<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, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 000-25128
First Sterling Banks, Inc.
---------------------------
(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
(Address of principal executive offices)
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, 1997 1,312,915
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheet
September 30, 1997 3
Consolidated Statements of Income
Three Months Ended September 30, 1997 4
and 1996 and Nine Months Ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of 7-8
Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
Assets
Cash and due from banks $ 11,849,401
Interest-bearing deposit in banks 126,110
Investment securities:
Held to maturity (fair value $2,232,672) 2,248,620
Available for sale, at estimated market value 22,919,195
Corporate securities 72,500
Federal funds sold 9,097,000
Loans 101,617,555
Less allowance for loan losses 1,165,295
Loans, net 100,452,260
Premises and equipment, net 5,196,887
Other Real Estate Owned 1,074,295
Other assets 1,538,013
------------
Total assets $154,574,281
------------
------------
Liabilities and Stockholders' Equity
Deposits:
Demand $ 20,735,008
Interest-bearing demand 42,303,571
Savings 5,839,728
Certificates of deposit 68,997,763
------------
Total deposits $137,876,070
Federal funds purchased and securities sold
under agreement to repurchase 369,128
Accrued expenses 818,934
Total liabilities $139,064,132
------------
Stockholders' equity
Common stock, 10,000,000 shares authorized;
1,378,665 shares issued at amount paid in 12,356,904
Retained earnings 4,113,975
Unrealized gain on investment securities, net of tax 73,145
Less cost of 65,750 shares of treasury stock (1,033,875)
------------
Total stockholders' equity $ 15,510,149
------------
Total liabilities and stockholders equity $154,574,281
------------
------------
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<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1997 and 1996 and
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 2,580,086 $ 2,154,461 $ 7,204,891 $ 6,220,654
Interest on investment securities:
Taxable 275,597 305,329 911,208 911,908
Nontaxable 73,091 25,276 158,870 72,116
Interest on Federal funds sold 128,280 132,259 440,037 312,499
Interest on securities purchased under
agreement to resell 48,021 -- 59,943 1,089
Dividends on corporate securities 2,983
Interest on interest-bearing deposits 1,461 1,393 4,450 1,393
----------- ----------- ----------- -----------
Total interest income 3,106,536 2,618,718 8,782,382 7,519,659
Interest expense
Interest on deposits 1,310,265 1,092,750 3,708,761 3,191,367
Interest on Federal funds purchased -- 829 -- 829
Interest on securities sold under
agreement to purchase 3,937 1,222 13,430 1,222
----------- ----------- ----------- -----------
Total interest expense 1,314,202 1,094,801 3,722,191 3,193,418
Net interest income 1,792,334 1,523,917 5,060,191 4,326,241
Provision for loan losses 76,000 17,000 212,000 137,500
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,716,334 1,506,917 4,848,191 4,188,741
----------- ----------- ----------- -----------
Other operating income
Service charges on deposit accounts 102,565 93,987 295,588 268,625
Gain on sale of loans 11,057 181,020 268,676 205,567
Other income 114,010 56,602 245,186 140,291
----------- ----------- ----------- -----------
Total other income 227,632 331,609 809,450 614,483
----------- ----------- ----------- -----------
Other operating expenses
Salaries and other employee benefits 647,566 601,082 2,079,225 1,579,729
Occupancy and equipment expenses 148,833 136,708 452,170 372,480
Stationery and supplies 19,817 33,296 63,047 76,072
FDIC assessments 3,325 1,000 10,108 3,000
Audit and accounting 35,275 30,375 67,875 74,890
Directors fees 41,975 36,150 135,150 108,625
Other operating expense 314,159 291,516 640,678 787,214
Securities (gains) losses -- -- 600 4,157
Merger expense -- 52,118 -- 52,118
----------- ----------- ----------- -----------
Total operating expenses 1,210,950 1,182,245 3,448,853 3,058,285
----------- ----------- ----------- -----------
Income before income taxes 733,016 656,281 2,208,788 1,744,939
Applicable income taxes 243,035 241,406 740,659 619,605
----------- ----------- ----------- -----------
Net Income $ 489,981 $ 414,875 $ 1,468,129 $ 1,125,334
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Per share of common stock based on the
average number of shares outstanding
during the period
Net Income $ 0.36 $ 0.30 $ 1.07 $ 0.82
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding 1,370,601 1,372,119 1,372,412 1,372,119
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash dividends per share of common stock $ .09 $ .075 $ .255 $ .195
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
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<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,468,129 $ 1,125,334
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 243,381 308,644
Provision for loan losses 212,000 137,500
Gain on sale of loans 268,676 (205,567)
Proceeds from the sale of loans 1,364,196 --
(Increase) decrease in interest receivable (101,683) 8,521
Increase (decrease) in interest payable 49,839 (6,071)
Other prepaids, deferrals and accruals, net 56,931 (819,852)
------------ ------------
Total adjustments 2,093,340 (576,825)
------------ ------------
Net cash provided by operating activities 3,561,469 548,509
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities 2,719,400 1,270,143
Proceeds from maturities of
investment securities 2,452,355 7,649,851
Purchase of investment securities (7,768,282) (7,858,231)
Net(increase) decrease in Federal funds sold 9,683,000 65,000
Net increase in interest-bearing deposits in banks --- (109,606)
Net increase in loans (19,680,586) (9,196,296)
Acquisitions of other real estate (879,295) -0-
Capital expenditures (104,598) (766,030)
------------ ------------
Net cash used in investing activities (13,578,006) (8,945,169)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 17,335,653 10,147,280
Net increase in securities sold under
agreement to repurchase (308,097) 652,149
Dividend payments (332,010) (241,438)
Purchase of Treasury Stock (618,875) --
Sale of common stock 214,699 --
------------ ------------
Net cash provided by financing activities 16,291,370 10,557,991
------------ ------------
Net increase in cash and due from banks $ 6,274,833 $ 2,161,331
Cash and due from banks at beginning of year 5,574,568 5,715,903
------------ ------------
Cash and due from banks at end of period $ 11,849,401 $ 7,877,234
------------ ------------
------------ ------------
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<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, 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, 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 subsidiaries, Westside Bank & Trust Company and Eastside Bank &
Trust Company have enjoyed good steady growth in 1997. Total loans have
increased 21.37% or $17,891,816 since December 1996. Total deposits have
increased $17,335,653 or 14.38%. Non-interest bearing deposits increased
$2,027,505 or 11.7%, while interest bearing deposits increased $15,308,148 or
15%.
