<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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, 2000
( ) 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 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
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(Issuer's Telephone Number)
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
The number of shares outstanding of each of the issuer's only class of common
stock, no par value, as of October 31, 2000 13,869,552
1
<PAGE>
FIRST STERLING BANKS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information (Unaudited)
Item I. Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999 and 4
Six Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 2000 and 1999 and 5
Six Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows -
Six Months Ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is provided under the caption
"Interest Rate Sensitivity and Market Risk" under Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations. 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FIRST STERLING BANKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 40,379,279 $ 35,822,324
Interest-bearing deposit in banks 2,216,339 1,733,612
Federal funds sold and securities purchased
under agreement to resell 91,349,680 35,620,000
Investment securities available for
sale, at estimated market value 103,695,135 96,643,976
Investment securities held to maturity
(Fair Value of $17,028,990 and $15,182,297) 17,169,314 15,541,492
Other investments 3,646,423 2,391,756
Mortgage loans held for sale 2,913,310 1,356,664
Loans 690,305,942 630,990,126
Less allowance for loan losses 10,501,221 9,317,788
----------------- ------------------
Loans, net 679,804,721 621,672,338
Premises and equipment, net 25,723,267 26,666,959
Other real estate owned 889,202 899,400
Accrued interest receivable 6,575,537 5,690,222
Goodwill and other intangible assets 1,005,450 1,384,300
Other assets 5,548,867 6,342,498
----------------- ------------------
Total assets $ 980,916,524 $ 851,765,541
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 140,481,839 $ 124,932,088
Interest-bearing demand 209,866,692 178,966,344
Savings 42,086,644 41,481,575
Time deposits greater than $100,000 103,696,162 91,625,058
Time deposits less than $100,000 331,820,993 269,223,566
----------------- ------------------
Total deposits 827,952,330 706,228,631
Federal funds purchased and securities sold
under agreement to repurchase 8,501,735 18,872,722
Accrued interest payable 4,822,818 3,025,862
Federal Home Loan Bank advances 55,131,250 49,142,500
Other liabilities 2,744,660 1,161,874
----------------- ------------------
Total liabilities 899,152,793 778,431,589
----------------- ------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 50,000,000 shares authorized;
14,036,533 issued, 13,867,451 shares outstanding 21,167,997 20,866,512
Retained earnings 63,066,573 56,300,373
Treasury stock, at cost (169,082 shares) (1,033,875) (1,033,875)
Accumulated other comprehensive loss (1,436,964) (2,799,058)
----------------- -------------------
Total stockholders' equity 81,763,731 73,333,952
----------------- ------------------
Total liabilities and stockholders equity $ 980,916,524 $ 851,765,541
================= ==================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FIRST STERLING BANKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
2000 1999 2000 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 17,754,935 $ 14,519,227 $ 50,725,681 $ 41,038,661
Interest on investment securities:
Taxable 1,607,646 1,222,959 4,588,360 3,806,600
Nontaxable 280,732 342,154 798,959 884,720
Federal funds sold 788,443 198,449 1,355,387 487,554
Interest on other investments 94,972 74,712 187,814 139,307
Interest on securities purchased under
agreement to resell 282,829 9,366 492,239 11,265
Interest on interest-bearing deposits 16,816 38,609 52,860 46,144
------------- ------------- ------------- -------------
Total interest income 20,826,373 16,405,476 58,201,300 46,414,251
------------- ------------- ------------- -------------
INTEREST EXPENSE
Interest on demand & money market 1,433,831 965,326 3,680,349 2,773,079
Interest on savings 275,314 287,761 771,515 830,728
Interest on time deposits over $100,000 1,583,393 1,077,333 4,282,357 3,178,276
Interest on time deposits under $100,000 5,198,394 3,249,251 13,126,996 9,501,991
Interest on federal funds purchased and securities
sold under agreement to repurchase 136,413 90,299 382,325 244,184
Other interest expense 4,731 4,966 15,770 18,041
Interest on FHLB advances 862,477 561,979 2,357,790 1,141,406
------------- ------------- ------------- -------------
Total interest expense 9,494,553 6,236,915 24,617,102 17,687,705
------------- ------------- ------------- -------------
NET INTEREST INCOME 11,331,820 10,168,561 33,584,198 28,726,546
PROVISION FOR LOAN LOSSES 455,000 395,000 1,459,000 1,350,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 10,876,820 9,773,561 32,125,198 27,376,546
------------- ------------- ------------- -------------
OTHER NON-INTEREST INCOME
Service charges on deposit accounts 1,196,300 1,160,469 3,483,041 3,052,490
Mortgage division income 332,994 409,873 776,203 931,037
Investment division income 85,010 69,084 323,874 199,781
