<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, 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)
770-499-2265
- - - --------------------------------------------------------------------------------
(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 June 30, 1999 4,869,491
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets
June 30,1999 and December 31, 1998 3
Consolidated Statements of Income
Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Comprehensive Income
Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Six Months Ended June 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 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
FIRST STERLING BANKS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,608,210 $ 10,131,534
Interest-bearing deposit in banks 757,198 205,696
Investment securities available for
sale, at estimated market value 50,974,092 52,107,957
Federal funds sold and securities purchased
under agreement to resell 8,720,000 20,339,000
Loans 229,288,483 190,530,256
Less allowance for loan losses 2,760,667 2,367,316
Loans, net 226,527,816 188,162,940
Premises and equipment, net 9,545,069 8,628,149
Other real estate owned 387,612 457,964
Other assets 4,795,448 3,666,007
----------------- ------------------
Total assets $ 313,315,445 $ 283,699,247
----------------- ------------------
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 42,027,833 $ 39,389,101
Interest-bearing demand 72,712,555 67,153,844
Savings 19,018,314 16,414,024
Certificates of deposit 142,787,054 130,322,597
----------------- ------------------
Total deposits 276,545,756 253,279,566
Federal funds purchased and securities sold
under agreement to repurchase 6,283,157 593,962
Federal Home Loan Bank advances 3,150,000 3,000,000
Other liabilities 1,679,976 1,271,216
----------------- ------------------
Total liabilities 287,658,889 258,144,744
----------------- ------------------
STOCKHOLDERS' EQUITY
Common stock, 10,000,000 shares authorized;
5,038,573 shares issued at amount paid in 14,836,743 14,754,644
Retained earnings 13,081,409 11,819,417
Less cost of 169,082 shares of treasury stock (1,033,875) (1,033,875)
Accumulated other comprehensive income (loss) (1,227,721) 14,317
----------------- ------------------
Total stockholders' equity 25,656,556 25,554,503
----------------- ------------------
Total liabilities and stockholders equity $ 313,315,445 $ 283,699,247
----------------- ------------------
----------------- ------------------
</TABLE>
3
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June June
1999 1998 1999 1998
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,309,223 $ 4,290,101 $ 10,153,485 $ 8,401,803
Interest on investment securities:
Taxable 558,458 533,047 1,225,804 1,083,229
Nontaxable 160,919 56,663 225,918 109,021
Interest on Federal funds sold 113,388 248,644 258,313 539,631
Interest on securities purchased under
agreement to resell 172 30,020 1,899 88,756
Interest on interest-bearing deposits 293 1,434 626 2,853
------------- -------------- ------------- -------------
Total interest income 6,142,453 5,159,909 11,866,045 10,225,293
------------- -------------- ------------- -------------
INTEREST EXPENSE
Interest on deposits 2,478,710 2,216,903 4,806,538 4,472,011
Interest on federal funds purchased
and securities sold under agreement 23,087 4,654 32,236 8,557
to repurchase
Interest on FHLB advances 32,712 -- 65,605 --
------------- -------------- ------------- -------------
Total interest expense 2,534,509 2,221,557 4,904,379 4,480,568
------------- -------------- ------------- -------------
NET INTEREST INCOME 3,607,944 2,938,352 6,961,666 5,744,725
PROVISION FOR LOAN LOSSES 210,000 131,000 420,000 245,000
------------- -------------- ------------- -------------
Net interest income after
provision for loan losses 3,397,944 2,807,352 6,541,666 5,499,725
------------- -------------- ------------- -------------
OTHER OPERATING INCOME
Service charges on deposit accounts 160,242 181,710 388,842 357,018
Gain on sale of loans 17,801 2,410 24,915 79,006
Mortgage origination fees 46,376 42,188 94,820 100,420
Gain (loss) on securities (650) 7,272 (3,982) 12,454
Loss on other real estate owned -- (481) -- (51,225)
Other income 99,610 93,329 158,825 178,022
------------- -------------- ------------- -------------
Total other income 323,379 326,428 663,420 675,695
------------- -------------- ------------- -------------
OTHER OPERATING EXPENSES
Salaries and other employee benefits 1,211,520 1,063,398 2,350,998 2,131,500
Occupancy and equipment expenses 264,421 235,975 507,423 473,411
Stationery and supplies 59,039 41,846 116,921 93,078
Audit and accounting 44,709 40,487 83,201 77,176
Directors fees 98,065 86,499 183,797 171,356
Merger expenses 96,458 -- 265,519 --
Other operating expense 611,559 515,171 1,038,906 964,424
------------- -------------- ------------- -------------
Total operating expenses 2,385,771 1,983,376 4,546,765 3,910,945
------------- -------------- ------------- -------------
Income before income taxes 1,335,552 1,150,404 2,658,321 2,264,475
APPLICABLE INCOME TAXES 493,751 382,748 979,962 739,017
------------- -------------- ------------- -------------
NET INCOME $ 841,801 $ 767,656 $ 1,678,359 $ 1,525,458
