnings. The long term
effect of these actions is expected to benefit our customers, our staff, the
community and most importantly our shareholders.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated July 17, 1996 reporting
the Westside Financial Corporation shareholders would receive a
stock dividend of .23 to 1 on July 30, 1996, and that all
conditions of the merger between Eastside Holding Corporation and
Westside Financial Corporation had been satisfied and the merger
would be effective July 31, 1996.
-9-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST STERLING BANKS, INC.
Date: NOVEMBER 8, 1996 By: \S\ EDWARD C. MILLIGAN
--------------------- ------------------------------------
Edward C. Milligan, President
Date: NOVEMBER 8, 1996 By: \S\ BARBARA J. BOND
--------------------- ------------------------------------
Barbara J. Bond, Treasurer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,877,234
<INT-BEARING-DEPOSITS> 109,606
<FED-FUNDS-SOLD> 13,435,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 3,498,600
<INVESTMENTS-MARKET> 18,805,170
<LOANS> 82,490,114
<ALLOWANCE> 1,086,818
<TOTAL-ASSETS> 132,240,468
<DEPOSITS> 116,623,215
<SHORT-TERM> 652,149
<LIABILITIES-OTHER> 670,014
<LONG-TERM> 0
0
0
<COMMON> 11,513,610
<OTHER-SE> 3,286,133
<TOTAL-LIABILITIES-AND-EQUITY> 132,240,468
<INTEREST-LOAN> 6,220,654
<INTEREST-INVEST> 984,024
<INTEREST-OTHER> 314,981
<INTEREST-TOTAL> 7,519,659
<INTEREST-DEPOSIT> 3,191,367
<INTEREST-EXPENSE> 3,193,418
<INTEREST-INCOME-NET> 4,326,241
<LOAN-LOSSES> 137,500
<SECURITIES-GAINS> (4,157)
<EXPENSE-OTHER> 3,054,128
<INCOME-PRETAX> 1,744,939
<INCOME-PRE-EXTRAORDINARY> 1,744,939
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,125,334
<EPS-PRIMARY> .93
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
