<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 March 31, 1998
( ) 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 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 March 31, 1998 2,627,630
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<TABLE>
<CAPTION>
FIRST STERLING BANKS, INC.
INDEX
Page No.
<S> <C> <C>
Part I. Financial Information
Consolidated Balance Sheet
March 31,1998 3
Consolidated Statements of Income and
Comprehensive Income - Three Months
Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of 8-9
Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1998
(Unaudited)
Assets
<S> <C>
Cash and due from banks $ 7,213,760
Interest-bearing deposit in banks 114,550
Investment securities:
Held to maturity (fair value $2,244,453) 2,249,319
Available for sale, at estimated market value 22,893,450
Corporate securities 72,500
Federal funds sold 19,710,000
Loans 111,544,570
Less allowance for loan losses 1,420,064
Loans, net 110,124,506
Premises and equipment, net 5,074,028
Other Real Estate Owned 404,000
Other assets 1,585,827
------------
Total assets $169,441,940
------------
------------
Liabilities and Stockholders' Equity
Deposits:
Demand $ 22,421,065
Interest-bearing demand 46,471,659
Savings 7,585,242
Certificates of deposit 75,032,780
------------
Total deposits $151,510,746
Federal funds purchased and securities sold
under agreement to repurchase 171,496
Other liabilities 1,183,207
------------
Total liabilities $152,865,449
------------
------------
Stockholders' equity
Common stock, 10,000,000 shares authorized;
2,759,130 shares issued at amount paid in 12,362,104
Retained earnings 5,140,213
Less cost of 131,500 shares of treasury stock (1,033,875)
Accumulated other comprehensive income 108,049
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Total stockholders' equity $ 16,576,491
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Total liabilities and stockholders equity $169,441,940
------------
------------
</TABLE>
3
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CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME Three
Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March
1998 1997
---- ----
Interest income
<S> <C> <C>
Interest and fees on loans $ 2,916,351 $ 2,220,090
Interest on investment securities:
Taxable 267,529 316,099
Nontaxable 52,358 42,918
Interest on Federal funds sold 232,392 184,149
Interest on securities purchased under
agreement to resell 58,736 11,922
Dividends on Corporate Securities -- 2,983
Interest on interest-bearing deposits 1,419 1,479
----------- -----------
Total interest income 3,528,785 2,779,640
Interest expense
Interest on deposits 1,526,689 1,193,049
Interest on Federal funds purchased -- --
Interest on securities sold under
agreement to purchase 3,903 6,103
----------- -----------
Total interest expense 1,530,592 1,199,152
Net interest income 1,998,193 1,580,488
Provision for loan losses 51,000 90,000
----------- -----------
Net interest income after
provision for loan losses 1,947,193 1,490,488
----------- -----------
Other operating income
Service charges on deposit accounts 103,408 91,222
Gain on sale of loans 76,596 255,911
Mortgage Origination fees 58,232 --
Loss on other real estate owned (50,744) --
Other income 47,551 54,881
----------- -----------
Total other income 235,043 402,014
----------- -----------
Other operating expenses
Salaries and other employee benefits 773,792 662,144
Occupancy and equipment expenses 139,969 149,720
Stationery and supplies 33,662 22,301
Audit and accounting 25,100 18,583
Directors fees 64,250 47,575
Other operating expense 315,563 230,681
Securities losses -- 600
----------- -----------
Total operating expenses 1,352,336 1,131,604
----------- -----------
Income before income taxes 829,900 760,898
Applicable income taxes 268,042 262,102
----------- -----------
Net Income 561,858 498,796
----------- -----------
Other comprehensive income, net of tax
Unrealized gains (losses)on securities available-for-sale
arising during period 766 (117,250)
----------- -----------
Comprehensive income $ 562,624 $ 381,546
----------- -----------
----------- -----------
Basic earnings per common share $ 0.21 $ 0.19
----------- -----------
----------- -----------
Diluted earnings per common share $ 0.20 $ 0.18
----------- -----------
----------- -----------
Cash dividends per share of common stock $ .045 $ .0375
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</TABLE>
4
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<TABLE>
<CAPTION>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 561,858 $ 498,797
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 72,256 83,643
Provision for loan losses 51,000 90,000
Proceeds from sale of loans 673,400 1,376,961