Liquidity
As of September 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 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 September 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 Banks compliance with regulatory capital
requirements at September 30, 1997:
Westside Bank Eastside Bank
Leverage capital ratio: 10.43% 10.96%
Risk based capital ratios:
Core capital 13.10% 12.23%
Total capital 14.16% 13.13%
-7-
<PAGE>
Results of Operations for the Three Months Ended September 30, 1997 and 1996
Net income for the quarter ended September 30, 1997 increased $75,106 or
18.10% over the same period in 1996. The increase in earning assets resulted
in an increase in net interest income of $268,417 or 17.61% over the same
period in 1996. Interest income increased $487,818 or 18.63%, interest
expense increased $219,401 or 20.0% over the same period in 1996. Other
operating income decreased $103,977 over the same period in 1996. The third
quarter of 1996 was very strong in the sale of SBA loans, and this was not
repeated in 1997. Only $11,057 in gains was recognized in the third quarter
of 1997 compared to $181,020 in 1996. This decline was partially offset by
fees on participation loans amounting to $40,271 and mortgage origination
fees of $23,357 for the quarter. Total operating expenses showed only a
slight increase over the same period in 1996.
The provision for loans losses increased $59,000 over the same period in
1996. In 1996 the second quarter loss provision was higher than normal due to
certain provisions outlined in the merger agreement. After the merger was
consummated on July 31, 1996, the provision was reduced for the remainder of
the year.
Results of Operations for the Nine Months Ended September 30, 1997 and 1996.
Net interest income for the nine month period ended September 30, 1997 was
$5,060,191, an increase of $4,326,241 over the same period in 1996. An
increase in year-to-date average earning assets of $19,348,466 or 18.1% over
the same period in 1996 is largely responsible for the increase in net
interest income. Interest income increased 16.8% or $1,252,723 over the same
period in 1996. Average interest bearing liabilities increased $17,326,512
or 19.9% over the same period in 1996. Interest expense only increased
$528,773 or 16.6%.
Other income is up $194,967 or 31.7% over the same period in 1996. Several
factors have contributed to this increase, including, an increase in service
charges (Westside opened a branch in the second quarter of 1996), an increase
in gains on the sale of SBA loans, mortgage origination fees, and fees on
participation loans.
Salaries and employee benefits have increased 31.62% over the same period in
1996. An increase in the bonus accrual, the opening of a branch office in
the second quarter of 1996, and the addition of two senior staff members in
the lending area all contributed to this increase. The branch opening and a
computer conversion in the second quarter of 1996 are largely responsible for
an increase of $79,690 or 21.4% in occupancy and equipment expense.
Directors fees have increased $26,525 or 24.41% 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.
Pre-tax income for the period ending September 30, 1996 increased $463,849 or
26.58% over the same period in 1996. Net income increased $342,795 or 30.46%
over the same period in 1996. The increase in earnings is attributable to
the continued growth at both Banks, the resulting increase in earning assets
and managements continued focus on loan quality and core bank earnings.
-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: November 5, 1997 BY: \S\ EDWARD C. MILLIGAN
------------------- --------------------------------
Edward C. Milligan, President
DATE: November 5, 1997 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 FINANCIAL
STATEMENTS FOR PERIOD ENDING SEPTEMBER 30, 1997 AND IS QUALFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,849,401
<INT-BEARING-DEPOSITS> 126,110
<FED-FUNDS-SOLD> 9,097,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,919,195
<INVESTMENTS-CARRYING> 2,248,620
<INVESTMENTS-MARKET> 2,232,672
<LOANS> 101,617,555
<ALLOWANCE> 1,165,295
<TOTAL-ASSETS> 154,574,281
<DEPOSITS> 137,876,070
<SHORT-TERM> 369,128
<LIABILITIES-OTHER> 818,934
<LONG-TERM> 0
0
0
<COMMON> 12,356,904
<OTHER-SE> 4,113,975
<TOTAL-LIABILITIES-AND-EQUITY> 154,574,281
<INTEREST-LOAN> 7,204,891
<INTEREST-INVEST> 1,073,061
<INTEREST-OTHER> 504,430
<INTEREST-TOTAL> 8,782,382
<INTEREST-DEPOSIT> 3,708,761
<INTEREST-EXPENSE> 3,722,191
<INTEREST-INCOME-NET> 5,060,191
<LOAN-LOSSES> 212,000
<SECURITIES-GAINS> (600)
<EXPENSE-OTHER> 3,448,853
<INCOME-PRETAX> 2,208,788
<INCOME-PRE-EXTRAORDINARY> 2,208,788
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,468,129
<EPS-PRIMARY> 0
<EPS-DILUTED> 1.07
<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>
