<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 June 30, 1997
---------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number: 000-25128
First Sterling Banks, Inc.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2104977
----------------------------- --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Post Office Box 2147, Marietta, Georgia 30061
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(Address of principal executive officers)
770-499-2265
-----------------------------
(Issuer's Telephone Number)
N/A
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(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 June 30, 1997 1,292,581
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<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information
Consolidated Balance Sheet
June 30, 1997 3
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996 and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Six Months Ended June 30,
1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-9
Signatures 10
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
- ------
Cash and due from banks......................................................... $ 5,585,508
Interest-bearing deposit in banks............................................... 121,469
Investment securities:
Held to maturity (fair value $2,223,000)...................................... 2,248,289
Available for sale, at estimated market value................................. 20,211,918
Federal funds sold.............................................................. 8,600,000
Corporate Securities............................................................ 72,500
Loans........................................................................... 93,502,382
Less allowance for loan losses.................................................. 1,126,163
Loans, net.......................................................... 92,376,219
Premises and equipment, net..................................................... 5,235,014
Other Real Estate Owned......................................................... 623,977
Other assets.................................................................... 1,515,005
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Total assets........................................................ $136,589,899
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------------
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits:
Demand........................................................................ $ 19,594,283
Interest-bearing demand....................................................... 32,414,503
Savings....................................................................... 6,638,202
Certificates of deposit....................................................... 62,074,319
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Total deposits...................................................... $120,721,307
Federal Funds purchased and securities sold
under agreement to repurchase................................................. 262,104
Accrued expenses................................................................ 726,734
Total liabilities................................................... $121,710,145
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Stockholders' equity
Common stock, 10,000,000 shares authorized;
1,358,331 shares issued at amount paid in................................... 12,168,127
Retained earnings............................................................. 3,740,324
Unrealized gain on investment securities, net of tax.......................... 5,178
Less cost of 65,750 shares of treasury stock................................. (1,033,875)
------------
Total stockholders' equity.......................................... $ 14,879,754
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Total liabilities and stockholders equity........................... $136,589,899
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</TABLE>
3
<PAGE>
FIRST STERLING BANKS, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1997 and 1996 and
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans............................ $ 2,404,715 $ 2,088,903 $ 4,624,805 $ 4,066,194
Interest on investment securities:
Taxable........................................... 319,512 276,076 635,611 585,088
Nontaxable........................................ 42,861 47,488 85,779 68,330
Interest on Federal funds sold........................ 127,608 69,703 311,757 180,240
Interest on securities purchased under
agreement to resell................................. -- -- 11,922 1,089
Dividends on Corporate Securities..................... -- -- 2,983 --
Interest on interest-bearing deposits................. 1,510 -- 2,989 --
------------ ------------ ------------ ------------
Total interest income........................ $ 2,896,206 $ 2,482,170 $ 5,675,846 $ 4,900,941
Interest expense
Interest on deposits.................................. 1,205,447 1,055,967 2,398,496 2,098,617
Interest on Federal funds purchased................... -- -- -- --
Interest on securities sold under agreement to
repurchase.......................................... 3,390 -- 9,493 --
------------ ------------ ------------ ------------
Total interest expense....................... $ 1,208,837 $ 1,055,967 $ 2,407,989 $ 2,098,617
Net interest income.......................... 1,687,369 1,426,203 3,267,857 2,802,324
Provision for loan losses............................... 46,000 88,500 136,000 120,500
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses.................. $ 1,641,369 $ 1,337,703 $ 3,131,857 $ 2,681,824
------------ ------------ ------------ ------------
Other operating income
Service charges on deposit accounts................... $ 101,801 $ 85,065 $ 193,023 $ 174,638
Gain on sale of loans................................. 1,708 -- 257,619 24,548
Other income.......................................... 76,295 52,181 131,176 85,155
------------ ------------ ------------ ------------
$ 179,804 $ 137,246 $ 581,818 $ 284,341
------------ ------------ ------------ ------------
Other operating expenses
Salaries and other employee benefits.................. $ 571,102 $ 499,317 $ 1,233,246 $ 979,367
Occupancy and equipment expenses...................... 153,617 123,483 303,337 235,168
Stationery and supplies............................... 20,929 24,271 43,230 42,128
FDIC assessments...................................... 4,345 1,000 6,783 2,000
Audit and accounting.................................. 14,017 35,821 32,600 56,408
Directors fees........................................ 45,600 34,800 93,175 72,475
