<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, 1999
( ) 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)
770-422-2888
- --------------------------------------------------------------------------------
(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, 1999 4,869,491
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets
September 30,1999 and December 31, 1998 3
Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998 and Nine
Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 1999 and 1998 and Nine
Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,563,436 $ 10,131,534
Interest-bearing deposit in banks 4,994,044 205,696
Investment securities available for
sale, at estimated market value 49,082,714 52,107,957
Federal funds sold and securities purchased
under agreement to resell 23,790,000 20,339,000
Loans 237,916,141 190,530,256
Less allowance for loan losses 2,899,474 2,367,316
Loans, net 235,016,667 188,162,940
Premises and equipment, net 10,453,586 8,628,149
Other real estate owned 239,053 457,964
Other assets 5,323,111 3,666,007
----------------- ------------------
Total assets $ 343,462,611 $ 283,699,247
----------------- ------------------
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 46,737,408 $ 39,389,101
Interest-bearing demand 78,098,802 67,153,844
Savings 18,653,112 16,414,024
Certificates of deposit 149,357,748 130,322,597
----------------- ------------------
Total deposits 292,847,070 253,279,566
Federal funds purchased and securities sold
under agreement to repurchase 15,069,960 593,962
Federal Home Loan Bank advances 7,146,250 3,000,000
Other liabilities 2,036,955 1,271,216
----------------- ------------------
Total liabilities 317,100,235 258,144,744
----------------- ------------------
STOCKHOLDERS' EQUITY
Common stock, 10,000,000 shares authorized;
5,038,573 shares issued at amount paid in 18,393,465 14,754,644
Retained earnings 10,455,773 11,819,417
Less cost of 169,082 shares of treasury stock (1,033,875) (1,033,875)
Accumulated other comprehensive income (loss) (1,452,987) 14,317
----------------- ------------------
Total stockholders' equity 26,362,376 25,554,503
----------------- ------------------
Total liabilities and stockholders equity $ 343,462,611 $ 283,699,247
----------------- ------------------
----------------- ------------------
</TABLE>
3
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September September
1999 1998 1999 1998
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,602,243 $ 4,445,083 $ 15,755,728 $ 12,846,886
Interest on investment securities:
Taxable 637,797 420,374 1,863,601 1,503,603
Nontaxable 110,538 132,866 336,456 241,887
Interest on Federal funds sold 114,552 361,973 372,865 901,604
Interest on securities purchased under
agreement to resell 9,366 64,473 11,265 153,229
Interest on interest-bearing deposits 36,428 110 37,054 2,963
------------- -------------- ------------- -------------
Total interest income 6,510,924 5,424,879 18,376,969 15,650,172
------------- -------------- ------------- -------------
INTEREST EXPENSE
Interest on deposits 2,565,922 2,302,961 7,372,460 6,774,972
Interest on federal funds purchased and
securities sold under agreement
to repurchase 49,672 7,862 81,908 16,419
Interest on FHLB advances 46,803 -- 112,408 --
------------- -------------- ------------- -------------
Total interest expense 2,662,397 2,310,823 7,566,776 6,791,391
------------- -------------- ------------- -------------
NET INTEREST INCOME 3,848,527 3,114,056 10,810,193 8,858,781
PROVISION FOR LOAN LOSSES 195,000 155,000 615,000 400,000
------------- -------------- ------------- -------------
Net interest income after
provision for loan losses 3,653,527 2,959,056 10,195,193 8,458,781
------------- -------------- ------------- -------------
OTHER OPERATING INCOME
Service charges on deposit accounts 217,552 197,536 606,394 554,554
Gain on sale of loans 1,027 43,535 25,942 122,541
Mortgage origination fees 52,994 35,963 147,814 136,383
Gain (loss) on securities -- 6,973 (3,982) 19,427
Loss on other real estate owned -- (32,018) -- (83,243)
Other income 76,312 124,422 235,137 302,444
------------- -------------- ------------- -------------
Total other income 347,885 376,411 1,011,305 1,052,106
------------- -------------- ------------- -------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 1,269,721 1,113,030 3,620,719 3,244,530
Occupancy and equipment expenses 272,744 242,036 780,167 715,447
Stationery and supplies 61,158 45,623 178,079 138,701
Audit and accounting 35,087 35,505 118,288 112,681
Directors fees 92,074 77,148 275,871 248,504
Merger expenses 14,370 -- 279,889 --
Other operating expense 539,857 492,576 1,578,763 1,457,000
------------- -------------- ------------- -------------
Total operating expenses 2,285,011 2,005,918 6,831,776 5,916,863
------------- -------------- ------------- -------------
Income before income taxes 1,716,401 1,329,549 4,374,722 3,594,024
APPLICABLE INCOME TAXES 605,535 453,500 1,585,497 1,192,517
------------- -------------- ------------- -------------
NET INCOME $ 1,110,866 $ 876,049 $ 2,789,225 $ 2,401,507
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Basic earnings per common share $ .23 $ .18 $ .57 $ .50
