<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, 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 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, 1998 2,629,962
---------
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Consolidated Balance Sheet
September 30, 1998 ......................................... 3
Consolidated Statements of Income
Three Months Ended September 30, 1998 ...................... 4
and 1996 and Nine Months Ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 .............. 5
Notes to Consolidated Financial Statements ................... 6-7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................. 8-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................... 11
Signatures ................................................... 12
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
<TABLE>
<S> <C>
Assets
Cash and due from banks ................................... $ 7,155,931
Interest-bearing deposit in banks ......................... 20,292
Investment securities:
Held to maturity (fair value $749,985) .................. 753,126
Available for sale, at estimated market value ........... 28,048,069
Corporate securities .................................... 72,500
Federal funds sold ........................................ 29,630,000
Loans ..................................................... 123,559,484
Less allowance for loan losses ............................ 1,556,030
Loans, net .............................. 122,003,454
Premises and equipment, net ............................... 5,776,398
Other real estate owned ................................... 294,326
Other assets .............................................. 1,826,788
-------------
Total assets ..................................... $ 195,580,884
-------------
-------------
Liabilities and Stockholders' Equity
Deposits:
Demand .................................................. $ 24,619,268
Interest-bearing demand ................................. 59,874,103
Savings ................................................. 7,947,855
Certificates of deposit ................................. 83,816,475
-------------
Total deposits .......................... $ 176,257,701
Federal funds purchased and securities sold
under agreement to repurchase ............................ 682,623
Accrued expenses .......................................... 1,034,265
-------------
Total liabilities ....................... $ 177,974,589
-------------
Stockholders' equity
Common stock, 10,000,000 shares authorized;
2,761,462 shares issued at amount paid in ............. 12,377,262
Retained earnings ....................................... 6,080,512
Unrealized gain on investment securities, net of tax .... 182,396
Less cost of 131,500 shares of treasury stock ........... (1,033,875)
-------------
Total stockholders' equity .............. $ 17,606,295
-------------
Total liabilities and stockholders equity $ 195,580,884
-------------
-------------
</TABLE>
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<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30,
1998 and 1997 and Nine Months
Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans ................ $ 3,130,967 $ 2,580,086 $ 9,037,529 $ 7,204,891
Interest on investment securities:
Taxable ............................ 293,251 275,597 859,404 911,208
Nontaxable ......................... 57,678 73,091 166,699 158,870
Interest on Federal funds sold ............ 333,749 128,280 764,800 440,037
Interest on securities purchased under
agreement to resell ................ 64,473 48,021 153,229 59,943
Dividends on corporate securities ......... -- 1,461 -- 4,450
Interest on interest-bearing deposits ...... 110 -- 2,963 2,983
------------ ------------ ------------ ------------
Total interest income ........... 3,880,228 3,106,536 10,984,624 8,782,382
------------ ------------ ------------ ------------
Interest expense
Interest on deposits ...................... 1,681,098 1,310,265 4,739,291 3,708,761
Interest on securities sold under
agreement to purchase ................... 7,509 3,937 16,066 13,430
------------ ------------ ------------ ------------
Total interest expense .... 1,688,607 1,314,202 4,755,357 3,722,191
------------ ------------ ------------ ------------
Net interest income ....... 2,191,621 1,792,334 6,229,267 5,060,191
Provision for loan losses ................... 95,000 76,000 205,000 212,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 2,096,621 1,716,334 6,024,267 4,848,191
------------ ------------ ------------ ------------
Other operating income
Service charges on deposit accounts ....... 112,018 102,565 317,850 295,588
Mortgage origination fees ................. 35,963 -- 136,383 --
Loss on other real estate owned ........... (32,499) -- (83,243) --
Gain on sale of loans ....................... 43,535 11,057 122,541 268,676
Other income .............................. 90,248 114,010 183,321 245,186
------------ ------------ ------------ ------------
Total other income ........ 249,265 227,632 676,852 809,450
------------ ------------ ------------ ------------
Other operating expenses
Salaries and other employee benefits ...... 802,381 733,471 2,324,354 2,079,225
Occupancy and equipment expenses .......... 140,322 148,833 414,931 452,170
Stationery and supplies ................... 25,828 17,198 86,947 63,047
Audit and accounting ..................... 26,975 30,308 78,974 67,875
Directors fees ............................ 65,175 41,975 196,750 135,150
Other operating expense ................... 294,710 239,165 948,434 650,786
Securities (gains) losses ................. -- -- -- 600
------------ ------------ ------------ ------------
Total operating expenses .. 1,355,391 1,210,950 4,050,390 3,448,853
------------ ------------ ------------ ------------
Income before income taxes 990,495 733,016 2,650,729 2,208,788
Applicable income taxes ..................... 332,280 243,035 885,575 740,659