Other operating expense............................... 296,689 254,513 524,932 485,913
Securities (gains) losses............................. -- 4,157 600 4,157
------------ ------------ ------------ ------------
Total operating expenses..................... $ 1,106,299 $ 977,362 $ 2,237,903 $ 1,877,616
Income before income taxes................... $ 714,874 $ 497,587 $ 1,475,772 $ 1,088,549
Applicable income taxes................................. $ 235,522 $ 181,521 $ 497,624 $ 378,199
------------ ------------ ------------ ------------
Net Income................................... $ 479,352 $ 316,066 $ 978,148 $ 710,350
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share of common stock..................... $ 0.35 $ 0.23 $ 0.71 $ 0.51
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding...................... 1,360,323 1,382,997 1,370,485 1,382,997
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash dividends per share of common stock................. $ .09 $ .06 $ 0.165 $ 0.12
------------ ------------ ------------ ------------
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</TABLE>
4
<PAGE>
FIRST STERLING BANKS, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 978,148 $ 710,350
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Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization....................................................... 154,645 151,704
Provision for loan losses........................................................... 136,000 120,500
Gain on sale of loans............................................................... 257,619 (25,000)
Proceeds from sale of loans........................................................... 1,375,253 783,000
Increase in taxes payable............................................................. -- (110,000)
(Increase) decrease in interest receivable............................................ (53,975) 20,268
Increase (decrease) in interest payable............................................. 49,839 (22,665)
Other prepaids, deferrals and accruals, net......................................... (398,897) (463,420)
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Total adjustments............................................................. $ 1,520,484 $ 454,387
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Net cash provided by operating activities..................................... $ 2,498,632 $ 1,164,737
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities......................................... $ 2,119,400 $ 270,143
Proceeds from maturities of investment securities................................... 2,253,951 5,848,963
Purchase of investment securities................................................... (4,263,641) (3,624,981)
Net (increase) decrease in Federal funds sold....................................... 10,180,000 9,240,000
Net increase in loans............................................................... (11,545,713) (7,882,175)
Acquisitions of other real estate................................................... (428,977) --
Capital expenditures................................................................ (57,909) (423,582)
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Net cash used in investing activities......................................... $ (1,742,889) $ 3,428,368
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits............................................................ $ 407,617 $ (3,711,394)
Net increase in securities sold under
Agreement to repurchase....................................................... (343,790) --
Dividend payments................................................................... (215,677) (142,356)
Purchase of Treasury Stock.......................................................... (618,875) --
Sale of common stock................................................................ 25,922 --
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Net cash provided by financing activities..................................... $ (744,803) $ (3,853,750)
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Net increase (decrease) in cash and
due from banks...................................................................... $ 10,940 $ 739,355
Cash and due from banks at beginning of year.......................................... $ 5,574,568 $ 5,716,375
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Cash and due from banks at end of period.............................................. $ 5,585,508 $ 6,455,730
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</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 six-month period ended June 30, 1997
are not necessarily indicative of the results to be expected for the
full year.
Note 2. MERGER AGREEMENT
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 1996
income and cash flow statements were restated to reflect the combined
entities.
During the third quarter, prior to the merger, the Company declared a
23% stock dividend payable to all shareholders of record July 30, 1996.
The number of new shares issued was 140,531. In accordance with
Generally Accepted Accounting principles, prior period average shares
outstanding have been restated for the stock dividend.
Note 3. ACCOUNTING STANDARDS BOARD SFAS NO. 128.
The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings Per Share". SFAS No.128 establishes standards for computing
and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, Earnings per Share, and makes them
comparable to international EPS standards. It replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The effective date of this statement is for financial
statements issued for periods ending after December 15, 1997. The
adoption of this Statement is not expected to have a material effect
on earnings per share.
6
<PAGE>
FIRST STERLING BANKS AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated
financial statements.
FINANCIAL CONDITION
The Company's subsidiaries, Westside Bank & Trust Company and Eastside Bank &
Trust experienced moderate growth in the first half of 1996. Total loans have
increased approximately 11.68% since December 1996. Total deposits have
increased $180,890 from December 1996; however, this is misleading due to the
presence of a sizable seasonal short term deposit account at December 31,
1996. Core deposits have increased approximately $7,000,000 or 6.09% since
December 1996. Net income is up 37.7% over the same period in 1996. This
increase is primarily attributable to an increase in earning assets of
approximately $19,051,731 or 18.2%. In addition, the first quarter was a very
active period for the sale of SBA loans.