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Diluted earnings per common share $ .21 $ .17 $ .54 $ .46
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Cash dividends per share
of common stock $ .04 $ .04 $ .12 $ .10
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
4
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September September
1999 1998 1999 1998
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
NET INCOME $ 1,110,866 $ 876,049 $ 2,789,225 $ 2,401,507
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains (losses) on securities
available for sale (210,948) 138,997 (1,452,987) 104,194
------------- ------------ -------------- -------------
COMPREHENSIVE INCOME $ 899,918 $ 1,015,046 $ 1,336,238 $ 2,505,701
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
</TABLE>
5
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,789,225 $ 2,401,507
--------------- ----------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 394,965 352,082
Provision for loan losses 615,000 400,000
Gain on sale of loans 25,942 122,541
Increase in interest receivable (471,939) (15,462)
Decrease in interest payable 482,603 322,024
Other prepaids, deferrals and accruals, net (968,916) (280,377)
--------------- -----------------
Total adjustments 77,655 900,808
--------------- ----------------
Net cash provided by operating activities 2,866,880 3,302,315
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available
for sale 15,580,498 20,604,434
Proceeds from maturities of securities held
to maturity -- 1,617,502
Proceeds from sale of loans 2,975,481 1,009,955
Purchase of investment securities available
for sale (18,785,854) (22,741,975)
Net (increase) decrease in federal funds sold (3,451,000) (289,000)
Net increase in loans (50,430,866) (24,528,500)
Dispositions (acquisitions) of other real estate 218,911 425,671
Capital expenditures (2,220,402) (947,364)
--------------- ----------------
Net cash used in investing activities (56,113,232) (24,849,277)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 39,567,504 21,617,218
Net increase in Federal Home Loan Bank advances 4,146,250 --
Net increase in federal funds purchased and
securities sold under agreement to repurchase 14,475,998 328,562
Dividend payments (593,597) (512,745)
Proceeds from exercise of stock options 82,099 26,858
--------------- ----------------
Net cash provided by (used in)
financing activities 57,678,254 21,459,893
--------------- ----------------
Net increase in cash and due from banks 4,431,902 (87,069)
Cash and due from banks at beginning of year 10,131,534 11,179,560
--------------- ----------------
Cash and due from banks at end of period $ 14,563,436 $ 11,092,491
--------------- ----------------
--------------- ----------------
</TABLE>
6
<PAGE>
FIRST STERLING BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
for First Sterling Banks, Inc. have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statement presentation. In the opinion of
management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair
presentation have been included.
The results of operations for the nine-month period ended
September 30, 1999 are not necessarily indicative of the
results to be expected for the year ending December 31, 1999.
Earnings per common share are computed by dividing net income
by the weighted average number of shares of common stock and
common stock equivalents outstanding. In April 1999,
immediately before the merger with Georgia Bancshares the
Company declared a 28.58% stock dividend. Earnings per common
share have been adjusted to reflect the stock dividend for all
periods presented.
Note 2. BUSINESS COMBINATION
On April 23, 1999, the Company effected a business combination
and merger with Georgia Bancshares, Inc. by exchanging
1,461,632 shares of its common stock for all of the common
stock of Georgia Bancshares, Inc. The combination was
accounted for as a pooling of interests and, accordingly, all
prior financial statements have been restated to include
Georgia Bancshares, Inc. and Community Bank of Georgia.
Note 3. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". The effective date of this statement has
been deferred by SFAS No. 137 until fiscal years beginning
after June 15, 2000. However, the statement permits early
adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt this statement
effective January 1, 2001. SFAS No. 133 requires the Company
to recognize all derivatives as either assets or liabilities
in the balance sheet at fair value. For derivatives that are
not designated as hedges, the gain or loss must be recognized
in earnings in the period of change. For derivatives that are
designated as hedges, changes in the fair value of the hedged
assets, liabilities, or firm commitments must be recognized in
earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings, depending on the nature
of the hedge. The ineffective portion of a derivative's change
in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of
SFAS No. 133 will have on the Company's earnings or financial
position.
There are no other recent accounting pronouncements that have
had, or are expected to have, a material effect on the
Company's financial statements.