------------ ------------ ------------ ------------
Net Income ......................... $ 658,215 $ 489,981 $ 1,765,154 $ 1,468,129
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gains on securities available
for sale arising during period ............. 84,001 68,035 75,113 35,834
------------ ------------ ------------ ------------
Comprehensive Income ............... $ 742,216 $ 558,016 $ 1,840,267 $ 1,503,963
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per common share ............. $ .25 $ .19 $ .67 $ .56
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings per common share ........... $ .23 $ .18 $ .61 $ .54
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash dividends per share of common stock .... .05 $ .045 $ .145 $ .1275
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................... $ 1,765,154 $ 1,468,129
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 192,790 243,381
Provision for loan losses ...................... 205,000 212,000
Gain on sale of loans .......................... 122,541 268,676
Proceeds from the sale of loans ................ 1,009,955 1,364,196
(Increase) decrease in interest receivable ...... (43,985) (101,683)
Increase (decrease) in interest payable ........ (42,515) 49,839
Other prepaids, deferrals and accruals, net .... (405,582) 56,931
------------ ------------
Total adjustments ....................... 1,038,204 2,093,340
------------ ------------
Net cash provided by operating activities 2,803,358 3,561,469
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities .... -- 2,719,400
Proceeds from maturities of
investment securities ........................ 8,176,150 2,452,355
Purchase of investment securities .............. (15,712,932) (7,768,282)
Net(increase) decrease in Federal funds sold ... (2,145,000) 9,683,000
Net increase in loans ......................... (17,910,028) (19,680,586)
Acquisitions of other real estate .............. 245,332 (879,295)
Capital expenditures ............................ (862,203) (104,598)
------------ ------------
Net cash used in investing activities ... (28,208,681) (13,578,006)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ....................... 24,935,079 17,335,653
Net increase in securities sold under
agreement to repurchase ...................... 328,562 (308,097)
Dividend payments .............................. (381,240) (332,010)
Purchase of Treasury Stock ..................... -- (618,875)
Sale of common stock ........................... 26,858 214,699
------------ ------------
Net cash provided by financing activities 24,909,259 16,291,370
------------ ------------
Net increase in cash and due from banks .......... $ (496,064) $ 6,274,833
Cash and due from banks at beginning of year ..... 7,651,995 5,574,568
------------ ------------
Cash and due from banks at end of period ......... $ 7,155,931 $ 11,849,401
------------ ------------
------------ ------------
</TABLE>
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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, 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 Extinguishment
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-
<PAGE>
Note 4. EARNINGS PER 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>
Nine months ending September 30, 1998
- --------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS ................... $1,765,154 2,628,329 $ 0.67
- --------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options ............. 251,373
- --------------------------------------------------------------------------------
Diluted EPS ................. $1,765,154 2,879,702 $ 0.61
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine months ending September 30, 1997
- --------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS ................... $1,468,129 2,598,961 $ 0.56
- --------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options ............. 145,028
- --------------------------------------------------------------------------------
Diluted EPS ................. $1,468,129 2,743,989 $ 0.54
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three months ending September 30, 1998
- --------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS ................... $ 658,215 2,629,962 $ 0.25
- --------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options ............. 228,903
- --------------------------------------------------------------------------------
Diluted EPS ................. $ 658,215 2,858,865 $ 0.23
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three months ending September 30, 1997
- --------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS ................... $ 489,981 2,588,072 $ 0.19
- --------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options ............. 140,918
- --------------------------------------------------------------------------------
Diluted EPS ................. $ 489,981 2,728,990 $ 0.18
- --------------------------------------------------------------------------------
</TABLE>
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<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 1998. Total loans have
increased 15.77% or $16,829,714 since December 1997. Total deposits have
increased $24,935,079 or 16.48%. Non-interest bearing deposits increased
$3,590,342 or 17.07%, while interest bearing deposits increased $21,344,737 or
16.38%.
Return on average equity for the three months and nine months ended
September 30, 1998 was 14.99% and 13.94% on average equity of $17,422,000 and
$16,929,000, respectively. This compares to 12.74% and 13.21% on average equity
of $15,260,000 and $14,858,000, respectively, for the same periods in 1997.
Return on average assets for the three months and nine months ended
September 30, 1998 was 1.40% and 1.35% on average assets of $187,032,000 and
$174,828,000, respectively, as compared to 1.33% and 1.41% on average assets of
$145,733,000 and $139,581,000, respectively, for the same periods in 1997.