LIQUIDITY
As of June 30, 1997, 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 Bank is a member of the Federal Home Loan Bank which provides an
alternative source of funding. Both banks also maintain relationships with
correspondent banks which could provide funds on short notice, if needed.
CAPITAL
At June 30, 1997, 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 Company's compliance with regulatory capital
requirements at June 30, 1997:
<TABLE>
<CAPTION>
Westside Bank Eastside Bank
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<S> <C> <C>
Leverage capital ratio:.................... 10.42% 11.23%
Risk based capital ratios:
Core capital......................... 13.29% 12.87%
Total capital........................ 14.38% 13.78%
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the quarter ended June 30, 1997 increased $163,286 or 51.7%
over the same period in 1996. An increase in earning assets resulted in an
increase in net interest income of $261,166 or 18.3% over the same period in
1996. Interest income increased $414,036 or 16.7%, while interest expense
only increased $152,870 or 14.5%.
The provision for loan losses decreased $42,500 or 48.0% over the same period
in 1996. During 1996, in connection with the merger with Eastside Holding
Corporation, the merger agreement required that both banks maintain the same
loan loss reserve ratio as was present at October 31, 1995. The merger was
consummated on July 31, 1996 and the provision was reduced for the reminder
of 1996.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
Net interest income for the six month period ended June 30, 1997 was
$3,267,857, a 16.6% increase over the $2,802,324 reported June 30, 1996. The
increase in net interest income is primarily attributable to the increase in
earning assets (primarily loans). Year-to-date average earning assets
increased $19,051,731 or 18.2% over the same period in 1996. Related interest
income increased $774,905 or 15.8%. Interest-bearing liabilities increased
$16,299,552 or 19.0% over the same period in 1996, with a resulting increase
in interest expense of $309,372 or 14.7%. The first quarter was very active
in the sale of SBA loans. The resulting gains were primarily responsible for
the increase in other operating income of $297,477 or 104.6% over June 30,
1996.
Salaries and employee benefits have increased 25.9% over the same period in
1996. This increase is a result of Westside opening a branch in the second
half of 1996, an increase in the bonus accrual, and Eastside Bank adding two
senior staff members in the lending area.
Directors fees have increased $20,700 or 28.6% over the same period in 1996.
Fees at Eastside Bank were increased for 1997 based on a competitive market
survey of other community banks in the area. In addition, the holding company
began paying directors fees in the first quarter of 1997.
Other operating expenses showed a modest increase over June 30, 1996.
Pre-tax income for the period ending June 30, 1997 increased $387,223 or
35.67%. Net income increased $267,798 or 37.7% over the same period in 1996.
The increase in earnings is attributable to both Banks continued growth, the
increase in earning assets and gains recognized from the sale of several SBA
loans in the first quarter.
8
<PAGE>
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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: August 11, 1997 By: \s\ Edward C. Milligan
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Edward C. Milligan, President
Date: August 11, 1997 By: \s\ Barbara J. Bond
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Barbara J. Bond, Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR PERIOD ENDING JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,585,508
<INT-BEARING-DEPOSITS> 121,469
<FED-FUNDS-SOLD> 8,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,211,918
<INVESTMENTS-CARRYING> 2,248,289
<INVESTMENTS-MARKET> 2,223,000
<LOANS> 93,502,382
<ALLOWANCE> 1,126,163
<TOTAL-ASSETS> 136,589,899
<DEPOSITS> 120,721,307
<SHORT-TERM> 262,104
<LIABILITIES-OTHER> 726,734
<LONG-TERM> 0
0
0
<COMMON> 12,168,127
<OTHER-SE> 3,740,324
<TOTAL-LIABILITIES-AND-EQUITY> 136,589,899
<INTEREST-LOAN> 4,624,805
<INTEREST-INVEST> 724,373
<INTEREST-OTHER> 326,668
<INTEREST-TOTAL> 5,675,846
<INTEREST-DEPOSIT> 2,398,496
<INTEREST-EXPENSE> 2,407,989
<INTEREST-INCOME-NET> 3,267,857
<LOAN-LOSSES> 136,000
<SECURITIES-GAINS> (600)
<EXPENSE-OTHER> 2,237,303
<INCOME-PRETAX> 1,475,772
<INCOME-PRE-EXTRAORDINARY> 1,475,772
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978,148
<EPS-PRIMARY> .71
<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>