7
<PAGE>
Note 3. 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>
THREE MONTHS ENDED SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 1,110,866 4,869,491 $ 0.23
- -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 314,390
- -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 1,110,866 5,183,881 $ 0.21
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 876,049 4,843,452 $ 0.18
- -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 331,972
- -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 876,049 5,175,424 $ 0.17
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 2,789,225 4,857,132 $ 0.57
- -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 331,811
- -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 2,789,225 5,188,943 $ 0.54
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 2,401,507 4,840,701 0.50
- -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 346,856
- -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 2,401,507 5,187,557 0.46
</TABLE>
8
<PAGE>
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, Eastside Bank & Trust Company and Community Bank of Georgia,
during the periods included in the accompanying consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
This review contains certain forward-looking statements including
statements relating to present or future trends or factors generally affecting
the banking industry and specifically affecting First Sterling's operations,
markets and products. Without limiting the foregoing, the words "believes"
"anticipates", "intends", "expects" or similar expressions are intended to
identify forward-looking statements. These forward-looking statements involve
certain risks and uncertainties. Actual results could differ materially from
those projected for many reasons including, without limitation, changing events
and trends that have influenced First Sterling's assumptions. These trends and
events include (i) changes in the interest rate environment which may reduce
margins, (ii) non-achievement of expected growth (iii) less favorable than
anticipated changes in national and local business environment and securities
markets (iv) adverse changes in the regulatory requirements affecting First
Sterling (v) greater competitive pressures among financial institutions in First
Sterling's market (vi) Delay and or increase in costs in achieving year 2000
compliance and (vii) greater than expected loan losses. Additional information
and other factors that could affect future financial results are included in
First Sterling's filings with the Securities and Exchange Commission, including
the Annual Report on Form 10-KSB for 1998.
FINANCIAL CONDITION
The Company's total assets have increased $59,763,364 or 21.07% since
December 1998. Total loans have increased 24.87% or $47,385,885 since December
1998. The increase in loans has been partially funded through an increase in
deposits of $39,567,504 or 15.62% since December 1998.
Return on average equity for the three months and nine months ended
September 30, 1999 was 16.92% and 14.36% on average equity of $26,051,393 and
$25,970,596 respectively. This compares to 14.54% and 13.58% on average equity
of $23,906,096 and $23,637,253, respectively, for the same periods in 1998.
Return on average assets for the three months and nine months ended
September 30, 1999 was 1.38% and 1.23% on average assets of $318,467,905 and
$303,386,207 respectively. This compares to 1.33% and 1.28% on average assets of
$260,513,098 and $249,951,885, respectively, for the same periods in 1998.
LIQUIDITY
As of September 30, 1999, the liquidity ratios of the 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.
Several alternative sources of funds are available, including the Federal Home
Loan Bank, the Federal Reserve Bank, other correspondent bank relationships and
membership in a national rate line service.
9
<PAGE>
CAPITAL
At September 30, 1999, 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, 1999:
<TABLE>
<CAPTION>
WESTSIDE BANK EASTSIDE BANK COMMUNITY BANK
<S> <C> <C> <C>
Leverage capital ratio: 9.60% 9.24% 11.55%
Risk based capital ratios:
Core capital 10.22% 8.25% 10.43%
Total capital 11.15% 8.59% 10.02%
</TABLE>
ALLOWANCE FOR LOAN LOSS
The allowance for loan losses totaled $2,899,474 at September 30, 1999,
an increase of $532,158 from December 31, 1998. A provision for loan losses is
charged to operations based upon the growth of the loan portfolio and
management's desire to provide adequately for inherent risk in the loan
portfolio. Management intends to continue maintaining an adequate allowance for
loan losses in relation to loans outstanding, based on management's evaluation
of the loan portfolio under prevailing economic conditions, underlying
collateral value securing loans, Year 2000 risk and such other factors as
management deems appropriate.
Activity in the allowance for loan losses for the nine-month period
ended September 30, 1999 and September 30, 1998 follows:
<TABLE>
<CAPTION>
SEPT. 30,1999 SEPT. 30, 1998
<S> <C> <C>
Balance, January 1 $ 2,367,316 $ 2,076,255
Provision charged to expense 615,000 400,000
Net Recoveries (charge-offs) (82,842) (156,774)
--------------- ---------------
Balance, September 30 $ 2,899,474 $ 2,319,481
-------------- --------------
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income for the quarter ended September 30, 1999 showed an increase
of $234,817 or 26.80% over the same period in 1998. Core earnings, exclusive of
merger expenses were up 28.44% over the same quarter in 1998. Average earning
assets increased $56,944,239 as compared to the same quarter in 1998, which
resulted in an increase of $1,086,045 or 20.02%, in interest income. Average
interest bearing liabilities increased $49,729,079 or 25.39%, resulting in an
increase in interest expense of $351,574 or 15.21%.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
Net income for the nine-month period ended September 30, 1999 increased
$387,718 or 16.14% over the same period in 1998. Core earnings, exclusive of
merger expenses were up 27.80% over the same period in 1998. Net interest income
for the nine month period ended September 30, 1999 was $10,810,193, a 22.03%
increase over the same period in 1998. Total average assets have increased
$53,434,321 or 21.38% over the same period in 1998. Average earning assets
increased $52,291,616 or 22.80%, related interest income increased by $2,726,797
or 17.42%. Average interest bearing liabilities increased $43,361,618 or 22.93%,
resulting in an increase in interest expense of $775,385 or 11.42% over the same
period in 1998.
