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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to _______________
Commission file number 0-16276
STERLING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2449551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
525 Greenfield Road, P.O. Box 10608
Lancaster, Pennsylvania 17605-0608
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 295-7551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $5.00 Per Share
(Title of class)
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 aggregate market value of the voting stock held by non-affiliates of
the Registrant at February 28, 1994 was approximately $100,314,638.
The number of shares of Registrant's Common Stock outstanding on
February 28, 1994 was 2,900,746.
Documents Incorporated by Reference
Portions of the Proxy Statement of Registrant dated March 31, 1994
are incorporated by reference into Part III of this report.
Sterling Financial Corporation
Table of Contents
Page
Part I
Item 1. Business............................................. 1
Item 2. Properties........................................... 12
Item 3. Legal Proceedings.................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.. 12
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.......................... 15
Item 6. Selected Financial Data.............................. 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 17
Item 8. Financial Statements and Supplementary Data.......... 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 72
Part III
Item 10. Directors and Executive Officers of the Registrant... 72
Item 11. Executive Compensation............................... 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 72
Item 13. Certain Relationships and Related Transactions....... 72
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 72
Signatures...................................................... 74
PART I
Item 1 - Business
Sterling Financial Corporation
Sterling Financial Corporation (the "Corporation") is a
Pennsylvania business corporation, based in Lancaster, Pennsylvania,
which was organized on February 23, 1987 and became a bank holding
company through the acquisition of all the outstanding stock of The
First National Bank of Lancaster County, now by change of name, Bank of
Lancaster County, N.A., on June 30, 1987.
In addition, Sterling Financial Corporation also owns all of the
outstanding stock of a non-bank subsidiary, Sterling Mortgage Services,
Inc. Sterling Mortgage Services, Inc. is a mortgage service company
formed by Sterling Financial Corporation as a wholly owned subsidiary.
Approval was received September 13, 1988, pursuant to Section 4 of the
Bank Holding Company Act for Sterling Financial Corporation to operate
Sterling Mortgage Services, Inc. as a mortgage service company. This
information was reported in Form 10-Q dated November 10, 1988. However,
during the third quarter of 1989, Sterling Financial Corporation took
action to shutdown the mortgage company subsidiary and presently it is
considered inactive. This information was reported in Form 10-Q dated
November 10, 1989.
Sterling Financial Corporation provides a wide variety of
commercial banking and trust services through the foregoing wholly owned
subsidiary, Bank of Lancaster County, N.A.
The principal source of operating funds for the Corporation is
dividends provided by the Bank of Lancaster County, N.A. The
Corporation's expenses consist principally of operating expenses.
Dividends paid to stockholder's are, in general, primarily obtained by
the Corporation from dividends declared and paid to it by Bank of
Lancaster County, N.A.
As a bank holding company, Sterling Financial Corporation is
registered with the Federal Reserve Board in accordance with the
requirements of the Federal Bank Holding Company Act and is subject to
regulation by the Federal Reserve Board and by the Pennsylvania
Department of Banking.
Bank of Lancaster County
Bank of Lancaster County, N.A., a full service commercial bank
operating under charter from the Comptroller of the Currency, was
organized in 1863. On July 29, 1863, authorization was given by the
Comptroller of the Currency to The First National Bank of Strasburg to
commence the business of banking. On September 1, 1980, the title of
this association was changed to The First National Bank of Lancaster
County and at the time of the holding company reorganization, June 30,
1987, the bank name was changed to its present name, Bank of Lancaster
County, N.A. At December 31, 1993, the bank had total assets of
$587,883,000 and total deposits of $506,131,000.
The main office of the Association is located at 1 East Main
Street, Strasburg, Pennsylvania. In addition to its main office, the
Bank had eighteen (18) branches in Lancaster County and one (1) branch
in Chester County in operation at December 31, 1993.
Bank of Lancaster County provides a full range of banking services.
These include demand, savings and time deposit services, NOW (Negotiable
Order of Withdrawal) accounts, money market accounts, safe deposit
boxes, VISA credit card, and a full spectrum of personal and commercial
lending activities. The Bank maintains correspondent relationships with
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major banks in New York and Philadelphia. Through these correspondent
relationships, the Bank can offer a variety of collection and
international services.
With the installation of three automated teller machines (ATMs) in
April of 1983, Bank of Lancaster County was the first financial
institution in Lancaster County to join the MAC (Money Access Center)
Network. Presently the Bank has 16 ATMs in Lancaster County. The Bank
became a participating member of the Plus System in the Fall of 1984.
This membership entitles our MAC/Plus cardholders to have access to a
nationwide network of over 80,000 ATMs.
The Bank introduced Discount Brokerage Service in July, 1983. This
service is offered in coordination with Trade Saver, Inc., a subsidiary
of PNC Bank Corporation of Philadelphia, Pennsylvania and meets the
needs of the commission-conscious, independent-minded investor. In 1992
we began offering mutual funds to customers. We believe these services
are important additions to our product line and make a statement about
our aggressive attitude in providing financial services for the future.
The Bank was given permission to open a Trust Department by the
Comptroller of the Currency on May 10, 1971. The Trust Department
provides personal and corporate trust services. These include estate
planning, administration of estates and the management of living and
testamentary trusts and investment management services. Other services
available are pension and profit sharing trusts and self-employed
retirement trusts. Trust Department assets totaled over $126 million at
December 31, 1993.
On January 31, 1983, Bank of Lancaster County purchased Town &
Country, Inc. which is a vehicle and equipment leasing company operating
in Pennsylvania and other states. Its principal office is located at
640 East Oregon Road, Lancaster, PA. Town & Country, Inc. employs
thirty (30) people.
Bank of Lancaster County's principal market area is Lancaster
County, which continues to be one of the fastest growing counties in
Pennsylvania. Lancaster County is now the sixth largest county in
Pennsylvania, behind Philadelphia, Allegheny, Montgomery, Delaware and
Bucks. Lancaster County, with an area of 946 square miles has a
population of approximately 430,000. The county's tradition of economic
stability has continued, with agriculture, industry and tourism all
contributing to the overall strength of the economy.
One of the best agricultural areas in the nation, Lancaster County
ranks first among Pennsylvania counties and one of the top 20 farm
markets in the country. Lancaster County is also one of the leading
industrial areas in the state. The county is considered a prime
location for manufacturing, away from congested areas, yet close to
major east coast markets. Diversification of industry helps to maintain
the economic stability of the county. The unemployment rate of the
county in December 1993 was 4.5% which was lower than the state (6.3%)
and national (6.4%) levels. Lancaster County, with its many historic
sites, well-kept farmlands and the large Amish community has become very
attractive to tourists and is one of the top tourist attractions in the
U.S.
The Bank and its subsidiaries are subject to intense competition in
all respects and areas of their business from banks and other financial
institutions, including savings and loan associations, finance
companies, credit unions and other providers of financial services.
There are 15 full-service commercial banks with offices in Lancaster
County with some of these banks having branches located throughout the
County. The banks range in asset size from approximately $112 million
to over $29 billion. Of these banks, eight (8) exceed $700 million in
assets and seven (7) of the eight (8) exceed $1.3 billion in total
assets. Four (4) banks in our trade area exceed $3.8 billion. Several
banks are part of bank holding companies. One bank is part of a bank
holding company that has assets in excess of $36 billion while another
bank is part of a bank holding company that has over $23 billion in
assets. Due to our location, we are in direct competition with the
larger banks as well as a number of smaller banks. As of December 31,
1993, the Bank ranked, as measured by total deposits, as the fourth
largest in county market share of the banks doing business in Lancaster
County. The Bank is not, however, the fourth largest bank in Lancaster
County. As of December 31, 1993, the Bank had total assets of over $587
million and ranked ninth on this basis among the commercial banks with
offices located in Lancaster County.
There has not been a material portion of the Bank's deposits
obtained from a single person or a few persons, including federal, state
or local governments and agencies thereunder and the loss of any single
or any few customers would not have a materially adverse effect on the
business of the bank.
The Bank has no significant foreign sources or applications of
funds.
As of December 31, 1993, there were 342 persons employed by Bank of
Lancaster County-263 full-time and 79 part-time. These figures listed
do not include employees of Town & Country, Inc. which are listed
elsewhere in this report.
Bank of Lancaster County, N.A. is subject to regulation and
periodic examination by the Comptroller of the Currency. Its deposits
are insured by the Federal Deposit Insurance Corporation as provided by
law.
Item 2 - Properties
Bank of Lancaster County, N.A., in addition to its main office, had
at December 31, 1993, a branch network of 19 offices and 2 off-site
electronic MAC/ATM installations. All branches are located in Lancaster
County with the exception of one office which is located in Chester
County. Branches at 7 locations are occupied under leases and at three
branches, Bank of Lancaster County owns the building, but leases the
land. One off-site MAC/ATM installation is occupied under lease.
The Administrative Service Center of Bank of Lancaster County, N.A.
is owned in fee by the bank, free and clear of encumbrances.
The building occupied by Town & Country, Inc., a wholly owned
subsidiary of Bank of Lancaster County, N.A. is owned in fee by Town &
Country, Inc., free and clear of encumbrances.
The leases referred to above expire intermittently over the years
through 2022 and most are subject to one or more renewal options.
Item 3 - Legal Proceedings
As of December 31, 1993, there were no material pending legal
proceedings, other than ordinary routine litigation incidental to the
business, to which the Corporation or its subsidiaries are a party or of
which any of their property is the subject.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of 1993.
Part II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters
The common stock of Sterling Financial Corporation is not actively
traded. There are 10,000,000 shares of common stock authorized and the
total number of shares outstanding as of December 31, 1993 was
2,882,920. As of December 31, 1993, the Corporation had approximately
1,969 holders of record of its common stock. There is no other class of
common stock authorized or outstanding. During 1993, the price range of
the common stock known to management was $31.50 to $46.00 per share.
During the last quarter of 1993, prices known to management were $42.50
to $46.00 per share. The Corporation declared a three-for-two stock
split in 1992. The following table reflects the bid and asked prices
reported for the common stock at the end of the period indicated and the
cash dividends declared on the common stock for the periods indicated.
In the absence of an active market, these prices may not reflect the
actual market value of Sterling Financial Corporation's stock for the
periods reported.
1993 Bid Ask Dividend
First Quarter $35.00 $36.50 $.26
Second Quarter 38.00 39.75 .26
Third Quarter 41.00 44.00 .28
Fourth Quarter 44.50 46.00 .28
1992 Bid Ask Dividend
First Quarter $23.33 $26.00 $.23 1/3
Second Quarter 24.83 26.17 .23 1/3
Third Quarter 28.00 30.00 .23 1/3
Fourth Quarter 30.00 33.00 .26
The prices used in the previous table represent bid and asked
prices furnished by F.J. Morrissey & Company; Prudential Securities;
Ryan, Beck & Company; or The National Quotation Bureau.
Sterling Financial Corporation maintains a Dividend Reinvestment
and Stock Purchase Plan for eligible shareholders who elect to
participate in the plan. A copy of the Prospectus for this plan can be
obtained by writing to: Bank of Lancaster County, N.A. Dividend
Reinvestment and Stock Purchase Plan, 25 North Duke Street, Lancaster,
Pennsylvania 17602.
Item 6 - Selected Financial Data
The following selected financial data should be read in conjunction
with the Corporation's consolidated financial statements and the
accompanying notes presented elsewhere herein.