Gain on sale of loans 76,596 255,911
(Increase) in interest receivable (13,297) (56,362)
Increase (decrease) in interest payable (102,638) 26,694
Other prepaids, deferrals and accruals, net (19,677) (216,030)
----------- -----------
Total adjustments 737,640 1,560,817
----------- -----------
Net cash provided by operating activities 1,299,498 2,059,614
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available
for sale -- 119,936
Proceeds from maturities of securities held
to maturity 1,617,502 1,760,381
Purchase of investment securities (5,602,547) (3,123,079)
Net decrease in Federal funds sold 7,775,000 7,910,000
Net increase in loans (5,523,061) (6,377,568)
Acquisitions of (proceeds from)other real estate 135,658 (310,552)
Capital expenditures (39,301) (15,280)
----------- ----------
Net cash used in investing activities (1,636,749) (36,162)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 188,124 (752,936)
Net increase in securities sold under
agreement to repurchase (182,565) (216,048)
Dividend payments (118,243) (99,345)
Purchase of Treasury Stock -0- (618,875)
Sale of common stock 11,700 16,800
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Net cash used in financing activities (100,984) (1,670,404)
---------- ----------
Net increase (decrease) in cash and due from banks $ (438,235) $ 353,048
Cash and due from banks at beginning of year 7,651,995 5,574,568
---------- ----------
Cash and due from banks at end of period $7,213,760 $5,927,616
---------- ----------
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</TABLE>
5
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FIRST STERLING BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 three month period ended March 31,
1998 are not necessarily indicative of the results to be expected for
the full year.
Note 2. STOCK SPLIT
On February 25, 1998, the Board of Directors unanimously approved a
two for one stock split, payable March 30, 1998 to shareholders of
record March 16, 1998. In accordance with Generally Accepted
Accounting principles, prior period share and per share data has been
restated to reflect the stock split.
Note 3. CURRENT ACCOUNTING DEVELOPMENTS
The adoption of the provisions of SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" that became effective on January 1, 1998 did not have a
material effect on the Company's financial statements.
The adoption of SFAS No. 130, "Reporting Comprehensive Income", that
became effective on January 1, 1998 required the Company to report
comprehensive income in the Company's Statements of Income and
Comprehensive Income.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
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Note 4. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in
determining basic and diluted earnings per common share (EPS):
<TABLE>
<CAPTION>
Period ending March 31, 1998
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS $ 561,858 2,626,350 $0.21
----------- ------------- ------
Effect of Dilutive Securities
Stock Options 254,647
----------- ------------- ------
Diluted EPS $ 561,858 2,880,997 $0.20
----------- ------------- ------
Period ending March 31, 1998
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 498,796 2,614,146 $0.19
----------- ------------- ------
Effect of Dilutive Securities
Stock Options 147,317
----------- ------------- ------
Diluted EPS $ 498,796 2,761,463 $0.18
----------- ------------- ------
</TABLE>
7
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FIRST STERLING BANKS, INC.
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 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 increased a modest $400,705 since
December 1997. This trend is normal for the first quarter, and is attributable
to a decline in seasonal deposits during the quarter, offset by an 8.7% increase
in core deposits since December 31, 1997. Total loans have increased 4.51% or
$4,814,800 since December 1997.
LIQUIDITY
As of March 31, 1998, 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, 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 March 31, 1998, 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 March 31,
1998:
<TABLE>
<CAPTION>
Westside Bank Eastside Bank
------------- -------------
<S> <C> <C>
Leverage capital ratio: 9.43% 9.94%
Risk based capital ratios:
Core capital 12.90% 12.03%
Total capital 14.05% 13.07%
</TABLE>
8
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net income for the quarter ended March 31, 1998 increased $63,062 or
12.6% over the same period in 1997. Gains from the sale of SBA loans in the
first quarter of 1998 was down $179,315 or 70% compared to the same period in
1997. Core earnings, exclusive of gain on the sale of loans was up 53.9% from
March 31, 1997.