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Basic earnings per common share $ .17 $ .16 $ .35 $ .32
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Diluted earnings per common share $ .16 $ .15 $ .32 $ .29
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Cash dividends per share
of common stock $ .04 $ ..03 $ .08 $ .06
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
4
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June June
1999 1998 1999 1998
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
NET INCOME $ 841,801 $ 767,656 $ 1,678,359 $ 1,525,458
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains (losses) on securities
available for sale (912,520) 230,322 (1,242,039) (214)
------------- ------------ -------------- -------------
COMPREHENSIVE INCOME $ (70,719) $ 997,978 $ 436,320 $ 1,525,244
------------- ------------ -------------- -------------
------------- ------------ -------------- -------------
</TABLE>
5
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,678,359 $ 1,525,458
--------------- ----------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 210,896 268,908
Provision for loan losses 420,000 245,000
Gain on sale of loans 24,915 79,006
Increase in interest receivable (227,241) (39,893)
Decrease in interest payable 341,566 (80,849)
Other prepaids, deferrals and accruals, net (905,890) 12,688
--------------- ----------------
Total adjustments (135,754) 484,860
--------------- ----------------
Net cash provided by operating activities 1,542,605 2,010,318
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available
for sale 12,394,650 13,266,926
Proceeds from maturities of securities held
to maturity -- 1,617,502
Proceeds from sale of loans 282,157 670,990
Purchase of investment securities available
for sale (13,034,007) (12,540,787)
Net decrease in federal funds sold 11,619,000 11,371,000
Net increase in loans (39,058,932) (15,535,577)
Dispositions (acquisitions) of other real estate 70,352 (98,398)
Capital expenditures (1,127,816) (815,491)
--------------- ----------------
Net cash used in investing activities (28,854,596) (2,063,835)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 23,266,190 2,367,651
Net increase in Federal Home Loan Bank advances 150,000 --
Net increase in securities sold under agreement
to repurchase 5,689,195 182,661
Dividend payments (398,817) (308,165)
Proceeds from exercise of stock options 82,099 26,858
--------------- ----------------
Net cash provided by (used in)
financing activities 28,788,667 2,269,005
--------------- ----------------
Net increase in cash and due from banks 1,476,676 2,215,488
Cash and due from banks at beginning of year 10,131,534 11,179,560
--------------- ----------------
Cash and due from banks at end of period $ 11,608,210 $ 13,395,048
--------------- ----------------
--------------- ----------------
</TABLE>
6
<PAGE>
FIRST STERLING BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six-month period ended
June 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 JUNE 30, 1999
------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 841,801 4,851,066 $ 0.17
- - - -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 357,391
- - - -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 841,801 5,208,457 $ 0.16
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
- - - -------------------------------------------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 767,656 4,841,120 $ 0.16
- - - -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 353,980
- - - -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 767,656 5,195,100 $ 0.15
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
- - - -------------------------------------------------------------------------------------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 1,678,359 4,850,269 $ 0.35
- - - -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 345,852
- - - -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 1,678,359 5,196,121 $ 0.32
- - - -------------------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 1,525,458 4,839,634 $ 0.32
- - - -------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 354,898
- - - -------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 1,525,458 5,194,532 $ 0.29
</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 $29,616,198 or 10.44% since
December 1998. Total loans have increased 20.34% or $38,758,227 since December
1998; the growth in loans has been funded through a reduction of $11,619,000 in
overnight federal funds sold and an increase in deposits of 9.19% or
$23,266,190.
Return on average equity for the three months and six months ended
June 30, 1999 was 13.03% and 13.07% on average equity of $25,907,517 and
$25,903,257 respectively. This compares to 12.95% and 13.08% on average
equity of $23,778,231 and $23,514,474, respectively, for the same periods in
1998.
Return on average assets for the three months and six months ended
June 30, 1999 was 1.11% and 1.15% on average assets of $303,204,344 and
$295,351,716 respectively. This compares to 1.25% and 1.26% on average assets
of $245,571,517 and $244,596,624, respectively, for the same periods in 1998.
LIQUIDITY
As of June 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.