Summary of Operations
Years Ended 1993 1992 1991 1990 1989
(Dollars in Thousands, except per share data)
Interest income.............$ 40,092 $ 40,284 $ 42,689 $ 42,049 $ 37,715
Interest expense............ 15,042 17,818 22,793 23,522 21,269
------ ------ ------ ------ ------
Net interest income......... 25,050 22,466 19,896 18,527 16,446
Provision for loan losses... 2,430 2,296 1,789 1,661 691
------ ------ ------ ------ ------
Net interest income after
provision for loan losses.. 22,620 20,170 18,107 16,866 15,755
Other income................ 8,979 7,926 6,721 4,925 5,042
Other expenses.............. 21,048 18,922 16,995 14,917 14,466
------ ------ ------ ------ ------
Income before income taxes.. 10,551 9,174 7,833 6,874 6,331
Applicable income taxes..... 2,749 2,331 1,929 1,609 1,513
------ ------ ------ ------ ------
NET INCOME..................$ 7,802 $ 6,843 $ 5,904 $ 5,265 $ 4,818
====== ====== ====== ====== ======
Per Common Share:*
Net income................ $ 2.72 $ 2.43 $ 2.12 $ 1.93 $ 1.79
Dividends................. 1.08 .96 .88 .88 .73
Book value................ 17.16 15.13 13.50 12.03 10.79
Average shares outstanding 2,864,200 2,817,651 2,775,778 2,724,985 2,693,750
Ratios:
Return on average assets.. 1.41% 1.34% 1.25% 1.21% 1.24%
Return on average equity.. 16.90% 16.99% 16.63% 16.92% 17.77%
Financial Condition at
Year-End:
Assets.................... $ 587,883 $ 544,404 $ 495,234 $ 457,886 $ 418,116
Loans (net of unearned)... 359,365 348,529 317,730 310,830 287,426
Deposits.................. 505,680 473,184 434,523 399,823 364,229
Stockholders' Equity**.... 49,467 42,794 37,737 32,941 29,236
Average Assets............ 555,216 510,439 471,488 433,558 388,231
*Figures prior to 1993 were retroactively restated for various stock dividends, a
three-for-two stock split on November 30, 1992 and for comparative purposes.
**Stockholders' Equity prior to 1993 has been restated for the retroactive effect of
SFAS No. 109.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion provides management's analysis of the
consolidated financial condition and results of operations of Sterling
Financial Corporation (the Corporation) and subsidiaries, Bank of
Lancaster County, N.A. (the Bank) and its subsidiary, Town & Country,
Inc. and Sterling Mortgage Services, Inc. (presently inactive). It
should be read in conjunction with audited financial statements and
footnotes appearing elsewhere in this report.
Results of Operations Summary
Net income for 1993 was $7,802,000, an increase of $959,000 or 14%
over the $6,843,000 earned in 1992. The results of 1992 were $939,000
or 15.9% higher than the $5,904,000 reported in 1991. Earnings per
share on net income amounted to $2.72, $2.43, and $2.12 for the years
ended 1993, 1992 and 1991 respectively. Earnings per share were
computed by dividing net income by the weighted average number of shares
of common stock outstanding which were 2,864,200, 2,817,651 and
2,775,778 for 1993, 1992 and 1991 respectively. Figures prior to 1993
were retroactively restated to reflect a three-for-two stock split in
the form of a 50% stock dividend paid in 1992 and a 5% stock dividend
paid in December 1993.
Return on average total assets was 1.41% in 1993 compared with
1.34% in 1992 and 1.25% in 1991. Return on average stockholders' equity
was 16.90% in 1993 compared with 16.99% in 1992 and 16.63% in 1991.
Growth in earning assets was the primary factor contributing to the
increased earnings for both 1993 and 1992. As of December 31, 1993,
earning assets were approximately $522 million compared to $481 million
at December 31, 1992 and $445 million at December 31, 1991. Average
earning assets for 1993 increased nearly $43 million to approximately
$498 million, up 9.5% from the prior year. Similarly, in 1992 average
earning assets increased approximately $31 million, up 7.3% from 1991.
The current year increase as well as the increase in 1992 was primarily
due to increases in both loans and investments.
Average interest-bearing liabilities increased nearly $31.5 million
or 7.7% in 1993 compared to an increase of nearly $27 million, or 7% in
1992.
The increase in average earning assets exceeded the increase in
average interest-bearing liabilities in both 1993 and 1992. These
increases along with lower cost of funds contributed to strong net
interest margins in each period.
Provision for loan losses increased to $2,430,000 in 1993 from
$2,296,000 in 1992. The provision in 1991 was $1,789,000.
Non-interest income increased $1,053,000 in 1993. This compares to
an increase of $1,205,000 in 1992. These increases are primarily a
result of mortgage banking activities.
Non-interest expenses increased $2,126,000 or 11.2% in 1993, up
slightly from the comparable period last year. The increase in 1992
over 1991 was $1,927,000 or 11.3%.
Net Interest Income
The primary component of the Corporation's net earnings is net
interest income, which is the difference between interest and fees
earned on interest-earning assets and interest paid on deposits and
borrowed funds. For presentation and analytical purposes, net interest
income is adjusted to a taxable equivalent basis. For purposes of
calculating yields on tax-exempt interest income, the taxable equivalent
adjustment equates tax-exempt interest rates to taxable interest rates
as noted in Table 1. Adjustments are made using a statutory federal tax
rate of 34% for 1993, 1992 and 1991.
Table 1 presents average balances, taxable equivalent interest
income and expense and the yields earned or paid on these assets and
liabilities. The increase in net interest income during 1993 and 1992
was due primarily to increases in average earning assets. Average
earning assets increased 9.5% in 1993 and 7.3% in 1992. These increases
were primarily funded with interest-bearing liabilities which increased
7.7% in 1993 and 7% in 1992.
Table 1 - Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential-Tax Equivalent Yields
(Unaudited)
Years ended December 31,
1993 1992 1991
Average Annual Average Annual Average Annual
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets (Dollars in Thousands)
Interest bearing deposits
with banks...............$ 690 $ 27 3.84% $ 1,366 $ 89 6.52% $ 4,820 $ 351 7.28%
Federal Funds sold......... 6,234 191 3.07% 6,279 220 3.50% 7,481 422 5.64%
Investment securities:
U.S. Treasury securities. 21,447 1,253 5.84% 16,782 1,129 6.73% 9,997 813 8.13%
U.S. Government agencies. 21,832 1,458 6.68% 26,387 2,027 7.68% 22,634 1,963 8.67%
State and Municipal
securities.............. 37,451 3,440 9.18% 30,271 3,041 10.05% 28,002 2,928 10.46%
Other securities......... 52,941 3,726 7.04% 44,642 3,463 7.76% 35,534 3,056 8.60%
-------- ------- ------ -------- ------- ------ ------- ------- ------
Total investment securities 133,671 9,877 7.39% 118,082 9,660 8.18% 96,167 8,760 9.11%
Loans:
Commercial............... 195,562 16,327 8.35% 172,097 15,649 9.09% 162,191 17,266 10.65%
Consumer................. 99,761 8,878 8.90% 96,854 9,464 9.77% 89,874 9,951 11.07%
Mortgages................ 27,714 2,490 8.99% 28,932 2,767 9.56% 31,589 3,149 9.97%
Leases................... 34,533 3,658 10.59% 31,321 3,702 11.82% 32,042 4,111 12.83%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total loans................ 357,570 31,353 8.77% 329,204 31,582 9.59% 315,696 34,477 10.92%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total earning assets....... 498,165 41,448 8.32% 454,931 41,551 9.13% 424,164 44,010 10.38%
Allowance for loan losses.. (5,984) (4,969) (3,848)
Cash and due from banks.... 26,863 24,382 21,029
Other non-earning assets... 36,172 36,095 30,143
-------- -------- --------
Total non-earning assets... 57,051 55,508 47,324
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total assets...............$555,216 $ 41,448 7.47% $510,439 $ 41,551 8.14% $471,488 $ 44,010 9.33%
======================== ======================== ========================
Liabilities and Stockholders' Equity
Deposits:
Demand deposits
Noninterest-bearing.....$ 57,869 $ 0 0.00% $ 50,601 $ 0 0.00% $ 44,721 $ 0 0.00%
Demand deposits
Interest-bearing........ 211,406 5,484 2.59% 184,959 6,207 3.36% 154,564 7,331 4.74%
Savings deposits......... 45,302 1,222 2.70% 34,927 1,199 3.43% 27,914 1,358 4.87%
Time deposits............ 163,497 7,085 4.33% 175,590 9,423 5.37% 186,968 12,929 6.92%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total deposits............. 478,074 13,791 2.88% 446,077 16,829 3.77% 414,167 21,618 5.22%
Other borrowed funds....... 20,367 1,251 6.15% 13,659 989 7.24% 12,803 1,175 9.17%
Other liabilities.......... 10,613 10,439 9,022
Stockholders' equity....... 46,162 40,264 35,496
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total liabilities and
Stockholders' equity.....$555,216 $ 15,042 2.71% $510,439 $ 17,818 3.49% $471,488 $ 22,793 4.83%
======================== ======================== ========================
Net interest income/
Average total assets...... $ 26,406 4.76% $ 23,733 4.65% $ 21,217 4.50%
Net interest income/
Average earning assets.... $ 26,406 5.30% $ 23,733 5.22% $ 21,217 5.00%
Net interest income on a fully taxable equivalent increased by
$2,673,000 in 1993 compared to an increase of $2,516,000 in 1992. Table
2 indicates that of the increase in 1993, $2,872,000 was the result of
increased volumes while $199,000 of the increase was the result of
overall rate decreases. Likewise, the increase in 1992 was a result of
increased volumes totaling $2,078,000 while $438,000 of the increase was
a result of rate decreases.
Table 2 - Analysis of Changes in Net Interest Income
The rate-volume variance analysis set forth in the table below,
which is computed on a tax equivalent basis, analyses changes in net
interest income for the periods indicated by their rate and volume
components.
1993 Versus 1992 1992 Versus 1991
(Dollars in Thousands)
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
Volume Rate Total Volume Rate Total
Interest Income
Interest on deposits
with banks.........$ (44) $ (18) $ (62) $ (252) $ (10) $ (262)
Interest on federal
funds sold......... (2) (27) (29) (68) (134) (202)
Interest on investment
securities......... 1,275 (1,058) 217 1,997 (1,097) 900
Interest and fees on
loans.............. 2,722 (2,951) (229) 1,475 (4,370) (2,895)
--------- ---------- ---------- --------- ---------- ----------
Total interest income.$ 3,951 $ (4,054) $ (103) $ 3,152 $ (5,611) $ (2,459)
--------- ---------- ---------- --------- ---------- ----------
Interest Expense
Interest on
interest-bearing
demand deposits....$ 887 $ (1,610) $ (723) $ 1,442 $ (2,566) $ (1,124)
Interest on
savings deposits.... 356 (333) 23 341 (500) (159)
Interest on
time deposits....... (649) (1,689) (2,338) (787) (2,719) (3,506)
Interest on
borrowed funds...... 485 (223) 262 78 (264) (186)
--------- ---------- --------- --------- --------- ---------
Total interest expense$ 1,079 $ (3,855) $ (2,776) $ 1,074 $ (6,049) $ (4,975)
--------- ---------- ---------- ---------- ---------- ----------
Net interest income...$ 2,872 $ (199) $ 2,673 $ 2,078 $ 438 $ 2,516
========= ========== ========== ========== ========== ==========
For the year 1993 compared to 1992, loan volumes, on average,
increased over $28.3 million and income earned on loans decreased
$229,000, tax adjusted. This compares to a volume increase of nearly
$13.5 million in 1992 over 1991 with a decrease in income earned on
loans amounting to $2,895,000. During both periods compared, the
decrease in interest income due to lower rates exceeded the increase in
interest income generated by increased volumes of loans.
Loan demand declined in both 1993 and 1992 due primarily to a
slowing economy. Consequently, the loan growth rate was not as great as
previous years. However, the loan growth in 1993 was an improvement
over 1992. With the decline in loan demand, the Bank increased its
holdings in investment securities. The increase in investment
securities, on average, was nearly $15.6 million in 1993 compared to
nearly $22 million in 1992. As a result of these increased volumes,
interest income increased. Table 2 indicates that of the increase in
1993, $1,275,000 was the result of increased volumes while there was a
decrease of $1,058,000 due to decreases in rates resulting in a total
increase of $217,000. In 1992 interest income increased $900,000.
