FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-16276
STERLING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-2449551
(I.R.S. Employer Identification No.)
525 Greenfield Road, P.O. Box 10608
Lancaster, Pennsylvania 17605-0608
(Address of principal executive offices) (Zip Code)
(717) 295-7551
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $5.00 Par Value-2,927,412 shares outstanding as of
July 31, 1994.
Sterling Financial Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
as of June 30, 1994 (Unaudited), December 31, 1993,
and June 30, 1993 (Unaudited).
Consolidated Statements of Income
for the Three and Six Months ended June 30, 1994
and 1993 (Unaudited).
Consolidated Statements of Cash Flows
for the Six Months ended
June 30, 1994 and 1993 (Unaudited).
Notes to Consolidated Financial
Statements (Unaudited).
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signature Page
List of Subsidiaries
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, December 31, June 30,
1994 1993 1993
ASSETS (Unaudited) (Unaudited)
Cash and due from banks.....$ 29,964,363$ 36,189,703$ 24,457,875
Interest-bearing deposits
in other banks............. 10,293 40,595 1,000,000
Federal funds sold.......... 9,000,000 12,350,000 3,500,000
Mortgage loans held for sale 74,456 3,431,375 none
Investment Securities:
Securities held to maturity
(market value-$143,774,572;
$151,443,866;$137,520,910). 144,788,869 146,465,280 132,375,587
Securities available
for sale................... 7,647,916 none none
Loans....................... 376,718,918 360,730,048 368,352,300
Less: Unearned Income...... (1,034,605) (1,365,646) (1,868,525)
Allowance for loan
losses............... (7,544,625) (7,180,000) (6,705,304)
----------- ----------- -----------
Loans, Net.................. 368,139,688 352,184,402 359,778,471
----------- ----------- -----------
Premises and Equipment...... 9,247,633 7,424,265 7,378,183
Other real estate owned..... 121,082 250,608 330,000
Accrued interest receivable
and prepaid expenses....... 10,848,880 8,816,336 10,339,422
Other assets................ 22,058,312 20,730,706 20,648,585
----------- ----------- -----------
TOTAL ASSETS................$601,901,492$587,883,270$559,808,123
=========== =========== ===========
LIABILITIES
Deposits:
Non-interest bearing.....$ 66,072,367$ 68,197,423$ 59,868,822
Interest-bearing............ 446,858,492 437,482,475 419,362,797
----------- ----------- -----------
TOTAL DEPOSITS.............. 512,930,859 505,679,898 479,231,619
----------- ----------- -----------
Interest-bearing demand notes
issued to U.S. Treasury.... 3,000,000 3,000,000 3,000,000
Other liabilities for
borrowed money............. 19,980,730 19,410,045 19,002,326
Mortgages payable and
capitalized lease liability. 4,595 11,188 17,434
Accrued interest payable and
accrued expenses........... 7,266,504 5,413,784 6,936,636
Other liabilities........... 4,853,656 4,900,917 5,716,023
----------- ----------- -----------
TOTAL LIABILITIES........... 548,036,344 538,415,832 513,904,038
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common Stock -
(Par Value: $5.00)
No. Shares authorized:
10,000,000
No. Shares issued:
2,914,739; 2,882,920;
2,724,765
No. Shares outstanding:
2,914,739; 2,882,920;
2,720,588............. 14,573,695 14,414,600 13,623,825
Capital Surplus............. 22,146,796 20,830,185 14,753,617
Retained Earnings........... 16,555,724 14,222,653 17,682,692
Net unrealized gain on
securities available
for sale................... 588,933 none none
Less: Treasury Stock (none;
none; 4,177 ) - at cost.... none none (156,049)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY.. 53,865,148 49,467,438 45,904,085
TOTAL LIABILITIES AND ----------- ----------- -----------
STOCKHOLDERS' EQUITY.......$601,901,492$587,883,270$559,808,123
=========== =========== ===========
See accompanying notes to financial statements
Part 1 - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
INTEREST INCOME
Interest and fees on
loans...............$ 7,952,266$ 7,817,089$15,446,417$15,438,038
Interest on deposits
in other banks...... 603 10,025 1,349 18,520
Interest on federal
funds sold.......... 26,082 23,132 83,765 72,456
Interest and dividends
on investment
securities:
Taxable............... 1,620,690 1,557,494 3,216,546 3,177,496
Tax-exempt............ 607,834 554,862 1,224,955 1,101,444
Dividends on stock.... 45,101 46,724 89,715 92,058
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME.10,252,576 10,009,326 20,062,747 19,900,012