Insurance division income 12,729 23,756 37,201 48,541
Gain on sale of loans 1,246 3,825 38,300 28,740
Gain (loss) on investment transactions -- 13,950 (512,837) 9,968
Gain on sale of assets 2,253 212,528 30,024 558,486
Other income 394,187 279,713 1,321,504 1,220,516
------------- ------------- ------------- -------------
Total other income 2,024,719 2,173,198 5,497,310 6,049,559
------------- ------------- ------------- -------------
OTHER NON-INTEREST EXPENSES
Salaries and other compensation 3,649,236 3,379,006 10,641,952 10,019,692
Employee benefits 540,137 517,317 1,681,592 1,593,711
Occupancy and equipment 1,107,507 1,053,365 3,276,632 3,006,327
Directors fees 90,725 47,400 288,075 323,271
Merger expenses -- 14,370 973,457 279,889
Amortization of intangibles 109,691 109,692 329,074 329,075
Other operating expense 2,148,867 2,062,239 6,062,397 5,832,032
------------- ------------- ------------- -------------
Total operating expenses 7,646,163 7,183,389 23,253,179 21,383,997
------------- ------------- ------------- -------------
Income before income taxes 5,255,376 4,763,370 14,369,329 12,042,108
APPLICABLE INCOME TAXES 1,861,177 1,633,809 5,396,082 4,081,731
------------- ------------- ------------- -------------
NET INCOME $ 3,394,199 $ 3,129,561 $ 8,973,247 $ 7,960,377
============= ============= ============= =============
Diluted earnings per common share $ .24 $ .22 $ .64 $ .56
============= ============= ============= =============
Cash dividends per share
of common stock $ .08 $ .04 $ .16 $ .12
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
FIRST STERLING BANKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
2000 1999 2000 1999
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
NET INCOME $ 3,394,199 $ 3,129,561 $ 8,973,247 $ 7,960,377
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains (losses) on securities
available for sale 916,982 (280,949) 1,362,094 (2,074,242)
------------ ------------- ------------- --------------
COMPREHENSIVE INCOME $ 4,311,181 $ 2,848,612 $ 10,335,341 $ 5,886,135
============ ============ ============= =============
</TABLE>
5
<PAGE>
FIRST STERLING BANKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,973,247 $ 7,960,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,433,672 1,357,389
Provision for loan losses 1,459,000 1,350,000
Amortization of intangible assets 329,074 329,075
Gain on sale of loans (38,300) (28,740)
Gain on sale of other real estate -- (13,055)
Net accretion of loans purchased (53,508) (91,675)
Loss (gain) on sale of premises and equipment 30,024 (545,431)
Net (increase) decrease in mortgage loans held for sale (1,556,646) 2,026,335
Amortization of restricted stock 390,286 376,103
Increase in interest receivable (885,315) (834,122)
Increase in interest payable 1,796,956 577,262
Other, net 3,734,777 (1,012,125)
--------------- -----------------
Net cash provided by operating activities 6,640,020 3,491,016
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 7,180,143 38,936,038
Proceeds from maturities of securities held to maturity 1,881,118 887,103
Proceeds from sales of securities available for sale 14,605,975 --
Proceeds from sale of loans 2,963,123 2,972,683
Purchase of investment securities available for sale (28,942,275) (34,751,546)
Purchase of investment securities held to maturity (3,508,940) (3,722,280)
Purchase of other investments (1,254,667) (1,538,621)
Net (decrease) in federal funds sold (55,729,680) (21,381,000)
Net (decrease) in interest-bearing deposits (482,727) (5,112,111)
Net increase in loans (62,724,500) (96,009,216)
Proceeds from sale of premises and equipment -- 954,561
Acquisitions (dispositions) of other real estate 10,198 (178,997)
Capital expenditures (489,980) (2,622,860)
--------------- -----------------
Net cash used in investing activities (126,492,212) (121,566,246)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 121,723,699 89,016,240
Net increase in Federal Home Loan Bank advances 5,988,750 24,146,250
Net (decrease) increase in securities sold under agreement
to repurchase (10,370,987) 11,675,998
Dividend payments (2,207,047) (2,691,297)
Proceeds from exercise of stock options 301,485 84,951
--------------- ----------------
Net cash provided by financing activities 115,435,900 122,232,142
--------------- ----------------
Net increase in cash and due from banks 4,556,955 12,117,289
Cash and due from banks at beginning of period 35,822,324 31,362,821
--------------- ----------------
Cash and due from banks at end of period $ 40,379,279 $ 43,480,110
=============== ================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
FIRST STERLING BANKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of 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, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Note 2. BUSINESS COMBINATIONS
On May 24, 2000, the Company effected a business combination
and merger with Main Street Banks Incorporated ("Main Street"). Under
the terms of the transaction, Main Street shareholders received 1.01
shares of First Sterling common stock for each share of Main Street
stock owned prior to the merger. The combination was accounted for as
a pooling of interests and, accordingly, all prior financial
statements have been restated to include the financial results of
Main Street.