Interest-bearing deposits, on average, grew nearly $25 million in
1993. However, the lower cost of funds reflect a decrease in interest
expense.
Provision for Loan Losses
The provision for loan losses charged against earnings was
$2,430,000 in 1993 compared to $2,296,000 in 1992 and $1,789,000 in
1991. The provision reflects the amount deemed appropriate by
management to produce an adequate reserve to meet the present and
foreseeable risk characteristics of the loan portfolio. Management's
judgement is based on the evaluation of individual loans and their
overall risk characteristics, past loan loss experience, and other
relevant factors. Net charge-offs amounted to $650,000 in 1993,
$1,296,000 in 1992 and $764,000 in 1991.
The provision for loan loss was increased during 1993 in order for
the Bank to provide an adequate reserve based on the evaluation of
individual loans and their current characteristics and current economic
condition. The reserve accordingly was increased to 2.00% of net loans
outstanding from 1.55%. Net charge-offs for the year 1994 should range
between $700,000 and $1,300,000. Additions to the loan loss provision
are expected to be between $800,000 and $1,400,000.
Non-Interest Income
Non-interest income, recorded as other operating income, consists
of income from fiduciary activities, service charges on deposit
accounts, other service charges, commissions and fees, mortgage banking
income and other income such as safe deposit box rents and income from
operating leases.
Income from fiduciary activities in the amount of $639,000 in 1993
was $43,000 or 7.2% over the $596,000 recorded in 1992. Income in 1992
was $28,000 or 5% greater than the $568,000 recorded in 1991.
Service charges on deposit accounts increased to $1,891,000, an
increase of $10,000 or .5% over 1992 service charge income of
$1,881,000. The increase in 1993 income resulted primarily from a
higher volume of activity on certain deposit transactions. Service
charges on deposit accounts in 1992 exceeded the 1991 income of
$1,654,000 by $227,000 or 13.7%.
Other service charges, commissions and fees amounted to $1,577,000
in 1993 compared to $1,370,000 in 1992 and $1,234,000 in 1991. A major
contributor to the increase in 1993 was certain fees relating to VISA
operations as well as fees generated from mutual funds sales, a new
product introduced in 1992.
Income from mortgage banking activities in the amount of $2,435,000
increased $934,000 over 1992.
Other operating income decreased $122,000 to $2,429,000 in 1993
from $2,551,000 in 1992. Other income for 1991 was $2,349,000. A major
contributor to other operating income is income generated from operating
leases.
Investment securities transactions reflect a gain of $8,000 in 1993
compared to $27,000 in 1992 and $3,000 in 1991. The gains listed for
these years resulted when certain securities were called at a premium.
Securities had been written to par when calls were made thus generating
a gain on the securities called. There were no securities sold for the
periods listed.
As a result of the above, total other operating income increased
$1,053,000 in 1993 over 1992 compared to an increase of $1,205,000 in
1992 over 1991.
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits,
net occupancy expense, furniture and equipment expense and other
operating expenses.
Total operating expenses for 1993 were $21,048,000 compared to
$18,922,000 in 1992. This represented an increase of $2,126,000 or
11.2%. This compares to an increase of $1,927,000 or 11.3% in 1992.
Salaries and employee benefits expense increased to $11,566,000 in
1993 or $1,212,000 (11.7%) over the $10,354,000 reported in 1992. In
1992, expenses increased $1,096,000 (11.8%) over the $9,258,000 reported
in 1991. The increase in 1993 and 1992 was primarily due to increases
in staff as well as increases in wages and increased costs of employee
benefits.
Beginning in 1993, Sterling adopted Financial Accounting Standards
Board Standard No. 106 - Employer's Accounting for Postretirement
Benefits Other than Pensions. Under SFAS No. 106, the cost of
postretirement benefits other than pensions must be recognized on an
accrual basis as employees perform services to earn the benefits. This
is a significant change from the previous generally accepted practice of
accounting for these benefits which was on a cash basis. As a result of
the adoption of the Standard No. 106, an additional expense of $192,060
was required to comply with the Standard.
Occupancy expense increased $136,000 or 11.2% to $1,355,000 in 1993
from $1,219,000 in 1992. By comparison, during 1992, there was an
increase of $223,000 or 22.4%. A new branch was opened in late 1991 and
one was opened in early 1992. This contributed to the increase in 1992.
Two new branch facilities were added in late 1993. One of the
facilities was a branch relocation.
Furniture and equipment expenses were $1,253,000 for 1993 and
$1,177,000 for 1992. This represents an increase of $76,000 or 6.5%.
Reflected in this increase is an increase of depreciation expense in
1993 amounting to $39,000. Expenses in 1992 were $87,000 greater than
those recorded in 1991.
Another contributor to the increase in total other operating
expenses was the increase in the assessment for FDIC insurance. The
assessment for 1993 was $1,052,000 which was $68,000 or 6.9% greater
than the $984,000 reported in 1992. The assessment in 1992 was $143,000
or 17% greater than the $841,000 reported in 1991. The Bank expects
continued costly increases in the assessment rate as the Federal Deposit
Insurance Corporation attempts to maintain the solvency of the bank
insurance fund.
Other operating expenses increased $634,000 or 12.2% in 1993
compared to an increase of $378,000, or 7.9% in 1992. The increase
noted in both years is in line with rising costs associated with
acquiring services covered in this category of expense. Expenses
covered in this category include postage, PA Shares Tax, advertising and
marketing, professional services, telephone, stationery and forms, ATM
fees, Visa fees, insurance premiums and other expense categories not
specifically identified on the income statement.
Income Taxes
Income tax expense totaled $2,749,000 in 1993 compared to
$2,331,000 in 1992 and $1,929,000 in 1991. These increases result from
higher levels of taxable income and increased earnings each year. The
Corporation's effective tax rate was 26.1% in 1993 compared with 25.4%
in 1992 and 24.6% in 1991.
Financial Condition
Investment Portfolio
Table 3 - Investment Securities at Cost
The following table shows the carrying value of Sterling Financial
Corporation's investment portfolio as of the dates indicated.
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts.
December 31,
1993 1992 1991
(Dollars in Thousands)
U.S. Treasury securities..............$ 23,996 $ 20,732 $ 13,430
Obligations of other U.S. Government
agencies and corporations........... 27,903 26,405 24,776
Obligations of states and political
subdivisions........................ 43,491 35,119 29,413
Other bonds, notes and debentures..... 48,770 44,089 39,269
------------ ---------- ---------
Subtotal.............................. 144,160 126,345 106,888
Federal Reserve and corporate stock... 2,305 2,158 1,904
------------ ---------- ---------
Total.................................$ 146,465 $ 128,503 $ 108,792
============ ========== =========
Table 4 - Investment Securities (Yields)
The following table shows the maturities of debt securities at
carrying value as of December 31, 1993 and weighted average yields of
such securities. Yields are shown on a tax equivalent basis, assuming
a 34% federal income tax rate.
(Dollars to Thousands)
Over 1 thru Over 5 thru
1 Year and less 5 Years 10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Treasury
Securities....$ 6,091 5.53% $ 17,082 5.44% $ 823 6.32% $ none 0% $ 23,996 5.49%
Obligations of
other U.S.
Government
agencies and
corporations.. 5,018 6.53% 15,195 6.56% 5,779 6.55% 1,911 6.88% 27,903 6.57%
Obligations of
states and
political sub-
divisions..... 2,441 9.90% 14,209 9.07% 19,413 8.38% 7,428 8.24% 43,491 8.67%
Other bonds,
notes and
debentures.... 9,151 6.93% 38,069 6.01% 1,426 7.49% 124 5.80% 48,770 6.23%
-------- ------ -------- ------ -------- ------ ------- ------ -------- ------
$ 22,701 6.79% $ 84,555 6.51% $ 27,441 7.89% $ 9,463 7.93% $144,160 6.91%
======== ====== ======== ====== ======== ====== ======= ====== ======== ======
Loans
Table 5 - Loan Portfolio
The following table sets forth the composition of Sterling Financial Corporation's loan portfolio as
of the dates indicated:
December 31,
1993 1992 1991 1990 1989
(Dollars in thousands)
Commercial, financial and
agricultural.............$191,431 $172,482 $152,726 $144,837 $127,641
Real estate-construction... 10,265 16,044 12,147 9,330 7,582
Real estate-mortgage....... 22,335 30,445 31,943 35,109 39,988
Consumer................... 101,256 99,444 94,404 96,298 89,223
Lease financing (net of
unearned income)......... 35,443 32,768 31,283 31,358 29,171
-------- -------- -------- -------- --------
Total loans................$360,730 $351,183 $322,503 $316,932 $293,605
======== ======== ======== ======== ========
Table 6 - Loan Maturity and Interest Sensitivity
The following table sets forth the maturity and interest
sensitivity of the loan portfolio as of December 31, 1993:
After one
Within but within After
one year five years five years Total
(Dollars in Thousands)
Commercial, financial and agricultural..$ 114,117 $ 66,757 $ 10,557 $ 191,431
Real estate-construction................ 9,446 819 none 10,265
--------- --------- --------- ---------
$ 123,563 $ 67,576 $ 10,557 $ 201,696
========= ========= ========= =========
Loans due after one year totaling $45,661,000 have variable
interest rates. The remaining $32,472,000 in loans have fixed rates.
Table 7 - Nonaccrual, Past Due and Restructured Loans
The following table presents information concerning the aggregate
amount of nonaccrual, past due and restructured loans:
December 31,
1993 1992 1991 1990 1989
(Dollars in Thousands)
Nonaccrual loans.............$ 2,960 $ 4,129 $ 1,414 $ 631 $ 585
Accruing loans, past due
90 days or more............ 522 519 409 540 299
-------- -------- -------- -------- -------
$ 3,482 4,648 1,823 1,171 884
======== ======== ======== ======== =======
The general policy has been to cease accruing interest on loans
when it is determined that a reasonable doubt exists as to the
collectibility of additional interest. Interest income on these loans
is only recognized to the extent payments are received. Loans on a
nonaccrual status amounted to $2,960,000 at December 31, 1993 compared
to $4,129,000 at December 31, 1992. If interest income had been
recorded on all such loans for the years indicated, such interest income
would have been increased by approximately $267,295 and $293,967 for
1993 and 1992 respectively. Interest income recorded on the nonaccrual
loans in 1993 and 1992 was none and $47,858 respectively. Potential
problem loans are loans which are included as performing loans, but for
which possible credit problems of the borrower causes management to have
doubts as to the ability of such borrower to comply with present
repayment terms and which may eventually result in disclosure as a non-
performing loan. At December 31, 1993 there were commercial loans to
two related borrowers aggregating $1.6 million which were considered as
potential problem loans which were not included as nonaccrual loans.
At December 31, 1993, there were no concentrations exceeding 10% of
total loans. A concentration is defined as amounts loaned to a multiple
number of borrowers engaged in similar activities which would cause them
to be similarly affected by changes in economic or other conditions.
There were no foreign loans outstanding at December 31, 1993.
Allowance for Loan Losses
Table 8 - Summary of Loan Loss Experience
Years ended December 31,
1993 1992 1991 1990 1989
(Dollars in Thousands)
Allowance for Loan Losses:
Beginning balance.............$ 5,400 $ 4,400 $ 3,375 $ 3,000 $ 2,651
Loans Charged off during year:
Commercial, financial and
agricultural.............. 194 843 327 1,043 98
Real estate mortgage........ 392 201 19 none none
Consumer.................... 290 471 420 283 278
Lease financing............. 14 97 144 35 21
------- ------- ------- ------- -------
Total charge-offs........... 890 1,612 910 1,361 397
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and
agricultural.............. 157 232 37 27 10
Real estate mortgage........ 8 none 13 none none
Consumer.................... 63 76 58 37 33
Lease financing............. 12 8 38 11 12
------- ------- ------- ------- -------
Total recoveries............ 240 316 146 75 55
------- ------- ------- ------- -------
Net loans charged off......... 650 1,296 764 1,286 342
Additions charged to
operations.................. 2,430 2,296 1,789 1,661 691
------- ------- ------- ------- -------
Balance at end of period......$ 7,180 $ 5,400 $ 4,400 $ 3,375 $ 3,000
======= ======= ======= ======= =======
Ratio of net loans charged
off to average loans
outstanding................. .18% .39% .24% .43% .13%
Allowance for loan losses
as a percent of loans at
end of period............... 2.00% 1.55% 1.38% 1.09% 1.04%
The provision for loan losses charged to operating expense reflects
the amount deemed appropriate by management to produce an adequate
reserve to meet the present and inherent risk to the loan portfolio.
