<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, 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
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(Address of principal executive officers)
770-499-2265
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(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, 1998 2,629,962
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<PAGE>
FIRST STERLING BANKS, INC.
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheet
June 30, 1998 3
Consolidated Statements of Income
Three Months Ended June 30, 1998 4
and 1997 and Six Months Ended
June 30, 1998 and 1997
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of 8-10
Operations
Exhibits and Reports on Form 8-K 11
Signatures 12
2
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PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 9,966,295
Interest-bearing deposit in banks 114,762
Investment securities:
Held to maturity (fair value $1,997,049) 1,999,664
Available for sale, at estimated market value 21,772,858
Federal funds sold 18,990,000
Corporate Securities 72,500
Loans 116,650,311
Less allowance for loan losses 1,483,062
Loans, net 115,167,249
Premises and equipment, net 5,744,573
Other Real Estate Owned 638,056
Other assets 1,730,129
------------
Total assets $176,196,086
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 28,231,860
Interest-bearing demand 48,526,851
Savings 7,654,209
Certificates of deposit 73,200,071
------------
Total deposits $157,612,991
Federal Funds purchased and securities sold
under agreement to repurchase 536,722
Accrued expenses 1,050,796
Total liabilities $159,200,509
------------
Stockholders' equity
Common stock, 10,000,000 shares authorized;
2,761,462 shares issued at amount paid in 12,377,262
Retained earnings 5,553,795
Less cost of 131,500 shares of treasury stock (1,033,875)
Accumulated other comprehensive income 98,395
------------
Total stockholders' equity $ 16,995,577
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Total liabilities and stockholders equity $176,196,086
------------
------------
</TABLE>
3
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FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,990,211 $2,404,715 $5,906,562 $4,624,805
Interest on investment securities:
Taxable 298,624 319,512 566,153 635,611
Nontaxable 56,663 42,861 109,021 85,779
Interest on Federal funds sold 198,659 127,608 431,051 311,757
Interest on securities purchased
under agreement to resell 30,020 -- 88,756 11,922
Interest on interest-bearing deposits 1,434 1,510 2,853 2,983
Dividends on Corporate Securities -- -- -- 2,989
---------- ---------- ---------- ----------
Total interest income 3,575,611 2,896,206 7,104,396 5,675,846
---------- ---------- ---------- ----------
Interest expense
Interest on deposits 1,531,504 1,205,447 3,058,193 2,398,496
Interest on Federal funds purchased -- -- -- --
Interest on securities sold under
agreement to repurchase 4,654 3,390 8,557 9,493
---------- ---------- ---------- ----------
Total interest expense 1,536,158 1,208,837 3,066,750 2,407,989
---------- ---------- ---------- ----------
Net interest income 2,039,453 1,687,369 4,037,646 3,267,857
Provision for loan losses 59,000 46,000 110,000 136,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,980,453 1,641,369 3,927,646 3,131,857
---------- ---------- ---------- ----------
Other operating income
Service charges on deposit accounts 102,424 101,801 205,832 193,023
Mortgage origination fees 42,188 -- 100,420 --
Loss on other real estate owned -- -- (50,744) --
Gain on sale of loans 2,410 1,708 79,006 257,619
Other income 45,522 76,295 93,073 131,176
---------- ---------- ---------- ----------
192,544 179,804 427,587 581,818
---------- ---------- ---------- ----------
Other operating expenses
Salaries and other employee benefits 748,181 683,610 1,521,973 1,345,754
Occupancy and equipment expenses 134,640 153,617 274,609 303,337
Stationery and supplies 27,457 23,548 61,119 45,849
Audit and account 26,899 18,984 51,999 37,567
Directors fees 67,325 45,600 131,575 93,175
Other operating expense 338,161 180,940 653,724 411,621
Securities (gains) losses -- -- -- 600
---------- ---------- ---------- ----------
Total operating expenses 1,342,663 1,106,299 2,694,999 2,237,903
---------- ---------- ---------- ----------
Income before income taxes 830,334 714,874 1,660,234 1,475,772
Applicable income taxes 285,253 235,522 553,295 497,624
---------- ---------- ---------- ----------
Net Income $ 545,081 $ 479,352 $1,106,939 $ 978,148
---------- ---------- ---------- ----------
Other comprehensive income, net of tax
Unrealized gains(losses) on
securities available for-sale
arising during period (9,654) 85,049 (8,888) (32,201)
---------- ---------- ---------- ----------
Comprehensive income $ 535,427 $ 564,401 $1,098,051 $ 945,947
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per common share $ 0.22 $ 0.19 $ 0.44 $ 0.38
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per common share $ 0.20 $ 0.18 $ 0.40 $ 0.36
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash dividends per share of common
stock $ 0.05 $ 0.045 $ 0.095 $ 0.0825
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
FIRST STERLING BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,106,939 $ 978,148
------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 148,168 154,645
Provision for loan losses 110,000 136,000
Gain on sale of loans 79,006 257,619
Proceeds from sale of loans 670,990 1,375,253
(Increase) decrease in interest receivable (39,893) (53,975)
Increase (decrease) in interest payable (80,849) 49,839
Other prepaids, deferrals and accruals, net (302,772) (398,897)
------------ ------------
Total adjustments 584,650 1,520,484
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Net cash provided by operating activities 1,691,589 2,498,632
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities -- 2,119,400
Proceeds from maturities of
investment securities 4,671,777 2,253,951
Purchase of investment securities (7,280,259) (4,263,641)
Net (increase) decrease in Federal funds sold 8,495,000 10,180,000
Net increase in loans (10,629,797) (11,545,713)
Acquisitions of other real estate (98,398) (428,977)
Capital expenditures (785,758) (57,909)
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Net cash used in investing activities (5,627,435) (1,742,889)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,290,369 407,617
Net increase in securities sold under
Agreement to repurchase 182,661 (343,790)
Dividend payments (249,742) (215,677)
Purchase of Treasury Stock -- (618,875)
Sale of common stock 26,858 25,922
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Net cash provided by financing activities 6,250,146 (744,803)
------------ ------------
Net increase (decrease) in cash and
due from banks $ 2,314,300 $ 10,940
Cash and due from banks at beginning of year 7,651,995 5,574,568
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Cash and due from banks at end of period $ 9,966,295 $ 5,585,508
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</TABLE>
5
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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, 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
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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>
Six months ending June 30, 1998
-------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
<S> <C> <C> <C>
Basic EPS $1,106,939 2,506,771 $0.44
---------- --------- -----
Effect of Dilutive Securities
Stock Options 256,423
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Diluted EPS $1,106,939 2,763,194 $0.40
---------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
Six months ending June 30, 1997
-------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 978,148 2,603,880 $0.38
---------- --------- -----
Effect of Dilutive Securities
Stock Options 135,840
---------- --------- -----
Diluted EPS $ 978,148 2,739,720 $0.36
---------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
Three months ending June 30, 1998
-------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 545,081 2,518,560 $0.22
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Effect of Dilutive Securities
Stock Options 255,900
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Diluted EPS $ 545,081 2,774,460 $0.20
---------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
Three months ending June 30, 1997
-------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 479,352 2,583,805 $0.19
---------- --------- -----
Effect of Dilutive Securities
Stock Options 127,628
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Diluted EPS $ 479,352 2,711,433 $0.18
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</TABLE>
7
<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 has experienced moderate growth in the first half of 1998.