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on time
certificates of
deposit of $100,000
or more.............. 117,253 132,569 213,883 250,651
Interest on all other
deposits............. 3,022,185 3,358,251 6,027,884 6,821,089
Interest on demand
notes issued to the
U.S. Treasury........ 17,810 13,509 35,346 31,587
Interest on federal
funds purchased...... 1,836 none 1,836 none
Interest on other
borrowed money....... 308,420 269,460 609,581 536,730
Interest on mortgage
indebtedness and
obligations under
capitalized leases... 186 1,121 461 5,190
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE.3,467,690 3,774,910 6,888,991 7,645,247
---------- ---------- ---------- ----------
NET INTEREST INCOME... 6,784,886 6,234,416 13,173,756 12,254,765
Provision for loan
losses............... 425,000 748,000 607,000 1,568,000
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES.......... 6,359,886 5,486,416 12,566,756 10,686,765
---------- ---------- ---------- ----------
OTHER OPERATING INCOME
Income from fiduciary
activities........... 179,106 148,731 346,988 296,548
Service charges on
deposit accounts..... 453,992 481,353 894,531 929,895
Other service charges,
commissions and fees. 378,666 403,874 697,691 721,191
Mortgage banking
income............... 104,714 547,513 388,085 1,171,574
Other operating income. 593,581 602,151 1,160,892 1,189,216
Investment securities
gains and (losses)... none 3,160 none 7,160
--------- --------- ---------- ----------
TOTAL OTHER OPERATING
INCOME............... 1,710,059 2,186,782 3,488,187 4,315,584
--------- --------- ---------- ----------
OTHER OPERATING
EXPENSES
Salaries and employee
benefits............. 3,016,756 2,820,719 5,898,169 5,595,377
Net occupancy expense....368,128 332,830 762,744 663,519
Furniture and
equipment expense.... 351,906 303,183 687,163 610,622
FDIC insurance
assessment........... 278,494 259,838 556,987 519,675
Other operating
expenses............. 1,372,705 1,443,842 2,836,519 2,674,526
--------- --------- ---------- ----------
TOTAL OTHER OPERATING
EXPENSES............. 5,387,989 5,160,412 10,741,582 10,063,719
--------- --------- ---------- ----------
Income before income
taxes................ 2,681,956 2,512,786 5,313,361 4,938,630
Applicable income
taxes................ 685,689 641,955 1,351,947 1,256,882
--------- ---------- ---------- ----------
NET INCOME............$1,996,267 $1,870,831$ 3,961,414$ 3,681,748
========= ========= ========== ==========
Earnings per common share:
Net Income...........$ .69 $ .66$ 1.36$ 1.29
Cash dividends declared
per common share.....$ .28 $ .26$ .56$ .52
See accompanying notes to financial statements
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1994 1993
Cash Flows from Operating Activities
Net Income............................$ 3,961,414 $ 3,681,748
Adjustments to reconcile net income
to net cash provided by/(used in)
operating activities:
Depreciation.......................... 512,102 489,140
Provision for possible loan and lease
losses............................... 607,000 1,568,000
(Gain) loss on sale of property and
equipment............................ (1,352) none
(Gain) loss on maturities/sales of
investment securities................ none (7,160)
(Gain) loss on sale of mortgage
loans............................... (212,062) (1,041,278)
Proceeds from sales of mortgage loans 18,770,711 18,772,483
Origination of mortgage loans held
for sale............................ (15,201,730) (17,731,205)
Change in operating assets and
liabilities:
(Increase) decrease in accrued
interest receivable and
prepaid expenses.................... (2,032,544) (2,228,568)
(Increase) decrease in other assets... (1,198,080) (1,231,786)
Increase (decrease) in accrued
interest payable and accrued
expenses............................ 1,549,331 1,451,020
Increase (decrease) in other
liabilities......................... (47,261) 717,311
----------- -----------
Net cash provided by/(used in)
operating activities................. 6,707,529 4,439,705
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits
in other banks....................... 39,184,752 900,000
Purchase of interest-bearing deposits
in other banks....................... (39,154,450) (1,000,000)
Proceeds from maturities of investment
securities........................... 17,890,503 17,537,436
Purchase of investment securities..... (22,969,686) (21,402,386)
Federal funds sold, net............... 3,350,000 (300,000)
Net loans and leases made to customers (16,562,286) (18,217,907)