Management's judgement is based on the evaluation of individual loans
and their overall risk characteristics, past loan loss experience, and
other relevant factors. Management had not allocated specific portions
of the allowance to specific loan categories prior to 1993. Table 9
reflects the allocation at December 31, 1993. Management regularly
monitors the creditworthiness and financial condition of its borrowers
and does not anticipate any material changes in the net charge-offs in
any loan category during the next full year of operations.
Table 9 - Allocation of Allowance for Loan Losses
December 31, 1993
(Dollars in Thousands)
Commercial, financial and agricultural..........$ 5,286
Real estate - mortgage.......................... 28
Consumer........................................ 727
Leases.......................................... 576
Unallocated..................................... 563
--------
Total...........................................$ 7,180
========
Deposits
Table 10 - Average Deposit Balances and Rates Paid
The average amounts of deposits and rates paid for the years
indicated, are summarized below:
1993 1992 1991
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
Demand deposits.................$ 57,869 --- $ 50,601 --- $ 44,721 ---
Interest-bearing demand deposits 211,406 2.59% 184,959 3.36% 154,564 4.74%
Savings deposits................ 45,302 2.70% 34,927 3.43% 27,914 4.87%
Time deposits................... 163,497 4.33% 175,590 5.37% 186,968 6.92%
-------- ----- -------- ----- -------- -----
$478,074 2.88% $446,077 3.77% $414,167 5.22%
======== ===== ======== ===== ======== =====
Table 11 - Deposit Maturity
The maturities of time deposits of $100,000 or more at December 31,
1993 are summarized below:
Three months or less..........................$ 5,979,739
Over three thru six months.................... 2,836,688
Over six thru twelve months................... 4,248,148
Over twelve months............................ 1,094,591
-----------
Total.........................................$ 14,159,166
===========
Capital
Stockholders' equity increased by nearly $6.7 million or 15.6% in
1993 to $49,467,000. Total stockholders' equity at December 31, 1992 in
the amount of $42,794,000 represents an increase of $5,057,000 or 13.4%
over the $37,737,000 reported at December 31, 1991. Strong earnings as
well as capital acquired through stock issued pursuant to a dividend
reinvestment and stock purchase plan and employee stock plan generated
this fine growth in stockholders' equity. Dividends declared amounted
to $2,985,000, $2,575,000 and $2,245,000 for 1993, 1992 and 1991
respectively. In 1989, federal regulatory authorities approved risk-
based capital guidelines applicable to banks and bank holding companies
in an effort to make regulatory capital more responsive to the risk
exposure related to various categories of assets and off-balance sheet
items. These new guidelines required that banking organizations meet a
minimum risk-based capital by December 31, 1992 and redefine the
components of capital, categorize assets into different risk classes and
include certain off-balance sheet items in the calculation of capital
requirements. The components of capital are called Tier 1 and Tier 2
capital. Tier 1 capital is the shareholders' equity and Tier 2 capital
is the allowance for loan losses. The risk-based capital ratios are
computed by dividing the components of capital by risk-weighted assets.
Risk-weighted assets are determined by assigning various levels of risk
to different categories of assets and off-balance sheet items. Required
minimum levels of risk-adjusted capital were phased in during the time
period December 31, 1990 and December 31, 1992. During this period, the
minimum for Tier 1 capital was 3.625% and the total capital ratio
minimum was 7.25%. Sterling's ratios at December 31, 1992 and 1991 were
above the final risk-based capital standards which had to be reached by
December 31, 1992 that require Tier 1 capital of at least 4% and total
capital of 8% of risk-weighted assets. The Tier 1 capital ratio at
December 31, 1993 was 10.67% and the total capital ratio was 11.92%,
which exceeds the minimum capital guidelines. Tier 1 capital ratio was
10.04% and the total capital ratio was 11.29% at December 31, 1992 while
Tier 1 capital ratio was 9.71% and the total capital ratio was 10.84% at
December 31, 1991.
Table 12 - Capital and Performance Ratios
The following are selected ratios for the years ended December 31:
1993 1992 1991
Return on average assets................... 1.41% 1.34% 1.25%
Return on average equity................... 16.90% 16.99% 16.63%
Dividend payout ratio...................... 38.26% 37.64% 38.02%
Average total equity to average assets..... 8.31% 7.89% 7.53%
Total equity to assets at year end......... 8.41% 7.86% 7.62%
Primary capital ratio...................... 9.52% 8.77% 8.43%
Tier 1 risk-based capital ratio............ 10.67% 10.04% 9.71%
Total risk-based capital ratio............. 11.92% 11.29% 10.84%
Liquidity and Interest Rate Sensitivity
Liquidity is the ability to meet the requirements of customers for
loans and deposit withdrawals in the most economical manner. Some
liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost. Liquidity from asset categories is
provided through cash, noninterest-bearing and interest-bearing deposits
with banks, federal funds sold and marketable investment securities
maturing within one year. Securities maturing within one year amounted
to $22,701,000 at December 31, 1993 compared to $20,767,000 at December
31, 1992. Interest-bearing deposits with banks totaled $40,000 at
December 31, 1993 compared to $900,000 at December 31, 1992. Federal
funds sold was $12,350,000 and $3,200,000 at December 31, 1993 and 1992
respectively. The loan portfolio also provides an additional source of
liquidity due to the Bank of Lancaster County participating in the
secondary mortgage market. Sales of residential mortgages into the
secondary market of approximately $72 million and $53 million
respectively for 1993 and 1992 provided funding which allowed the bank
to meet the needs of customers for new mortgage financing. A favorable
low interest rate environment in 1993 resulted in significant mortgage
loan refinancing which increased liquidity within the bank's loan
portfolio. Mortgage loans held for investment and non-conforming for
secondary market sale in the amount of approximately $5.5 million were
refinanced and sold on the secondary market. Additional liquidity is
provided by other sources such as maturing loans.
On the liability side, liquidity is available through customer
deposits. Federal funds purchased and other forms of short term
borrowings are also sources of liquidity.
Liquidity must constantly be monitored because future customer
demands for funds are uncertain. The amount of liquidity needed is
determined by the changes in levels of deposits and in the demand for
loans. Management believes that the sources of funds mentioned above
provide the liquidity to meet customer demands for funds.
Interest sensitivity is related to liquidity because each is
affected by maturing assets and sources of funds. Interest sensitivity,
however, is also concerned with the fact that certain types of assets
and liabilities may have interest rates that are subject to change prior
to maturity. Management endeavors to manage the exposure of the net
interest margin to interest-sensitive assets and liabilities so as to
minimize the impact of fluctuating interest rates on earnings.
The Bank of Lancaster County's asset/liability committee manages
interest rate risk by various means including "GAP" management of its
asset and liability portfolios.
The Bank has various investments structured to change investment
yield with current market conditions. Assets subject to repricing
include federal funds sold (repricing daily), loans tied to "Treasury
Bill" indexes (repricing monthly) and loans tied to "prime" or other
indexes subject to immediate change. In addition to assets currently
available for repricing there are future scheduled principal repayments
on loans, loans available for repricing at future dates and maturities
of investments. These investment repayments will have to be reinvested
at current market yields.
The Bank's funding liabilities repricing has become more complex,
since deposit products that historically were rate insensitive have
become repriceable liabilities. Time deposits and debt instruments are
repriceable at maturity. Other interest bearing liabilities are subject
to interest rate change, but not subject to rate change to the same
degree as asset repricing. To compensate for this inequality in
repricing, historic correlations between "prime" rate changes and
deposit rate changes are calculated for each deposit product. The
resulting pricing correlation is then used to adjust deposit product
balances to an interest sensitive equivalent balance. For example,
money market deposits have an 80% pricing correlation to an equivalent
change in "prime". Therefore, 80% of these balances are considered
interest rate sensitive in asset/liability management. NOW Accounts
have a 39% pricing correlation to "prime" and 39% of these balances are
considered interest rate sensitive. The pricing correlation is based on
relevant past events and is refined monthly.
Interest repricing of assets and liabilities is measured over
future time periods (interest rate sensitivity gaps). While all time
gaps are measured, the Bank's primary focus is the cumulative gaps
through six months, as these gaps directly affect net interest income in
the short time horizon and are harder to make reactive adjustment to
actual interest rate movements.
Excluded from the interest rate sensitivity gaps are "matched"
funded fixed rate leases and associated fixed rate debt totaling $17.8
million.
Table 13 - Interest Rate Sensitivity Gaps
(Dollars in Thousands)
0-30 31-90 91-180 181-365
Rate Sensitive Assets Days Days Days Days
Fed Funds sold..............$ 12,350 $ none $ none $ none
Investment securities....... 1,580 4,280 5,325 11,374
Loans....................... 141,127 10,562 13,596 26,426
-------- -------- -------- --------
Total.......................$155,057 $ 14,842 $ 18,921 $ 37,800
Cumulative..................$155,057 $169,899 $188,820 $226,620
Rate Sensitive Liabilities
Deposits....................$164,883 $ 25,538 $ 28,250 $ 32,086
Short-term borrowings....... 3,000 none none none
-------- -------- -------- --------
Total.......................$167,883 $ 25,538 $ 28,250 $ 32,086
Cumulative..................$167,883 $193,421 $221,671 $253,757
Period GAP (Dollars)........$(12,826) $(10,696) $ (9,329) $ 5,714
Period GAP (Percent)........ 92% 58% 67% 118%
Cumulative GAP (Dollars)....$(12,826) $(23,522) $(32,851) $(27,137)
Cumulative GAP (Percent).... 92% 88% 85% 89%
New Financial Accounting Standards
The Financial Accounting Standards Board (FASB) issued Standard No.
112 which establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before
retirement. This standard is effective for fiscal years beginning after
December 15, 1993. Sterling Financial Corporation has determined that
the application of this standard will not have a material effect on
earnings.
FASB Statement No. 114 addresses the accounting by creditors for
impairment of a loan by specifying how allowances for credit losses
related to certain loans should be determined. A loan is impaired when,
based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual
terms of the loan agreement. This statement shall be effective for
financial statements for fiscal years beginning after December 15, 1994.
Sterling has not completed the complex analysis required to estimate the
impact of this statement.
The Financial Accounting Standard Board issued Standard No. 115
which addresses the accounting and reporting for certain investments in
debt securities and equity securities. It requires that these
securities be classified into one of three categories: held-to-maturity,
available-for-sale, or trading. Specific accounting treatments apply to
each of the three categories. Securities held-to-maturity will be
reported at amortized cost, trading securities are reported at fair
value, with unrealized gains and losses included in earnings and
available-for-sale will be reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component
of shareholders' equity. The statement shall be effective for fiscal
years beginning after December 15, 1993. Sterling will apply this
statement beginning January 1, 1994 at which time securities will be
categorized as required.
The Financial Accounting Standards Board issued Standard No. 116.
This Statement establishes standards of financial accounting and
reporting for contributions received and contributions made. This
Statement shall be effective for financial statements issued for fiscal
years beginning after December 15, 1994 and interim periods within those
fiscal years. Sterling has determined that the application of this
standard will not have a material effect on earnings.