Liquidity
As of September 30, 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 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, 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 September 30, 1998:
-8-
<PAGE>
<TABLE>
<CAPTION>
Westside Bank Eastside Bank
------------- -------------
<S> <C> <C>
Leverage capital ratio: .. 8.82% 9.80%
Risk based capital ratios:
Core capital .... 12.72% 10.29%
Total capital ... 13.80% 11.29%
</TABLE>
Results of Operations for the Three Months Ended September 30, 1998 and 1997
Net income for the three months ended September 30, 1998 increased
$168,234 or 34.33% over the same period in 1997. Average earning assets
increased 29.87% as compared to the same quarter in 1997, which resulted in an
increase of $773,692 or 24.91%, in interest income. Average interest bearing
deposits increased $32,915,187 or 30.18%, resulting in an increase in interest
expense of $ 374,405 or 28.49%.
Results of Operations for the Nine Months Ended September 30, 1998 and 1997.
Net interest income for the nine month period ended September 30, 1998
was $6,229,267, an increase of $1,169,076 or 23.10% over the same period in
1997. This increase is largely attributable to the increase in earning assets.
Average earning assets for the nine month period ended September 30, 1998 were
up approximately $33,750,000 or 26.72% over the same period in 1997. Interest
income during this period increased 25.08% or $2,202,242, over the same period
in 1997. Average interest bearing deposits increased $28,360,000 or 27.24% for
the nine month period, which resulted in an increase in interest expense on
deposits of $1,030,530 or 27.78%. With the recent prime rate reductions
management expects margins to continue to narrow for the remainder of 1998.
The decrease in other operating income of $132,598 or 16.38% is largely
attributable to the decrease in gains on the sale of SBA loans. Gains in 1998
have only amounted to $122,541 compared to $268,676 in 1997. In addtion, net
losses on the sale of other real estate owned have amounted to $83,243 compared
to $0 in 1997. Mortgage origination fee income totaling $136,383 is a new source
of income for the company in 1998.
Total operating expenses have increased $601,537 or 17.44% over the
same period in 1997. In addition to the items summarized below, the company has
seen an increase in the overall cost of doing business in a highly competitive
market.
Salaries and employee benefits have increased 11.79% over the same
period in 1997. The increase is primarily the result of salary increases and the
rising costs associated with employee benefit plans.
Directors fees have increased $61,600 or 45.58% over the same period in
1997. Fees were increased for 1998 based on a competitive market survey of other
community banks.
Increased expenses related to growth can be seen in data processing,
audit, postage and other delivery expense, supplies and stationary and business
development expense.
-9-
<PAGE>
Pre-tax income for the period ending September 30, 1998 increased
$441,941 or 20.00% over the same period in 1997. Net income increased $297,025
or 20.23% over the same period in 1997. The increase in earnings is attributable
to continued growth at both Banks, the resulting increase in earning assets and
managements continued focus on loan quality and core bank earnings.
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 assessment and awareness phase is complete, and the renovation
phase is nearly complete. The Company is in the process of contacting all major
borrowers, to determine their potential risk to Y2K problems. A risk code will
be assigned to each major borrower, based on Y2K risk and underlying collateral
risk. Once this phase is completed, management will be able to determine the
adequacy of the loan loss reserve.
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.
-10-
<PAGE>
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
There were no reports on Form 8-K filed during the
quarter ended September 30, 1998.
-11-
<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 9, 1998 By: \s\ Edward C. Milligan
----------------- ---------------------------------
Edward C. Milligan, President
Date: November 9, 1998 By: \s\ Barbara J. Bond
----------------- ---------------------------------
Barbara J. Bond, Treasurer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR PERIOD ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,155,931
<INT-BEARING-DEPOSITS> 20,292
<FED-FUNDS-SOLD> 29,630,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,048,069
<INVESTMENTS-CARRYING> 753,126
<INVESTMENTS-MARKET> 749,985
<LOANS> 123,559,484
<ALLOWANCE> 1,556,030
<TOTAL-ASSETS> 195,580,884
<DEPOSITS> 176,257,701
<SHORT-TERM> 682,623
<LIABILITIES-OTHER> 1,034,265
<LONG-TERM> 0
0
0
<COMMON> 12,377,262
<OTHER-SE> 6,080,512
<TOTAL-LIABILITIES-AND-EQUITY> 195,580,884
<INTEREST-LOAN> 9,037,529
<INTEREST-INVEST> 1,179,332
<INTEREST-OTHER> 767,763
<INTEREST-TOTAL> 10,984,624
<INTEREST-DEPOSIT> 4,739,291
<INTEREST-EXPENSE> 4,755,357
<INTEREST-INCOME-NET> 6,229,267
<LOAN-LOSSES> 205,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,050,390
<INCOME-PRETAX> 2,650,729
<INCOME-PRE-EXTRAORDINARY> 2,650,729
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,765,154
<EPS-PRIMARY> .67
<EPS-DILUTED> .61
<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>