Total loans have increased $9,920,541 or 9.30% since December 1997. Deposits
have increased $6,290,369 or 4.16% from December 1997; however, this is
misleading due to a decline in seasonal deposits during the first quarter.
Core deposits have increased approximately $18,290,369 or 13.13% since
December 1997.
LIQUIDITY
As of June 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 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, 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 Company's compliance with regulatory capital
requirements at June 30, 1998:
<TABLE>
<CAPTION>
Westside Bank Eastside Bank
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<S> <C> <C>
Leverage capital ratio: 9.42% 10.31%
Risk based capital ratios:
Core capital 12.73% 11.57%
Total capital 13.83% 12.64%
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Net income for the three months ended June 30, 1998 increased $65,729 or
13.71% over the same period in 1997. An increase in earning assets resulted
in an increase in net interest income of $352,084 or 20.87% over the same
period in 1997. Interest income increased $679,405 or 23.46%, interest
expense increased $327,321 or 27.08% over the same period in 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
Net interest income for the six month period ended June 30, 1998 was
$4,037,646, a 23.56% increase over the same period in 1997. Total average
assets have increased approximately $32,000,000 or 24% over the same period
in 1997. Average earning assets have increased $30,904,126 or 25.01%,
related interest income increased $1,428,550 or 25.17%. Average interest
bearing deposits increased $26,043,524 or 25.64% over the same period in
1997, which contributed to an increase in interest expense of $658,761 or
27.4% over the six month period ending June 30, 1997.
A decrease in other operating income of $154,231 or 26.51% is largely
attributable to the decrease in gains on the sale of SBA loans. Gains in
1998 have only amounted to $79,006 compared to $257,619 in 1997.
Other operating expenses have increased approximately 20% over the same
period in 1997. The increase is not isolated in one area, but more a result
of the increased cost of doing business and a highly competitive market. The
company has experienced increases in salary and benefits, supplies, business
development expenses, professional fees, data processing, courier service,
etc.
Salaries and employee benefits have increased 13.09% over the same
period in 1997. The increase is primarily a result of salary increases and
rising benefit costs.
Directors fees have increased $38,400 or 41.21% over the same period in
1997. Fees were increased for 1998 based on a competitive market survey of
other community banks in the area.
Other significant increases include a decrease of $58,000 in deferred
loan costs (credit to expense) which is linked to volume, not outstandings.
Collection and other real estate expense is up approximately $24,000 or 132%
over the same period in 1997.
Pre-tax income for the period ending June 30, 1998 increased $184,462 or
12.50%. Net income increased $128,791 or 13.17% over the same period in 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
9
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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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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: August 11, 1998 By: \s\ Edward C. Milligan
--------------------- -------------------------------------------
Edward C. Milligan, President
Date: August 11, 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 JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,966,295
<INT-BEARING-DEPOSITS> 114,762
<FED-FUNDS-SOLD> 18,990,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,772,858
<INVESTMENTS-CARRYING> 1,999,664
<INVESTMENTS-MARKET> 1,997,049
<LOANS> 116,650,311
<ALLOWANCE> 1,483,062
<TOTAL-ASSETS> 176,196,086
<DEPOSITS> 157,612,991
<SHORT-TERM> 536,722
<LIABILITIES-OTHER> 1,050,796
<LONG-TERM> 0
0
0
<COMMON> 12,377,262
<OTHER-SE> 5,553,795
<TOTAL-LIABILITIES-AND-EQUITY> 176,196,086
<INTEREST-LOAN> 5,906,562
<INTEREST-INVEST> 763,930
<INTEREST-OTHER> 433,904
<INTEREST-TOTAL> 7,104,396
<INTEREST-DEPOSIT> 3,058,193
<INTEREST-EXPENSE> 3,066,750
<INTEREST-INCOME-NET> 4,037,646
<LOAN-LOSSES> 110,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,694,999
<INCOME-PRETAX> 1,660,234
<INCOME-PRE-EXTRAORDINARY> 1,660,234
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,106,939
<EPS-PRIMARY> .44
<EPS-DILUTED> .40
<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>