Item 8 - Financial Statements and Supplementary Data
(a) The following audited consolidated financial statements and
related documents are set forth in this Annual Report on Form 10-K on
the following pages:
Page
Report of Independent Auditors 20
Consolidated Balance Sheets 21
Consolidated Statements of Income 22
Consolidated Statements of Changes in Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 26
(b) The following supplementary data is set forth in this Annual Report
on Form 10-K on the following pages:
Summary of Quarterly Financial Data (Unaudited) 40
Trout, Ebersole & Groff
Certified Public Accountants
1705 Oregon Pike
Lancaster, Pennsylvania 17601
(717)569-2900
FAX (717) 569-0141
Independent Auditors' Report
Board of Directors and Shareholders
Sterling Financial Corporation and Subsidiaries
Lancaster, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Sterling Financial Corporation and Subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sterling Financial Corporation and Subsidiaries at December 31, 1993 and
1992 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
Trout, Ebersole & Groff
Trout, Ebersole & Groff
Certified Public Accountants
January 21, 1994
Lancaster, Pennsylvania
Consolidated Balance Sheets
Sterling Financial Corporation and Subsidiaries
As of December 31,
1993 1992
(Dollars in Thousands)
Assets
Cash and due from banks...........................................$ 36,190 $ 33,222
Interest-bearing deposits in other banks.......................... 40 900
Federal funds sold................................................ 12,350 3,200
Mortgage loans held for sale...................................... 3,431 none
Investment Securities: (Note 4)
U.S. Treasury securities........................................ 23,996 20,732
Obligations of other U.S. Government agencies and corporations.. 27,903 26,405
Obligations of states and political subdivisions................ 43,491 35,119
Other bonds, notes and debentures............................... 48,770 44,089
Federal Reserve and corporate stock............................. 2,305 2,158
-------- --------
Total investment securities
(market value - $151,444 - 1993 and $133,400 - 1992)........... 146,465 128,503
-------- --------
Loans (Note 5).................................................... 360,730 351,183
Less: Unearned income........................................... (1,365) (2,654)
Allowance for loan losses (Note 6)........................ (7,180) (5,400)
-------- -------
Loans, net........................................................ 352,185 343,129
-------- -------
Premises and equipment (Note 7)................................... 7,424 7,592
Other real estate owned........................................... 251 360
Accrued interest receivable and prepaid expenses.................. 8,816 8,111
Other assets (Note 8)............................................. 20,731 19,387
-------- -------
Total Assets..................................................... $587,883 $544,404
======== ========
Liabilities
Deposits:
Noninterest-bearing.............................................$ 68,197 $ 60,370
Interest-bearing (Note 9)....................................... 437,483 412,814
-------- --------
Total Deposits.................................................... 505,680 473,184
-------- --------
Interest-bearing demand notes issued to U.S. Treasury............. 3,000 3,000
Other liabilities for borrowed money (Note 10).................... 19,410 14,723
Mortgages payable and capitalized lease liability (Note 11)....... 11 218
Accrued interest payable and accrued expenses..................... 5,414 5,486
Other liabilities................................................. 4,901 4,999
-------- --------
Total Liabilities................................................. 538,416 501,610
-------- --------
Stockholders' Equity
Common Stock -(par value:$5.00)
No. shares authorized: 1993 and 1992 - 10,000,000
No. shares issued: 1993 - 2,882,920 and 1992 - 2,702,627
No. shares outstanding: 1993 - 2,882,920 and 1992 - 2,694,841...$ 14,414 $ 13,513
Capital surplus................................................... 20,830 14,100
Retained earnings................................................. 14,223 15,414
Less: Treasury Stock (none in 1993 and 7,786 shares in 1992)-
at cost..................................................... none (233)
-------- --------
Total Stockholders' Equity........................................ 49,467 42,794
-------- --------
Total Liabilities and Stockholders' Equity........................$587,883 $544,404
======== ========
See accompanying notes to financial statements
Consolidated Statements of Income
Sterling Financial Corporation and Subsidiaries
For the years ended December 31,
1993 1992 1991
(Dollars in thousands except per share data)
Interest Income
Interest and fees on loans...........................$ 31,167 $ 31,349 $ 34,152
Interest on deposits and loans....................... 27 89 351
Interest on federal funds sold....................... 191 220 422
Interest and dividends on investment securities:
Taxable............................................ 6,242 6,428 5,750
Tax-exempt......................................... 2,270 2,007 1,932
Dividends on stock................................. 195 191 82
--------- --------- ---------
Total Interest Income................................ 40,092 40,284 42,689
--------- --------- ---------
Interest Expense
Interest on time certificates of deposit of
$100,000 or more................................... 488 642 1,249
Interest on all other deposits....................... 13,303 16,187 20,369
Interest on demand notes issued to the U.S. Treasury. 62 77 137
Interest on other borrowed money..................... 1,183 893 1,015
Interest on mortgage indebtedness and obligations
under capitalized leases........................... 6 19 23
--------- --------- ---------
Total Interest Expense............................... 15,042 17,818 22,793
--------- --------- ---------
Net Interest Income.................................. 25,050 22,466 19,896
Provision for loan losses (Note 6)................... 2,430 2,296 1,789
--------- --------- ---------
Net Interest Income after Provision for Loan Losses.. 22,620 20,170 18,107
--------- --------- ---------
Other Operating Income
Income from fiduciary activities..................... 639 596 568
Service charges on deposit accounts.................. 1,891 1,881 1,654
Other service charges, commissions and fees.......... 1,577 1,370 1,234
Mortgage banking..................................... 2,435 1,501 913
Other operating income (Note 8)...................... 2,429 2,551 2,349
Investment securities gains or (losses).............. 8 27 3
--------- --------- ---------
Total Other Operating Income......................... 8,979 7,926 6,721
--------- --------- ---------
Other Operating Expenses
Salaries and employee benefits (Note 12)............. 11,566 10,354 9,258
Net occupancy expense................................ 1,355 1,219 996
Furniture and equipment expense (including depreciation
of $753 in 1993, $714 in 1992 and $648 in 1991).... 1,253 1,177 1,090
FDIC insurance assessment............................ 1,052 984 841
Other operating expenses............................. 5,822 5,188 4,810
--------- --------- ---------
Total Other Operating Expenses....................... 21,048 18,922 16,995
--------- --------- ---------
Income Before Income Taxes........................... 10,551 9,174 7,833
Applicable income taxes (Note 13).................... 2,749 2,331 1,929
--------- --------- ---------
Net Income...........................................$ 7,802 $ 6,843 $ 5,904
========= ========= =========
Earnings per common share:
Net Income.........................................$ 2.72 $ 2.43 $ 2.12
Cash dividends declared per common share.............$ 1.08 $ .96 $ .88
Average shares outstanding...........................2,864,200 2,817,651 2,775,778
See accompanying notes to financial statements
Consolidated Statements of Changes in Stockholders' Equity
Sterling Financial Corporation and Subsidiaries
Shares (Dollars in Thousands)
Common Common Capital Retained Treasury
Stock Stock Surplus Earnings Stock Total
Balance, January 1, 1991
(as previously stated)...... 1,657,100 $ 8,286 $ 14,345 $ 10,620 $ 0 $ 33,251
Cumulative effect of change in
accounting principle......... (310) (310)
Balance, January 1, 1991
(as restated)............... 1,657,100 8,286 14,345 10,310 0 32,941
Net income.................... 5,904 5,904
Common stock issued
Dividend Reinvestment Plan... 27,510 137 781 918
Employee Stock Plan.......... 7,012 35 202 237
Stock dividend issued -
Common stock - 5% including
cash paid in lieu of
fractional shares........... 84,019 420 2,374 (2,812) (18)
Cash dividends declared -
common stock................. (2,245) (2,245)
--------- ------- ------- ------- ------- -------
Balance, December 31, 1991.... 1,775,641 8,878 17,702 11,157 0 37,737
Net income.................... 6,843 6,843
Common stock issued
Dividend Reinvestment Plan... 18,934 95 660 755
Employee Stock Plan.......... 7,433 37 229 266
Three-for-two stock split and
cash paid in lieu of
fractional shares............ 900,619 4,503 (4,503) (11) (11)
Cash dividends declared -
common stock................. (2,575) (2,575)
Purchase of Treasury Stock
(19,007 shares).............. (643) (643)
Issuance of Treasury Stock for
Dividend Reinvestment Plan
(11,221 shares).............. 12 410 422
--------- ------- ------- ------- ------- -------
Balance, December 31, 1992.... 2,702,627 13,513 14,100 15,414 (233) 42,794
Net income.................... 7,802 7,802
Common stock issued
Dividend Reinvestment Plan... 34,951 174 1,159 1,333
Employee Stock Plan.......... 8,760 44 252 296
Stock Dividend issued -
Common stock - 5% including
cash paid in lieu of
fractional shares........... 136,582 683 5,293 (6,008) (32)
Cash dividends declared-
Common stock................. (2,985) (2,985)
Purchase of Treasury Stock
(7,270 shares)............... (267) (267)
Issuance of Treasury Stock for
Dividend Reinvestment Plan
(15,056 shares).............. 26 500 526
--------- ------- ------- ------- ------- ------
Balance, December 31, 1993.... 2,882,920 $ 14,414 $ 20,830 $ 14,223 $ 0 $49,467
========= ======= ======= ======= ======= ======
See accompanying notes to financial statements
Consolidated Statements of Cash Flows
Sterling Financial Corporation and Subsidiaries
For the years ended December 31,
1993 1992 1991
(Dollars in Thousands)
Cash Flows from Operating Activities
Net Income...........................................$ 7,802 $ 6,843 $ 5,904
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation...................................... 983 941 854
Provision for possible loan losses................ 2,430 2,296 1,789
Provision for deferred income taxes............... (299) (705) (457)
(Gain) loss on sale of property and equipment..... none 5 (1)
(Gain) loss on maturities/sales of
investment securities............................ (8) (27) (3)
(Gain) loss on sale of mortgage loans............. (212) 164 88
Proceeds from sales of mortgage loans............. 72,209 52,995 32,921
Originations of mortgage loans held for sale...... (75,428) (53,159) (33,009)
Change in operating assets and liabilities:
(Increase) decrease in accrued interest receivable
and prepaid expenses............................ (705) (734) (2,187)
(Increase) decrease in other assets.............. (1,235) (1,139) (1,397)
Increase (decrease) in accrued interest payable
and accrued expenses........................... 227 (564) 1,071
Increase (decrease) in other liabilities........ (98) 1,271 (283)
--------- --------- ---------
Net cash provided by/(used in) operating activities.. 5,666 8,187 5,290
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits
in other banks..................................... 3,678 4,214 7,131
Purchase of interest-bearing deposits in other banks. (2,818) (900) (5,743)
Proceeds from maturities of investment securities.... 37,019 35,340 23,443
Purchase of investment securities.................... (54,973) (55,025) (47,666)
Federal funds sold, net.............................. (9,150) 11,250 (8,450)
Net loans and leases made to customers............... (11,486) (32,094) (7,665)
Purchases of premises and equipment.................. (827) (1,577) (1,274)
Proceeds from sale of premises and equipment......... 12 34 33
--------- --------- ---------
Net cash provided by/(used in) investing activities.. (38,545) (38,758) (40,191)
Cash Flows from Financing Activities
Net increase in demand deposits, NOW and
savings accounts................................... 43,978 54,138 35,422
Net increase (decrease) in time deposits............. (11,482) (15,477) (721)
Net increase in interest-bearing demand notes
issued to the U.S. Treasury........................ none none none
Proceeds from borrowings............................. 14,016 12,800 6,020
Repayments of borrowings............................. (9,329) (7,300) (8,454)
Repayments of mortgages payable and capitalized
lease liability.................................... (207) (50) (46)
Proceeds from issuance of common stock............... 1,629 1,021 1,155
Cash dividends paid.................................. (2,985) (2,575) (2,245)
Cash paid in lieu of fractional shares............... (32) (11) (18)
Acquisition of treasury stock........................ (267) (643) none
Proceeds from issuance of treasury stock............. 526 422 none
--------- --------- ---------
Net cash provided by/(used in) financing activities.. 35,847 42,325 31,113
--------- --------- ---------
Increase (decrease) in cash and due from banks....... 2,968 11,754 (3,788)
Cash and due from banks:
Beginning............................................ 33,222 21,468 25,256
--------- --------- ---------
Ending...............................................$ 36,190 $ 33,222 $ 21,468
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on borrowed money..$ 15,383 $ 18,549 $ 23,123
Income taxes....................................... 3,110 2,675 1,970
Supplemental Schedule of Noncash Investing and
Financing Activities
Other real estate acquired in settlement of loans....$ 121 $ 810 $ none
See accompanying notes to financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sterling Financial Corporation and Subsidiaries
Note 1 - Formation of Sterling Financial Corporation
As a result of a plan of reorganization, The First National Bank of
Lancaster County, now by name change, Bank of Lancaster County, N.A.