On September 26, 2000 First Sterling Banks, Inc. announced it
would acquire Walton Bank & Trust Company of Monroe Georgia in a
$15 million stock swap. On the same day in a separate announcement
First Sterling announced it would acquire The Williamson Group,
which operates the Williamson Insurance Agency in Monroe, Georgia
and the Williamson and Musselwhite Insurance Agency in Loganville,
Georgia.
7
<PAGE>
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. In
June 2000, the Financial Accounting Standards Board issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133." SFAS No.
138 amends certain provisions of SFAS No. 133. 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
and qualifying as hedges, the gain or loss on the derivatives must be
recognized in earnings in the period of change. For derivatives that
are designated and qualify 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.
8
<PAGE>
Note 4. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in
determining basic and diluted earnings per common share (EPS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
------------- ---------- -------
<S> <C> <C> <C>
Basic EPS $ 3,394,199 13,861,518 $ 0.24
Effect of Dilutive Securities
Stock Options 281,942
------------- ---------- -------
Diluted EPS $ 3,394,199 14,143,460 $ 0.24
============= ========== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
------------- ---------- -------
<S> <C> <C> <C>
Basic EPS $ 3,129,561 13,786,740 $ 0.23
Effect of Dilutive Securities
Stock Options 311,820
------------- ---------- -------
Diluted EPS $ 3,129,561 14,098,560 $ 0.22
============= ========== =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
Net Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
------------- ---------- -------
<S> <C> <C> <C>
Basic EPS $ 8,973,247 13,825,821 $ 0.65
Effect of Dilutive Securities
Stock Options 282,627
------------- ---------- -------
Diluted EPS $ 8,973,247 14,108,448 $ 0.64
============= ========== =======
</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 $ 7,960,377 13,773,009 $ 0.58
Effect of Dilutive Securities
Stock Options 329,715
------------- ---------- -------
Diluted EPS $ 7,960,377 14,102,724 $ 0.56
============= ========== =======
</TABLE>
Basic and diluted earnings per share for the three and nine months ended
September 30, 1999 have been restated for the merger with Main Street.
9
<PAGE>
Note 5. SECURITIES AVAILABLE-FOR SALE
Securities available-for-sale are securities which management
believes may be sold prior to maturity for liquidity or other reasons
and are reported at fair value, with unrealized gains and losses, net
of related income taxes, reported as a separate component of other
comprehensive income.
Note 6. LOANS
Loans are stated at unpaid principal balances, net of unearned income
and deferred loan fees. Interest is accrued only if deemed
collectible.
The following table represents the composition of the Banks' loan
portfolio according to the purpose of the loan and/or repayment
terms:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- ------------------
<S> <C> <C>
Commercial, financial and agricultural $ 175,587,189 $ 157,612,891
Real estate - construction and land
development 95,782,251 117,047,523
Real estate - mortgage 263,713,991 235,424,723
Real estate-other 71,570,759 67,563,792
Installment and other consumer 85,542,166 55,199,206
------------------- ------------------
692,196,356 632,848,135
------------------- ------------------
Net deferred loan fees (1,890,414) (1,858,009)
690,305,942 630,990,126
------------------- ------------------
Less allowance for loan losses (10,501,221) (9,317,788)
------------------- ------------------
Net loans $ 679,804,721 $ 621,672,338
=================== ==================
</TABLE>
10
<PAGE>
ITEM 2.