CAPITAL
At June 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
9
<PAGE>
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 June 30, 1999:
<TABLE>
<CAPTION>
WESTSIDE BANK EASTSIDE BANK COMMUNITY BANK
------------- ------------- --------------
<S> <C> <C> <C>
Leverage capital ratio: 9.41% 8.61% 11.68%
Risk based capital ratios:
Core capital 10.57% 8.21% 10.54%
Total capital 11.51% 9.18% 10.17%
</TABLE>
ALLOWANCE FOR LOAN LOSS
The allowance for loan losses totaled $2,760,667 at June 30, 1999, an
increase of $393,351 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 six-month period
ended June 30, 1999 and June 30, 1998 follows:
<TABLE>
<CAPTION>
JUNE 30,1999 JUNE 30, 1998
--------------- ---------------
<S> <C> <C>
Balance, January 1 $ 2,367,316 $ 2,076,255
Provision charged to expense 420,000 245,000
Net Recoveries (charge-offs) (26,649) (127,699)
--------------- ---------------
Balance, June 30 $ 2,760,667 $ 2,193,556
-------------- --------------
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net income for the quarter ended June 30, 1999 showed an increase of
$74,145 or 9.66% over the same period in 1998. Core earnings, exclusive of
merger expenses were up 22.22% over the same quarter in 1998. Average earning
assets increased $55,740,970 as compared to the same quarter in 1998, which
resulted in an increase of $982,544 or 19.04% , in interest income. Average
interest bearing liabilities increased $47,969,136 or 26.08%, resulting in an
increase in interest expense of $312,952 or 14.09%.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
Net income for the six-month period ended June 30, 1999 increased
$152,901 or 10.02% over the same period in 1998. Core earnings, exclusive of
merger expenses were up 27.43% over the same period in 1998. Net interest income
for the six month period ended June 30, 1999 was $6,961,666, a 21.18% increase
over the same period in 1998. Total average assets have increased $50,755,092 or
20.75% over the same period in 1998. Average earning assets increased
$49,261,531or 21.98%, related interest income increased by $1,640,752 or 16.05%.
Average interest bearing liabilities increased $39,556,094 or 21.30%, resulting
in an increase in interest expense of $423,811 or 9.46% over the same period in
1998.
The provision for loan losses increased $175,000 over the same period
in 1998. The provision for the first six 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 June 30, 1999 and December 31, 1998
amounted to 1.20% and 1.24%, respectively.
Total operating expenses, which include merger expenses of $265,519,
are up $635,820 or 16.26%
10
<PAGE>
over the same period in 1998. The increase is not isolated in one area, but more
a result of the increased cost of doing business in a highly competitive market.
Pre-tax income for the period ending June 30, 1999 increased $393,846
or 17.39% 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 testing
phase of the project is completed.
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 will also be fully tested by
to ensure successful operations.
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 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.
11
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 25, 1999,
the following individuals were elected to serve as Class II Directors for three
years terms expiring at the 2002 Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
<S> <C> <C>
Christopher H. Burnett 2,108,937 205
Ted A. Murphy 2,083,080 26,062
Benjamin H. Wofford 2,108,937 205
</TABLE>
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.
12
<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, 12, 1999 By: /s/ EDWARD C. MILLIGAN
---------------------- ---------------------------------------
Edward C. Milligan, President
Date: AUGUST 12, 1999 By: /s/ BARBARA J. BOND
---------------------- ---------------------------------------
Barbara J. Bond, Secretary / Treasurer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR PERIOD ENDING JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,608,210
<INT-BEARING-DEPOSITS> 757,198
<FED-FUNDS-SOLD> 8,720,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,974,092
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 229,288,483
<ALLOWANCE> 2,760,667
<TOTAL-ASSETS> 313,315,445
<DEPOSITS> 276,545,756
<SHORT-TERM> 6,283,157
<LIABILITIES-OTHER> 1,679,976
<LONG-TERM> 3,150,000
0
0
<COMMON> 14,836,743
<OTHER-SE> 13,081,409
<TOTAL-LIABILITIES-AND-EQUITY> 313,315,445
<INTEREST-LOAN> 10,153,485
<INTEREST-INVEST> 1,451,722
<INTEREST-OTHER> 260,838
<INTEREST-TOTAL> 11,866,045
<INTEREST-DEPOSIT> 4,806,538
<INTEREST-EXPENSE> 4,904,379
<INTEREST-INCOME-NET> 6,961,666
<LOAN-LOSSES> 420,000
<SECURITIES-GAINS> (3,982)
<EXPENSE-OTHER> 4,546,765
<INCOME-PRETAX> 2,658,321
<INCOME-PRE-EXTRAORDINARY> 2,658,321
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,678,359
<EPS-BASIC> .35
<EPS-DILUTED> .32
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,367,316
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,760,667
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