(Bank), became the wholly owned subsidiary of Sterling Financial
Corporation (Parent Company), a new bank holding company, at the close
of business June 30, 1987. Each outstanding share of the Bank's common
stock (par value $10.00) was converted into two shares of common stock
(par value $5.00) of the Parent Company. The authorized capital of the
Parent Company is 10,000,000 shares of common stock.
Note 2 - Summary of Significant Accounting Policies
The accounting and reporting policies of Sterling Financial
Corporation and its subsidiaries conform to generally accepted
accounting principles and to general practices within the banking
industry. The following is a summary of the most significant policies.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Sterling Financial Corporation and
its wholly owned subsidiaries, Bank of Lancaster County, N.A. and its
subsidiary Town & Country, Inc., and Sterling Mortgage Services, Inc.
(presently inactive). All significant intercompany transactions have
been eliminated in the consolidation.
Investment Securities - Investment securities are carried at cost
adjusted for amortization of premiums and accretion of discounts, both
computed on the constant yield method. Investment securities primarily
consist of debt securities which are carried at amortized cost. It is
management's intent to hold investment account securities until
maturity. Gains and losses on the sale of investment securities are
determined on the specific identification basis and are included in
Other Operating Income in the Consolidated Statements of Income.
Permanent impairments of market value are reflected in the period
ascertained. No securities were considered available for sale or held
for trading purposes at December 31, 1993 and 1992.
Premises and Equipment - Premises, furniture and equipment, leasehold
improvements, and capitalized leases are stated at cost, less
accumulated depreciation and amortization. For book purposes,
depreciation is computed primarily by using the straight-line method
over the estimated useful life of the asset. Charges for maintenance
and repairs are expensed as incurred. Gains and losses on dispositions
are reflected in current operations.
Other Real Estate Owned - Other real estate owned is carried at the
lower of cost or an amount not in excess of estimated fair value.
Allowance for Loan Losses - The provision for loan losses charged to
operating expense reflects the amount deemed appropriate by management
to produce an adequate reserve to meet the present and foreseeable risk
characteristics of the loan portfolio. Management's judgement is based
on the evaluation of individual loans and their overall risk
characteristics, past loan loss experience, and other relevant factors.
Loan losses are charged directly against the allowance and recoveries on
previously charged-off loans are added to the allowance.
Interest Income - Interest on installment loans is recognized
primarily on the simple interest, actuarial and the rule of seventy-
eights methods. Interest on other loans is recognized based upon the
principal amount outstanding. The general policy has been to cease
accruing interest on loans when it is determined that a reasonable doubt
exists as to the collectibility of additional interest. Interest income
on these loans is only recognized to the extent payments are received.
Federal Income Taxes - Applicable income taxes are based on income as
reported in the consolidated financial statements. Deferred income
taxes are provided for those elements of income and expense which are
recognized in different periods for financial reporting and income tax
purposes. Statement of Financial Accounting Statements (SFAS) No. 109 -
Accounting for Income Taxes, which changes the method of accounting for
income taxes, was retroactively applied in 1993 which resulted in a
decrease of $310,000 in retained earnings beginning January 1, 1991.
Earnings after this date have not been restated since the change is not
considered material.
Trust Department Assets and Income - Trust assets held by the Bank in
a fiduciary or agency capacity for customers of the Trust Department are
not included in the financial statements since such items are not assets
of the Bank. Trust income has been recognized on the cash basis which
is not significantly different from amounts that would have been
recognized on the accrual basis.
Earnings per Share - Earnings per common share were computed by
dividing net income by the weighted average number of shares of common
stock outstanding which were 2,864,200, 2,817,651, and 2,775,778 for
1993, 1992 and 1991 respectively, after giving retroactive effect to a
three-for-two stock split in the form of a 50% stock dividend paid in
1992 and a 5% stock dividend paid in December 1993.
Presentation of Cash Flows - For purposes of reporting cash flows,
cash and due from banks includes cash on hand and amounts due from banks
(including cash items in process of clearing).
Reclassifications - Certain income items for prior years have been
reclassified in order to conform with the current year presentation with
no effect to net income.
Note 3 - Restrictions on Cash and Due From Banks
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for
the year ended December 31, 1993 was approximately $6,658,000. Balances
maintained at the Federal Reserve Bank are included in cash and due from
banks.
Note 4 - Investment Securities
Securities pledged to secure government and other public deposits,
trust deposits, short-term borrowings, and other balances as required or
permitted by law were carried at $28,295,144 in 1993 and $22,463,103 in
1992. The amortized cost and estimated market values of investment
securities are as follows:
December 31, 1993
(Dollars in Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities............$ 23,996 $ 475 $ 46 $ 24,425
Obligations of other U.S. Government
agencies and corporations......... 22,880 422 17 23,285
Obligations of states and political
subdivisions...................... 43,491 1,825 47 45,269
Mortgage-backed securities.......... 5,834 243 3 6,074
Other bonds, notes and debentures... 47,959 1,066 56 48,969
----------- ---------- ---------- --------
Subtotal............................ 144,160 4,031 169 148,022
Federal Reserve and corporate stock. 2,305 1,117 none 3,422
----------- ---------- ---------- --------
Total...............................$ 146,465 $ 5,148 $ 169 $ 151,444
=========== ========== ========= ========
December 31, 1992
(Dollars in Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities............$ 20,732 $ 432 $ 28 $ 21,136
Obligations of other U.S. Government
agencies and corporations......... 19,853 520 20 20,353
Obligations of states and political
subdivisions...................... 35,119 1,250 92 36,277
Mortgage-backed securities.......... 7,175 306 1 7,480
Other bonds, notes and debentures... 43,466 899 96 44,269
---------- --------- -------- --------
Subtotal............................ 126,345 3,407 237 129,515
Federal Reserve and corporate stock. 2,158 1,727 none 3,885
---------- ---------- --------- --------
Total...............................$ 128,503 $ 5,134 $ 237 $ 133,400
=========== ========== ========= =========
The balance sheet lists Investment Securities by major categories
while certain footnotes or tables list mortgage-backed securities as a
separate category. Mortgage-backed securities are either Obligations of
Other U.S. Government Agencies or Other (Corporate) Securities. In
1993, such securities were listed at $5,834,000 of which $5,023,000 were
Obligations of Other U.S. Government Agencies and $811,000 were listed
in Other Securities. In 1992, $7,175,000 were listed as mortgage-backed
securities of which $6,552,000 were Obligations of Other U.S. Government
Agencies and $623,000 were listed in Other Securities.
The amortized cost and estimated market value of debt securities at
December 31, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
(Dollars in Thousands)
Estimated
Amortized Market
Cost Value
Due in one year or less................$ 22,489 $ 22,757
Due after one year through five years.. 85,170 87,385
Due after five years through ten years. 24,764 25,662
Due after ten years.................... 5,903 6,144
---------- ----------
138,326 141,948
Mortgage-backed securities............. 5,834 6,074
========== ==========
$ 144,160 $ 148,022
========== ==========
There were no sales of investments in debt securities during 1993,
1992 or 1991.
Note 5 - Loans
Loans outstanding at December 31, are as follows:
1993 1992
(Dollars in Thousands)
Commercial, financial and agricultural.............$ 191,431 $ 172,482
Real estate - construction.......................... 10,265 16,044
Real estate - mortgage.............................. 22,335 30,445
Consumer............................................ 101,256 99,444
Lease financing receivables (net of unearned income) 35,443 32,768
-------- ---------
Total loans, gross.................................$ 360,730 $ 351,183
========= =========
Loans on a non-accrual status amounted to $2,960,038 at December
31, 1993, compared to $4,129,295 at December 31, 1992. If interest
income had been recorded on all such loans for the years indicated, such
interest income would have increased by approximately $267,295 and
$293,967 for 1993 and 1992 respectively.
Note 6 - Allowance for Loan Losses
Changes in the Allowance for Loan Losses were as follows:
1993 1992 1991
(Dollars in Thousands)
Balance at January 1..................................$ 5,400 $ 4,400 $ 3,375
Recoveries credited to allowance...................... 240 316 146
Provisions for loan losses charged to income.......... 2,430 2,296 1,789
---------- ---------- -----------
Total................................................. 8,070 7,012 5,310
Losses charged to allowance............................ 890 1,612 910
----------- ----------- -----------
Balance at December 31................................$ 7,180 $ 5,400 $ 4,400
=========== =========== ===========
Note 7 - Premises and Equipment
Premises and equipment at December 31, 1993 and 1992 is summarized as
follows:
1993 1992
(Dollars in Thousands)
Land.........................................$ 885 $ 885
Buildings.................................... 5,718 5,718
Buildings under capitalized lease............ 104 104
Leasehold improvements....................... 553 553
Equipment, furniture and fixtures............ 7,577 6,798
----------- -----------
14,837 14,058
Less: Accumulated depreciation............... (7,413) (6,466)
----------- -----------
$ 7,424 $ 7,592
=========== ===========
Depreciation expense amounted to $983,345 in 1993, $940,843 in 1992
and $854,252 in 1991.
Note 8 - Other Assets
Included in other assets for 1993 and 1992 is $17,186,239 and
$16,809,324 respectively which represents operating leases generated by
Town & Country, Inc. The income generated from the leases for 1993 and
1992 amounted to $1,736,814 and $1,824,796 respectively and is reflected
in other operating income.
The following schedule provides an analysis of Town & Country's
investment in property on operating leases and property held for lease
by major classes as of December 31, 1993 and 1992:
1993 1992
(Dollars in Thousands)
Construction equipment...........$ 1,049 $ 436
Transportation equipment......... 7,235 7,357
Automobiles...................... 12,106 10,673
Manufacturing equipment.......... 4,376 4,292
Trucks........................... 8,075 6,441
Other............................ 362 277
----------- -----------
Total............................ 33,203 29,476
Less: Accumulated depreciation... (16,017) (12,667)
----------- -----------
$ 17,186 $ 16,809
=========== ===========
The following is a schedule by years of minimum future rentals on noncancelable operating leases as
of December 31, 1993:
Year ending December 31: (Thousands)
1994...............................$ 9,022
1995................................ 1,413
1996................................ 201
1997................................ 37
1998................................ none
Later years......................... none
-------
Total minimum future rentals.......$ 10,673
=======
Note 9 - Time Certificates of Deposit
At December 31, 1993 and 1992, time certificates of deposit of
$100,000 or more aggregated $13,159,166 and $13,681,887 respectively.
Note 10 - Other Liabilities for Borrowed Money
The following represents other liabilities for borrowed money at
December 31:
1993 1992
Notes payable-Town & Country, Inc.(Subsidiary of Bank)
borrowings from various lenders for leasing operations......$17,838,595 $14,722,972
Federal Home Loan Bank advances............................... 1,571,450 none
----------- -----------
Total.........................................................$19,410,045 $14,722,972
Liabilities in connection with Town & Country, Inc. leasing operations
are payable to various lenders at various terms. The estimated current
portion of this debt is $8,027,368 at December 31, 1993. The borrowings
from the Federal Home Loan Bank of Pittsburgh consist of two advances in
1993. One in the amount of $621,450, bears interest monthly at the rate
of 4.49% per year and matures July 29, 1996. The second, in the amount
of $950,000 bears interest at the rate of 5.39% per year and matures
September 13, 2000.