Net interest income increased $417,705 or 26.4% over the first quarter
of 1997. Average earning assets increased $29,868,691 or 24.1% over the same
period in 1997, resulting in a 26.9% increase in interest income. Average
interest bearing liabilities increased $25,875,672 or 25.3% over the first
quarter of 1997 with an increase in interest expense of $331,440 or 27.6%.
The provision for loan losses decreased $39,000 or 43.3% over the same
period in 1997. The provision for the first quarter of 1997 was increased in
order to bring the reserve to a level management felt was adequate, following a
$73,000 charge-off. The allowance for loan losses as a percentage of total loans
outstanding at March 31, 1998 and December 31, 1997 amounted to 1.27% and 1.29%,
respectively.
Total operating expenses are up $220,732 or 19.5% over the same period
in 1997. Directors fees have increased $16,675 over 1997. Directors fees at both
banks were increased in 1998 based on a competitive market survey of other
community banks in the area, and input from a benefit/compensation consulting
firm, holding company directors fees were not increased. Increased staff
(approximately 5 full-time equivalents) has resulted in an increase in personnel
expense of 16.9% over the first quarter of 1997. Expense related to carrying and
maintaining other real estate owned as well as other collection expenses
increased $22,098 or 309.9% over the same period in 1997. In addition, a net
loss of $50,744 was recognized in the first quarter of 1998 from the sale of
other real estate parcels, this compares to $0 for the same period in 1997.
Total other real estate and non-accrual loans amounted to $479,982 at quarter
end, down 46.7% or $420,135 from March 31, 1997.
YEAR 2000 PROJECT
First Sterling Banks and its subsidiaries rely heavily upon computers
for the daily conduct of their business. First Sterling will commit all
resources necessary to achieve a satisfactory and timely solution to computer
based problems related to the year 2000 and beyond. The project is receiving
full support and attention from senior management of both Eastside Bank and
Westside Bank. A comprehensive plan which addresses all aspects of the project
is in place and work on the project is well underway. The project is on schedule
and the timetable will allow for an adequate period of thorough testing well in
advance of the year change. With the inventory and assessment phase of the
project completed management has determined that the total expense is not
expected to have a material effect on earnings in any one year.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1998.
There are no exhibits to this report.
10
<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: May 12, 1998 By: \s\ Edward C. Milligan
------------------- -----------------------
Edward C. Milligan, President
Date: May 12, 1998 By: \s\ Barbara J. Bond
------------------- --------------------
Barbara J. Bond, Secretary/Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,213,760
<INT-BEARING-DEPOSITS> 114,550
<FED-FUNDS-SOLD> 19,710,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,893,450
<INVESTMENTS-CARRYING> 2,244,453
<INVESTMENTS-MARKET> 2,249,319
<LOANS> 111,544,570
<ALLOWANCE> 1,420,064
<TOTAL-ASSETS> 169,441,940
<DEPOSITS> 151,510,746
<SHORT-TERM> 171,496
<LIABILITIES-OTHER> 1,183,207
<LONG-TERM> 0
0
0
<COMMON> 12,362,104
<OTHER-SE> 5,140,213
<TOTAL-LIABILITIES-AND-EQUITY> 169,441,940
<INTEREST-LOAN> 2,916,351
<INTEREST-INVEST> 319,887
<INTEREST-OTHER> 292,547
<INTEREST-TOTAL> 3,528,785
<INTEREST-DEPOSIT> 1,526,689
<INTEREST-EXPENSE> 1,530,592
<INTEREST-INCOME-NET> 1,998,193
<LOAN-LOSSES> 51,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,352,336
<INCOME-PRETAX> 829,900
<INCOME-PRE-EXTRAORDINARY> 829,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561,858
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
<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>