Purchases of premises and equipment... (2,547,429) (283,459)
Proceeds from sale of premises and
equipment............................ 213,311 8,125
----------- -----------
Net cash provided by/(used in)
investing activities................. (20,595,285) (22,758,191)
Cash Flows from Financing Activities
Net increase (decrease) in demand
deposits, NOW and savings accounts... (6,040,083) 9,725,233
Net increase (decrease) in time
deposits............................. 13,291,044 (3,677,112)
Proceeds from borrowings.............. 25,375,000 12,419,000
Repayments of borrowings.............. (24,804,315) (8,139,646)
Repayments of mortgages payable and
capitalized lease liability.......... (6,593) (201,052)
Proceeds from issuance of common stock 1,475,706 747,735
Cash dividends paid................... (1,628,343) (1,412,449)
Acquisition of treasury stock......... none (224,049)
Proceeds from issuance of treasury
stock................................ none 316,759
----------- ----------
Net cash provided by/(used in)
financing activities................. 7,662,416 9,554,419
Increase (decrease) in cash and due
from banks........................... (6,225,340) (8,764,067)
Cash and due from banks:
Beginning............................. 36,189,703 33,221,942
----------- -----------
Ending................................$ 29,964,363 $ 24,457,875
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on
borrowed money......................$ 7,014,597 $ 7,862,729
Income taxes......................... 1,660,000 1,845,000
Supplemental Schedule of Noncash
Investing and Financing Activities:
Other Real Estate acquired in
settlement of loans.................. none 20,000
See accompanying notes to financial statements
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements
of Sterling Financial Corporation (Sterling) have
been prepared in accordance with generally accepted accounting
principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six-
month period ended June 30, 1994 are not necessarily indicative
of the results that may be expected for the year ended
December 31, 1994.
The consolidated financial statements of Sterling include
the accounts of the accounts of its wholly owned
subsidiary, Bank of Lancaster County, N.A. and its wholly owned
subsidiary, Town & Country, Inc. All significant
intercompany transactions are eliminated in the consolidation.
Effective January 1, 1993, Sterling adopted Statement of
Financial Accounting Standards 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. The accumulated postretirement benefit
obligation at the date of adoption (the "transition obligation")
could have been recognized in operations as the cumulative effect
of an accounting change in the period of adoption,
which would have resulted in an actuarially determined pre-tax
charge to earnings of approximately $1,047,756, or its
recognition could be delayed by amortizing the obligation over
future periods as a component of the postretirement
benefit cost. Sterling adopted SFAS No. 106 by recognizing the
transition on a delayed basis. The net periodic
postretirement benefit cost was $212,339 for the year 1993. It
has been determined that the cost for 1994 will be
$231,222.
The Financial Accounting Standards Board issued SFAS No. 109
- - - Accounting for Income Taxes. This Statement changes the method
of accounting for income taxes. SFAS No. 109 was retroactively
applied in 1993 and 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.
Effective January 1, 1994, Sterling adopted Statement of
Financial Accounting Standards No. 115 - Accounting for
Certain Investments in Debt and Equity Securities. SFAS No. 115
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.
Sterling has segregated its investment securities into two
categories: those held-to-maturity and those available-for-sale.
The effect of adoption has resulted in an increase to
shareholders' equity of $588,933 as of June 30,1994. There has
been no impact on current year earnings or a restatement of
previously issued financial statements in connection with
the adoption of SFAS No. 115.
The Financial Accounting Standards Board issued SFAS No. 112
- - - Employers' Accounting for Postemployment Benefits which
establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but
before retirement. This Statement is effective for
fiscal years beginning after December 15, 1993. Sterling has
determined that the adoption of this Statement will not
have an effect on earnings.