Note 11 - Mortgages Payable and Capitalized Lease Liability
The Bank entered into a transaction with the Lancaster Industrial
Development Authority in 1976 through The First Federal Savings and Loan
Association of Lancaster, which became Penn Savings Bank, which has now
become Sovereign Bank, to finance the construction of the Millersville
office. The balance on this obligation was $85,292 on December 31,
1992. This obligation was paid in full in 1993. The rate of interest
was 7 1/2%.
In 1978, the Bank entered into another transaction with the
Lancaster Industrial Development Authority through The First Federal
Savings and Loan Association of Lancaster, which became Penn Savings
Bank, which has now become Sovereign Bank, to purchase the building for
our Duke Street (Lancaster) Office. The balance on this obligation was
$109,844 on December 31, 1992. This obligation was paid in full in
1993. The rate of interest was 7%.
The Bank leases the Fruitville Pike Office building. This lease
was entered into in 1979. This is a capitalized lease and is accounted
for and depreciated as bank-owned property, with lease payments
accounted for as interest and debt reduction. The obligation under
capitalized lease liability amounted to $11,188 on December 31, 1993 and
$23,350 on December 31, 1992. Lease payments amount to $1,676 monthly
of which $1,175.61 is applied as interest and debt reduction and the
remaining $500.39 is for land rental and treated as an operating lease.
The term of this lease is 15 years with renewal options available.
The following is a schedule of the total future minimum lease
payments together with the present value of the net minimum lease
payments related to the capitalized lease payments as of December 31,
1993.
Capitalized
Lease
1994..................................$ 11,753
1995.................................. none
1996.................................. none
1997.................................. none
1998.................................. none
Later years........................... none
--------
Total minimum lease payments..........$ 11,753
Less: Amount representing interest.... (565)
--------
Net obligations under capitalized
lease..............................$ 11,188
========
Note 12 - Pension and Employee Stock Bonus Plan
The Bank of Lancaster County, N.A. and its subsidiary, Town &
Country, Inc. maintains a qualified non-contributory pension plan for
their employees. The Plan specifies fixed benefits to provide a monthly
pension benefit at age 65 for life (with payments guaranteed for 10
years) equal to one and one-half percent of each participant's final
average salary (highest five consecutive years' base compensation
preceding retirement) for each year of credited service. All employees
with one year of service who work at least 1,000 hours per year and who
are at least age 21 are eligible to participate. A participant becomes
100% vested upon completion of five years of service.
Sterling Financial Corporation has adopted the provision of
Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions", for the year ended December 31, 1987. The net
periodic pension cost for 1993, 1992 and 1991 was $574,627, $328,019 and
$257,444 respectively.
Net periodic pension cost for 1993, 1992 and 1991 included the
following:
1993 1992 1991
Service cost.......................$ 559,665 $ 407,609 $ 345,032
Interest cost...................... 404,381 315,831 258,764
Return on Plan assets.............. (346,736) (465,122) (546,687)
Net amortization and deferral...... (42,683) 69,701 200,335
--------- --------- ---------
Net periodic pension cost..........$ 574,627 $ 328,019 $ 257,444
========= ========= =========
The following table sets forth the Plan's funded status at December 31, 1993, 1992 and 1991:
Actuarial present value of benefit obligations:
1993 1992 1991
Accumulated benefit obligation, including vested
benefits of $3,684,272 for 1993, $2,761,915 for 1992
and $2,048,650 for 1991.............................$ 3,748,356 $ 2,858,390 $ 2,154,937
========== ========== ==========
Projected benefit obligation for service rendered to
date................................................ $(6,466,414)$(5,630,730)$(3,978,681)
Plan assets at fair value.. ......................... 5,472,414 4,511,618 3,724,979
---------- ---------- ----------
Projected plan assets in excess of or (less than)
benefit obligation...................................$ (994,000)$(1,119,112)$ (253,702)
Unrecognized net (gain) or loss from past experience
different from that assumed and effects of changes
in assumptions....................................... 1,404,004 1,410,150 496,241
Unrecognized net (asset) or obligation................ (414,546) (483,638) (552,730)
---------- ---------- ----------
Prepaid (accrued) pension cost included
in other assets (liabilities)........................ $ (4,542)$ (192,600)$ (310,191)
========== ========== ==========
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 6.5% and 5%, respectively, at
December 31, 1993. The expected long-term rate of return on plan assets
in 1993 was 9%.
The Board of Directors of the Bank adopted an employee stock plan
effective July 1, 1981. The assets of the Plan will be entirely
invested in Sterling Financial Corporation common stock. The Plan
covers all Bank employees who are age 18 and over, are employed for at
least 1,000 hours per year and have completed at least one year of
service. The Plan has two parts:
*The Thrift Incentive portion of the Plan permits any eligible
participant to make voluntary contributions to the Plan ranging from 2%
to 6% of compensation. The Bank will contribute 25% of what the
participant contributes. This portion of the Plan is
intended to encourage thrift and investment in Sterling Financial
Corporation stock.
*The Performance Incentive portion of the Plan allows the Bank to
make annual contributions to the Plan based on certain overall Bank
performance objectives. These contributions will be allocated to the
participants based on compensation.
Bank contributions to the Plan vest in each participant's account
at the rate of 20% for each year of service. Normally, benefits may be
paid from the Plan on retirement, termination, disability or death.
Participants in the Plan may withdraw their own contribution earlier
under several restricted conditions of hardship with approval of the
Plan Committee. The Plan provides that each participant may vote the
shares in his or her account through the Plan Trustee at any shareholder
meeting. The Bank of Lancaster County Trust Department serves as
Trustee for the Plan. All dividends received on Sterling Financial
Corporation stock are reinvested in additional shares of Sterling
Financial Corporation stock.
The contribution to the Performance Incentive portion of the Plan
was $200,000, $165,000 and $150,000 for 1993, 1992 and 1991
respectively. The contribution to the Thrift Incentive portion of the
Plan was $41,766 in 1993, $37,291 in 1992 and $32,685 in 1991.
Note 13 - Applicable Income Taxes
The effective income tax rates for financial reporting purposes are
less than the Federal statutory rate of 34% for 1993, 1992 and 1991 for
reasons shown as follows:
For the years ended December 31,
1993 1992 1991
(Dollars in Thousands)
Federal income tax expense at statutory rate.........$ 3,587 $ 3,119 $ 2,663
Reduction resulting from:
Non-taxable interest income........................ (895) (837) (872)
Other, net......................................... 20 12 105
----------- --------- --------
Applicable Federal income taxes......................$ 2,712 $ 2,294 $ 1,896
State income taxes................................... 37 37 33
----------- --------- --------
Applicable income taxes..............................$ 2,749 $ 2,331 $ 1,929
=========== ========= ========
Taxes currently payable..............................$ 3,048 $ 3,036 $ 2,386
Deferred income taxes................................ (299) (705) (457)
----------- --------- --------
Applicable income taxes..............................$ 2,749 $ 2,331 $ 1,929
=========== ========= ========
The deferred income tax provision consists of the following items:
Years ended December 31,
1993 1992 1991
(Dollars in Thousands)
Difference between loan loss provision
charged to operating expense and bad
debt deduction taken for income tax
purposes....................................$ (687) $ (755) $ (363)
Difference between the depreciation
methods used for financial statements
and for income tax purposes................. (64) 199 (19)
Income on leases recognized by the
direct finance method for financial
statements but recognized by the
operating method for income tax purposes.... 526 333 327
Difference in gains and losses on
disposal of leased assets due to the
use of direct finance method for
financial statements and operating
method for income tax purposes.............. (215) (398) (260)
Difference due to the amount of pension
expense deductible for financial
statement purposes and that which is
deductible for income tax purposes.......... 64 47 (88)
Various deferral items....................... 77 (131) (54)
--------- --------- ---------
$ (299) $ (705) $ (457)
========= ========= =========
The Financial Accounting Standards Board has issued Statement No.
109, Accounting for Income Taxes, which significantly changes the
recognition and measurement of deferred income tax assets and
liabilities. Statement 109 requires that deferred income taxes be
recorded on an asset/liability method and adjusted when new tax rates
are enacted. The Company adopted Statement No. 109 beginning with its
year ending December 31, 1993. The Statement provides that the effect
of its adoption may be recorded entirely in the year of adoption
retroactively by restating one or more prior years. The statement was
retroactively applied in 1993.
Note 14 - Operating Leases
The Bank leases certain banking facilities under operating leases
which expire on various dates to 2022. Renewal options are available on
these leases. Minimum future rental payments as of December 31, 1993
are as follows:
Operating
Leases
(Dollars in Thousands)
1994.........................$ 395
1995......................... 390
1996......................... 383
1997......................... 337
1998......................... 285
Later years.................. 2,165
---------
Total minimum future rental
payments...................$ 3,955
=========
Total rent expense charged to operations amounted to $373,332 in
1993, $334,654 in 1992 and $282,760 in 1991.
Note 15 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Short-Term Investments- For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities- For investment securities, fair value equals
quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
Loans- For certain homogenous categories of loans, such as some
residential mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences
in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Lease contracts as
defined in FASB Statement No. 13, Accounting for Leases, are not
included in this disclosure statement.
Deposit Liabilities- The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposits is estimated using the rates currently offered for deposits of
similar remaining maturities.
U.S. Treasury Demand Notes- For U.S. Treasury demand notes, the carrying
amount is a reasonable estimate of fair value.
Other Borrowings- Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value
of existing debt.
Commitments to Extend Credit and Standby Letters of Credit- The fair
value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms
of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
committed rates. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The estimated fair values of the Corporation's financial
instruments are as follows:
1993 1992
(Dollars in Thousands)
--------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Financial Assets:
Cash and short-term investments....$ 48,580 $ 48,580 $ 37,322 $ 37,322
Investment Securities.............. 146,465 151,444 128,503 133,400
Loans.............................. 328,718 318,415
Less: Allowance for Loan Losses... (6,604) (4,916)
---------- ---------- --------- ---------
Net Loans...........................$ 322,114 $ 326,468 $ 313,499 $ 320,091
Financial Liabilities:
Deposits..........................$ 505,680 $ 507,651 $ 473,184 $ 475,871
U.S. Treasury Demand Notes........ 3,000 3,000 3,000 3,000
Other borrowings.................. 19,421 19,404 14,941 15,035
Unrecognized Financial Instruments:*
Interest Rate Swaps:
In a net receivable position..... none none none none
In a net payable position........ (none) (none) (none) (none)
Commitments to extend credit...... (76) (76) (69) (69)
Standby Letters of Credit......... (36) (36) (10) (10)
Financial Guarantees written...... (none) (none) (none) (none)
* The amounts shown under "Carrying Amount" represent accruals or
deferred income (fees) arising from those unrecognized financial
instruments.
Note 16 - Commitments and Contingent Liabilities
In the normal course of business, there are various commitments and
contingent liabilities which are not reflected in the financial
statements. These include lawsuits and commitments to extend credit,
guarantees and letters of credit. In the opinion of management, there
are no material commitments which represent unusual risks.
A summary of the more significant commitments as of December 31,
1993 and 1992 are as follows:
Financial instruments whose contract amounts
represent credit risk:
1993 1992
(Dollars in Thousands)
Standby letters of credit ....................$ 8,845 $ 6,525
Commitments to extend credit..................$ 60,479 $ 73,324
Standby letters of credit are obligations to make payments under
certain conditions to meet contingencies related to customers'
contractual agreements and are subject to the same risk, credit review
and approval process as loans.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Each customer's creditworthiness is evaluated on a case-
by-case basis. Excluded from these amounts are commitments to extend
credit in the form of retail credit cards, check credit or related
plans.
Note 17 - Related Party Transactions
Certain directors and officers of Sterling Financial Corporation
and its subsidiaries, their immediate families and companies in which
they are principal owners (more than 10%), were indebted to the Bank
during 1993 and 1992. All loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and, in the
opinion of the management of the Bank, do not involve more than a normal
risk of collectibility or present other unfavorable features. Total
loans to these persons at December 31, 1993 and 1992 amounted to
$6,418,156 and $6,074,919 respectively. During 1993, $9,525,106 of new
loans were made and repayments totaled $9,181,869.