10
<PAGE>
The provision for loan losses increased $215,000 over the same period
in 1998. The provision for the first nine months of 1999 was increased in order
to bring the reserve to a level management felt was adequate, given the loan
growth the company has experienced. The allowance for loan losses as a
percentage of total loans outstanding at September 30, 1999 and December 31,
1998 amounted to 1.22% and 1.24%, respectively.
Total operating expenses, which include merger expenses of $279,889,
are up $914,913 or 15.46% over the same period in 1998. Salaries and employee
benefits have increased $376,189 or 11.59% over the same period in 1998, this is
largely due to the increase in personnel to accommodate growth of the company.
Eastside Bank opened a second, full service banking facility in March 1999.
Westside Bank opened their third full service banking facility in late
September, which will also serve as the company's corporate headquarters. Other
increases in operating expenses are not isolated in one particular area, but
more a result of the increased cost of doing business in a highly competitive
market.
Pre-tax income for the period ending September 30, 1999 increased
$780,698 or 21.72% over the same period 1998.
YEAR 2000 PROJECT
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Major system
failures or miscalculations could result from programs having time sensitive
software that recognize a date using "00" as the year 1900 rather than the year
2000. First Sterling 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. Year 2000 committees consisting of
both management and staff personnel have been established and the project is
receiving full support and attention from senior management and the Boards of
Directors of both Eastside Bank, Westside Bank and Community Bank. A
comprehensive plan, which addresses all aspects of the project, is in place and
work on the project is on schedule.
Under the direction and supervision of senior management the banks have
completed their assessment and awareness phase, having reviewed all computer
hardware, computer software, third party providers and vendors for year 2000
readiness.
Once the assessment and renovation phase was complete management began
the task of replacing or upgrading those systems that were found to be
non-compliant. Management believes that all mission critical hardware, operating
systems and third party providers found to be non-compliant have been upgraded
or replaced.
Testing of all internal mission critical systems is performed in the
banks in a test environment that has been established to mirror the banks
internal operating systems. Testing of mission critical third party providers is
accomplished through the use of proxy testing. All proxy testing from mission
critical third party providers is reviewed by bank personnel to determine tests
have been performed using the appropriate dates and environment. The initial
testing phase of the project is completed; however, any new product lines or
upgrades to existing products will receive the same scrutiny.
Detailed contingency and business resumption plans have been developed
to ensure any interruption in daily operations caused by uncontrollable events
will be minimal. The banks have developed plans that will allow them to perform
all mission critical functions using alternative equipment or processing
manually. Contingency and business resumption plans have been tested to ensure
successful operations, management will continue to monitor the adequacy of these
plans through year-end.
The company has contacted all major borrowers to determine their
potential risk to Y2K problems and assigned a risk code to each borrower, based
on Y2K risk and underlying collateral. Having completed this process the
adequacy of the loss reserve was reviewed and found to be adequate at this time.
New borrowers are evaluated, as appropriate, for Y2K risk during the initial
credit review process. Management
11
<PAGE>
will continue to monitor those borrowers considered high risk and the adequacy
of the loss reserve.
The company will continue to access the potential liquidity risk with
its deposit customers and review the adequacy of available facilities to cover
short-term liquidity needs. Additional facilities will be established to cover
possible short-term liquidity needs, as appropriate.
The Company has budgeted approximately $250,000 for Year 2000
expenditures, including computer system replacements and upgrades. To date, the
Company has spent approximately $150,000.
The Year 2000 Project will continue to receive the full support and
attention from senior management and the Board of Directors of all three Banks.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the third
quarter of 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K, on May 6, 1999 announcing
consummation of the merger of Georgia Bancshares, Inc., with
and into First Sterling Banks, Inc. on April 23, 1999.
The Company filed a Form 8-K/A on July 7, 1999 containing pro
forma financial statements, in connection with the merger
consummated on April 23, 1999.
13
<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, 1999 By: /s/ EDWARD C. MILLIGAN
------------------------ ------------------------------
Edward C. Milligan, President
Date: NOVEMBER 9, 1999 By: /s/ BARBARA J. BOND
------------------------ ------------------------------
Barbara J. Bond, Secretary / Treasurer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR PERIOD ENDING SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,563,436
<INT-BEARING-DEPOSITS> 4,994,044
<FED-FUNDS-SOLD> 23,790,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,082,714
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0
0
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</TABLE>