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, Main Street Bank,
Westside Bank & Trust Company, Eastside Bank & Trust Company and Community Bank
of Georgia (collectively, "the Banks") during the periods included in the
accompanying consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This discussion 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 and (vi) 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 1999.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's total assets have increased $129,150,983 or 15.16% since
December 1999. Total loans have increased 9.40% or $59,315,816 since December
1999. Total deposits have increased by 17.24% or $121,723,699.
Return on average equity (core earnings, excluding one time charges)
for the three months and nine months ended September 30, 2000 was 17.2% and
18.3% on average equity of $78,385,084 and $75,272,211 respectively. This
compares to 17.2% and 15.5% on average equity of $69,187,815 and $67,979,514
respectively, for the same periods in 1999.
Return on average assets (core earnings, excluding one time charges)
for the three months and nine months ended September 30, 2000 was 1.43% and
1.54% on average assets of $942,694,019 and $892,584,261 respectively. This
compares to 1.50% and 1.39% on average assets of $795,798,955 and $757,529,019,
respectively, for the same periods in 1999.
LIQUIDITY AND MARKET RISK SENSITIVITY
As of September 30, 2000, 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.
Market risk is defined as the risk of loss arising from adverse changes
in market interest rates and prices. In order to maintain acceptable net
interest income levels, interest rates, liquidity and maturities of the
Company's assets and liabilities need to be managed. In a decreasing rate
environment earnings are typically negatively impacted as the Company's rate
sensitive assets generally reprice faster than its rate sensitive liabilities
thus an increase in interest rates will typically have a positive impact on
earnings. There have been no significant changes in the Company's market risk
exposure since December 31, 1999.
11
<PAGE>
CAPITAL
At September 30, 2000, 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, 2000
<TABLE>
<CAPTION>
BANK MAIN STREET BANK WESTSIDE BANK EASTSIDE BANK COMMUNITY BANK
---- ---------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Leverage capital ratio: 8.42% 9.01% 9.04% 8.21%
Risk based capital ratios:
Core capital 10.81% 11.27% 10.43% 9.74%
Total capital 12.07% 12.31% 11.57% 10.83%
</TABLE>
ALLOWANCE FOR LOAN LOSS
The allowance for loan losses totaled $10,501,221 at September 30,
2000, an increase of $1,183,433 from December 31, 1999. A provision for loan
losses is charged to operations based upon management's desire to provide
adequately for inherent losses 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, and
such other factors as management deems appropriate.
Activity in the allowance for loan losses for the nine-month periods ended
September 30, 2000 and September 30, 1999 follows:
<TABLE>
<CAPTION>
SEPT. 30,2000 SEPT. 30, 1999
------------- --------------
<S> <C> <C>
Balance of allowance for loan losses at beginning of period $ 9,317,788 $ 8,217,313
Provision charged to operating expense 1,459,000 1,350,000
Charge offs:
Commercial, financial and agricultural 136,970 88,657
Real estate - construction and land development -- 19,383
Real estate - mortgage 40,612 74,533
Installment and other consumer 386,405 410,533
--------------- ----------------
Total charge offs $ 563,987 $ 593,106
--------------- ----------------
Recoveries:
Commercial, financial and agricultural 13,665 15,331
Real estate - construction and land development 15,776 --
Real estate - mortgage 75,897 50,646
Installment and other consumer 183,081 221,631
--------------- ----------------
Total recoveries $ 288,419 $ 287,608
--------------- ----------------
Net charge offs $ 275,568 $ 305,498
--------------- ----------------
Balance of allowance for loan losses at end of period $ 10,501,221 $ 9,261,815
=============== ================
</TABLE>
Non accrual loans at September 30, 2000 totaled $1,304,087 or .19% of
total loans; this compares to $1,569,847 or .26% at September 30, 1999. The
company owned five foreclosed properties at September 30, 2000 carried on the
books in other real estate, totaling $889,202. The Company does not anticipate
any material losses associated with the disposal of these properties.