Note 18 - Dividend and Loan Restrictions
Dividends are paid by Sterling Financial Corporation from its
assets which are mainly provided by dividends from Bank of Lancaster
County, N.A. However, certain restrictions exist regarding the ability
of the Bank to transfer funds to Sterling Financial Corporation in the
form of dividends. The approval of the Comptroller of the Currency
shall be required if the total of all dividends declared by the Bank in
any calendar year shall exceed the total of its net profits of that year
combined with its retained net profits of the preceding two years.
Under these restrictions, the Bank can declare dividends in 1994 without
approval of the Comptroller of the Currency of approximately $11,920,000
plus an additional amount equal to the Bank's net profits for 1994 up to
the date of any such dividend declaration.
Under current Federal Reserve regulations, the Bank is limited in
the amount it may loan to Sterling Financial Corporation. Loans to
Sterling Financial Corporation may not exceed 10% of the Bank's capital
stock and surplus.
Note 19 - Sterling Financial Corporation (Parent Company Only) Financial
Information
Condensed Balance Sheets
As of December 31,
1993 1992
(Dollars in Thousands)
Assets
Cash.................................................$ 390 $ 28
Interest-bearing deposits in other banks............. none 100
Investment in subsidiaries at equity................. 49,699 43,009
Other assets......................................... 185 373
---------- ---------
Total Assets...........................................$ 50,274 $ 43,510
========== =========
Liabilities
Other liabilities....................................$ 807 716
Stockholders' Equity
Common Stock.........................................$ 14,414 $ 13,513
Capital Surplus...................................... 20,830 14,100
Retained Earnings.................................... 14,223 15,414
Less: Treasury Stock at cost......................... none (233)
---------- ---------
Total Stockholders' Equity.............................$ 49,467 $ 42,794
---------- ---------
Total Liabilities and Stockholders' Equity.............$ 50,274 $ 43,510
========== =========
Condensed Statements of Income
Years Ended December 31,
1993 1992 1991
(Dollars in Thousands)
Income
Dividends from subsidiaries............$ 1,262 $ 1,731 $ 1,413
Other income........................... 1 1 1
---------- ----------- ----------
Total Income......................... 1,263 1,732 1,414
---------- ----------- ----------
Expenses
Fees paid to subsidiary................ 108 84 70
Other expense.......................... 121 96 92
---------- ----------- ----------
Total Expense........................ 229 180 162
---------- ----------- ----------
Income before income taxes and equity
in undistributed net income
of subsidiaries........................ 1,034 1,552 1,252
Income taxes (credits)................... (78) (61) (55)
---------- ----------- ----------
1,112 1,613 1,307
Equity in undistributed income of
subsidiaries........................... 6,690 5,230 4,597
---------- ----------- ----------
Net Income...............................$ 7,802 $ 6,843 $ 5,904
========== =========== ==========
Statements of Cash Flows
Years Ended December 31,
1993 1992 1991
(Dollars in Thousands)
Cash flows from operating activities
Net income.....................................$ 7,802 $ 6,843 $ 5,904
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Undistributed (earnings) loss of subsidiaries. (6,690) (5,230) (4,597)
Changes in operating assets and liabilities:
(Increase) decrease in other assets......... 188 242 (312)
(Decrease) increase in other liabilities.... 91 52 105
----------- ---------- ----------
Net cash provided by/(used in)
operating activities....................... 1,391 1,907 1,100
----------- ---------- ----------
Cash flows from investing activities
Proceeds of interest-bearing deposits
in other banks................................ 100 none none
Purchase of interest-bearing deposits
in other banks................................ none (100) none
------------ ---------- ----------
Net cash provided by/(used in) investing
activities................................. 100 (100) none
------------ ---------- ----------
Cash flows from financing activities
Proceeds from issuance of common stock......... 1,629 1,021 1,155
Cash dividends paid............................ (2,985) (2,575) (2,245)
Cash dividends paid in lieu of
fractional shares............................. (32) (11) (18)
Acquisition of treasury stock.................. (267) (643) none
Proceeds from issuance of treasury stock....... 526 422 none
------------ ----------- ------------
Net cash provided by/(used in) financing
activities.................................. (1,129) (1,786) (1,108)
------------ ----------- ------------
Increase (decrease) in cash.................. 362 21 (8)
Cash
Beginning..................................... 28 7 15
----------- ----------- ------------
Ending........................................$ 390 $ 28 $ 7
=========== =========== ============
Summary of Quarterly Financial Data (Unaudited)
Sterling Financial Corporation and Subsidiaries
The following is a summary of the quarterly results of operations
for the years ended December 31, 1993 and 1992. Net income per share of
common stock has been restated to retroactively reflect a three-for-two
stock split in the form of a 50% stock dividend paid in 1992 and a 5%
stock dividend in 1993.
(In thousands, except per share)
1993
Quarter Ended
March June September December
31 30 30 31
Interest income..................$ 9,891 $ 10,009 $ 9,985 $ 10,207
Interest expense................. 3,870 3,775 3,761 3,636
-------- -------- -------- --------
Net interest income.............. 6,021 6,234 6,224 6,571
Provision for loan losses........ 820 748 469 393
-------- -------- -------- --------
Net interest income after
Provision for loan losses...... 5,201 5,486 5,755 6,178
Other income..................... 2,129 2,187 2,384 2,279
Other expenses................... 4,904 5,160 5,383 5,601
-------- -------- -------- --------
Income before income taxes....... 2,426 2,513 2,756 2,856
Applicable income taxes.......... 615 642 744 748
-------- -------- -------- --------
Net income.......................$ 1,811 $ 1,871 $ 2,012 $ 2,108
======== ======== ======== ========
Net income per share of
common stock...................$ .64 $ .65 $ .70 $ .73
1992
Quarter Ended
March June September December
31 30 30 31
Interest income..................$ 10,414 $ 9,950 $ 9,973 $ 9,947
Interest expense................. 4,823 4,605 4,318 4,072
-------- -------- -------- --------
Net interest income.............. 5,591 5,345 5,655 5,875
Provision for loan losses........ 557 785 536 418
-------- -------- -------- --------
Net interest income after
provision for loan losses...... 5,034 4,560 5,119 5,457
Other income..................... 1,577 2,166 2,033 2,150
Other expenses................... 4,462 4,441 4,830 5,189
-------- -------- -------- --------
Income before income taxes....... 2,149 2,285 2,322 2,418
Applicable income taxes.......... 551 603 550 627
-------- -------- -------- --------
Net income.......................$ 1,598 $ 1,682 $ 1,772 $ 1,791
======== ======== ======== ========
Net income per share of
common stock...................$ .57 $ .59 $ .63 .64
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Incorporated by reference is the information appearing under the
heading "Information about Nominees and Continuing Directors" on pages
5 and 6 of the 1994 Proxy Statement and under the heading "Officers and
Executive Officers" on page 7 of the 1994 Proxy Statement.
Item 11 - Executive Compensation
Incorporated by reference is the information under the heading
"Compensation of Directors" on page 11 of the 1994 Proxy Statement and
under the heading "Executive Compensation" on page 7 of the 1994 Proxy
Statement.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference is the information appearing under the
heading "Voting of Shares of Principal Holders Thereof" on page 3 of the
1994 Proxy Statement and under the heading "Information about Nominees
and Continuing Directors" on pages 5 and 6 of the 1994 Proxy Statement.
Item 13 - Certain Relationships and Related Transactions
Incorporated by reference is the information appearing under the
heading "Transactions with Directors and Executive Officers" on page 12
of the 1994 Proxy Statement and under "Notes to Consolidated Financial
Statements - Note 17 - Related Party Transactions" on page 34 of the
Form 10-K for the year ended December 31, 1993.
PART IV
Item 14 - Exhibits, Financial Statement Schedules and
Reports of Form 8-K
(a) The following documents are filed as part of
this report:
1. The financial statements listed on the
index set forth in Item 8 of this Annual
Report on Form 10-K are filed as part of
this Annual Report.
2. Financial Statement Schedules
All schedules are omitted because they are
not applicable, the data are not
significant or the required information is
shown in the financial statements or the
notes thereto or elsewhere herein.
3. Exhibits
The following is a list of the Exhibits
required by Item 601 of Regulation S-K
and are incorporated by reference herein or
annexed to this Annual Report.
1. Articles of Incorporation and Bylaws
of Sterling Financial Corporation
incorporated by reference to Exhibit
3 of Registration Statement on Form
S-4 (No. 33-12635) filed with the
Securities and Exchange Commission on
March 13, 1987.
2. Material Contracts - Employment
Agreement of John E. Stefan,
President and Chief Executive Officer
of Sterling Financial Corporation and
Bank of Lancaster County, N.A. -
incorporated by reference to
Quarterly Report on Form
10-Q for the quarter ended September
30, 1987.
3. List of Subsidiaries
4. Consent of Auditors
(b) Reports on Form 8-K
A report on Form 8-K dated October 26, 1993
was filed during the third quarter of 1993
pursuant to Item 5 of Form 8-K relating to a
5% stock dividend declared on October 26,
1993, to shareholders of record, November 17,
1993 and payable December 6, 1993.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STERLING FINANCIAL CORPORATION
By:
John E. Stefan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Title
JOHN E. STEFAN President and Chief
(John E. Stefan) Executive Officer;
Director
RONALD L. BOWMAN Secretary/Treasurer
(Ronald L. Bowman)
RICHARD L. ALBRIGHT, JR. Director
(Richard H. Albright, Jr.)
JOHN E. BURKHOLDER Director
(John E. Burkholder)
ROBERT H. CALDWELL Director
(Robert H. Caldwell)
HOWARD E. GROFF, JR. Director
(Howard E. Groff, Jr.)
J. ROBERT HESS Director
(J. Robert Hess)
CALVIN G. HIGH Director
(Calvin G. High)
E. GLENN NAUMAN Director
(E. Glenn Nauman)
GLENN R. WALZ Director
(Glenn R. Walz)
Exhibit Index
Page
Exhibits Required Pursuant to (in accordance with
Item 601 of Regulation S-K sequential numbering system)
3. Articles of Incorporation and Bylaws of
Sterling Financial Corporation incorporated
by reference to Exhibit 3 of Registration
Statement on Form S-4 (No. 33-12635)
filed with the Securities and Exchange
Commission on March 31, 1987
10. Material Contracts - Employment Agreement of
John E. Stefan, President and Chief Executive Officer
of Sterling Financial Corporation
and Bank of Lancaster County, N.A. -
incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1987
22. List of Subsidiaries 43
24. Consent of Auditors 44
EXHIBIT 22
LIST OF SUBSIDIARIES
The following are the subsidiaries of Sterling Financial Corporation:
Subsidiary State of Incorporation or Organization
Bank of Lancaster County, N.A. Pennsylvania
1 East Main Street (National Banking Association)
P.O. Box 0300
Strasburg, PA 17579
Town & Country, Inc. (Wholly owned Pennsylvania
Subsidiary of Bank of Lancaster
County, N.A.)
640 East Oregon Road
Lancaster, PA 17601
Sterling Mortgage Services, Inc. Pennsylvania
(Presently inactive)
525 Greenfield Road
P.O. Box 10608
Lancaster, PA 17605-0608
Trout, Ebersole & Groff
Certified Public Accountants
1705 Oregon Road
Lancaster, Pennsylvania 17601
(717) 569-2900
FAX (717) 569-0141
Exhibit 24
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in Registration
Statement No. 33-16049 on form S-3 filed July 24, 1987 of our opinion
dated January 21, 1994, on the consolidated financial statements of
Sterling Financial Corporation for the year ended December 31, 1993 as
set forth in this Form 10-K.
TROUT, EBERSOLE & GROFF
Trout, Ebersole & Groff
Certified Public Accountants
Lancaster, Pennsylvania
March 8, 1994