12
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income for the quarter ended September 30, 2000 increased $264,638
or 8.46% compared to the same period in 1999. Recurring net income, for the
quarter ending September 30, 2000 was $3,394,199 an increase of $389,275 or
12.95% over recurring net income of $3,004,924 for the same period in 1999.
Average earning assets for the quarter ended September 30, 2000 increased
$146,274,536 as compared to the same period in 1999, which coupled with the
prime rate increase resulted in an increase of $4,420,897 or 26.95% in interest
income. Average interest bearing liabilities increased $126,538,822 or 21.45%,
resulting in an increase in interest expense of $3,257,638 or 52.23%. Net
interest income increased $1,163,259 or 11.44%. The net interest margin for the
three months ended September 30, 2000 was 5.22% compared to 5.63% for the same
period in 1999. Non interest income, excluding $13,950 in gains on the sale of
investment securities and a gain $196,667 on the sale of a bank building in
1999, increased $62,137 or 3.17% over the same period in 1999. Non interest
expense, excluding $14,370 in merger related expenses in 1999, increased
$477,143 or 6.66% over the same period in 1999.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income for the nine-month period ended September 30, 2000
increased $1,012,870 or 12.72% over the same period in 1999. Recurring net
operating income, excluding onetime charges was $10,285,176 an increase of
$2,382,034 or 30.14% over the same period in 1999. Net interest income for the
nine month period ended September 30, 2000 was $33,584,198, a 16.91% increase
over the same period in 1999. Total average assets have increased $135,055,242
or 17.83% over the same period in 1999. Average earning assets increased
$136,440,693 or 19.66%, related interest income increased by $11,787,049 or
25.40%. Average interest bearing liabilities increased $113,256,170 or 20.32%,
resulting in an increase in interest expense of $6,929,397 or 39.18% over the
same period in 1999. Average borrowings from the Federal Home Loan Bank
increased $24,762,356 or 90.30%, the related increase in interest expense
amounted to $1,216,384. While the Banks do offer deposit promotions from time
to time, management has found the Federal Home Loan Bank to be a cost-effective
means of funding. The net interest margin for the nine months ending September
30, 2000 was 5.49% compared to 5.64% for the same period in 1999.
Non-interest income, excluding losses on the sale of investment
securities and gains on the sale of assets, increased $471,381 or 8.51% over
the same period in 1999. Service charge income increased $430,551 or 14.10%,
this increase is attributable to continued strong growth in deposit accounts,
and Main Street Bank instituted an automatic overdraft program in 1999 which
resulted in increased NSF fees.
The provision for loan losses increased $109,000 over the same period
in 1999. Management has concluded the provision is adequate, given the loan
growth the company has experienced, as well as the history of loan losses the
company has experienced. The allowance for loan losses as a percentage of total
loans outstanding at September 30, 2000 and December 31, 1999 amounted to 1.52%
and 1.48%, respectively.
Although Eastside Bank, Westside Bank and Community Bank all opened a
branch between the period of March 1999 and January 2000, total operating
expenses for the nine month period, excluding merger expenses only increased
$1,175,613 or 5.57% over the same period in 1999. While management is committed
to hiring and keeping quality people and providing competitive products and
services, they are equally committed to controlling expenses.
Short-term borrowings at September 30, 2000 were $8,501,735 compared
to $18,872,722 at December 31, 1999. Short-term borrowings consist of federal
funds purchased and securities sold under agreement to repurchase. Other
borrowings at June 30, 2000 were $55,131,250 compared to $49,142,500 at
December 31, 1999.
13
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PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
The Company filed a Form 8-K/A on August 8, 2000 containing pro forma
financial statements, in connection with the merger consummated on May
24, 2000.
The Company filed a Form 8-K, on October 10, 2000 announcing the
pending acquisition of Walton Bank & Trust Company and the Williamson
Group.
14
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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 10, 2000 By: /s/ Edward C. Milligan
--------------------------- ---------------------------------
Edward C. Milligan, President
Date: November 10, 2000 By: /s/ Barbara J. Bond
--------------------- ---------------------------------
Barbara J. Bond, Senior Vice
President
15