The Financial Accounting Standards Board issued SFAS No. 114
- - - Accounting by Creditors for Impairment of a Loan. This
Statement, which becomes effective for fiscal years beginning
after December 15, 1994, will require that impaired loans be
measured based on the present value of expected future cash
flows discounted at the loans's effective interest rate, at the
loan's observable market price or the fair value of collateral if
the loan is collateral dependent. Sterling has not completed
the complex analysis required to estimate the impact of this
Statement.
The Financial Accounting Standards Board issued SFAS No. 116
- - - Accounting for Contributions Received and Contributions Made.
This Statement becomes 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 adoption of this Statement will not affect
its financial position or results of operations.
Note 2 - 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 2,907,587 and 2,852,033 for 1994 and 1993
respectively. Figures for 1993 were retroactively restated to
reflect a 5% stock dividend paid in December 1993.
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Total assets at June 30, 1994 amounted to $601,901,492 which
represents an increase of 7.5% over the $559,808,123 reported at
June 30, 1993. Total assets at June 30, 1994 increased
$14,018,222 or 2.4% over the $587,883,270 reported at December
31, 1993.
The investment securities portfolio reflects a 15.2%
increase or $20,061,198 during the twelve month period June
30, 1993 to June 30, 1994. Of this increase, $892,322 resulted
due to adoption of SFAS No. 115. Effective January
1, 1994, Sterling adopted Statement of Financial Accounting
Standard No. 115 - Accounting for Certain Investments in
Debt and Equity Securities. SFAS No. 115 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. Sterling has
segregated its investment securities into two categories: those
held-to-maturity and those available-for-sale. The effect
of adoption has resulted in an increase to shareholders' equity
of $588,933 as of June 30, 1994. During the first six
months of 1994, there was an increase of $5,971,505 or 4.1% from
the $146,465,280 reported at December 31, 1993.
Net loans have grown from $352,184,402 to $368,139,688
during the six month period ended June 30, 1994. This
represents an increase of 4.5% since December 31, 1993. Net
loans increased from $359,778,471 at June 30, 1993 to
$368,139,688 at June 30, 1994. This represents an increase of
$8,361,217 or 2.3%.
Total deposits increased $33,699,240 or 7% from $479,231,619
at June 30, 1993 to $512,930,859 at June 30,
1994. During the first six months of 1994, total deposits
increased $7,250,961 from the $505,679,898 reported at
December 31, 1993. Noninterest-bearing deposits increased
$6,203,545 or 10.4% from $59,868,822 at June 30, 1993
to $66,072,367 at June 30, 1994. During the same period,
interest-bearing deposits increased $27,495,695 or 6.5%.
Noninterest-bearing deposits decreased $2,125,056 or 3.1% during
the first six months of 1994 while interest-bearing
deposits increased $9,376,017 or 2.1%.
Stockholders' equity increased $7,961,063 or 17.3% from the
$45,904,085 reported at June 30, 1993 to $53,865,148 at June 30,
1994. There was an increase of $4,397,710 or 8.9% from the
$49,467,438 reported at December 31, 1993. Contributing to these
increases were net income from operations and the issuance of
stock pursuant to a dividend reinvestment and stock purchase
plan and an employee stock plan. Net unrealized gain on
securities available-for-sale in the amount of $588,933 at June
30, 1994, as a result of adoption of SFAS No. 115, also
contributed to this increase. Total stockholders' equity to
total assets at the end of June 30, 1994 was 8.95%
compared to 8.20% for the same period 1993. At December 31, 1993
the ratio was 8.41%.
During 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. The guidelines require Tier
1 capital of at least 4% and total capital of 8% of risk-
weighted assets. Tier 1 capital ratio was 10.19% and the total
capital ratio was 11.67% at June 30, 1993 while at June
30, 1994 the Tier 1 capital ratio was 11.00% and the total
capital ratio was 12.26%.
The following table reflects the various capital ratios for
the periods indicated:
June 30, December 31, June 30,
1994 1993 1993
"Statement"
Equity Capital 8.95% 8.41% 8.20%
Primary and
Total Capital 10.08% 9.52% 9.29%
"Risk-based"
Tier 1 Capital 11.00% 10.67% 10.19%
Total Capital 12.26% 11.92% 11.67%
Changes in the Allowance for Loan Losses for the six
months ended June 30, 1994 and 1993 were as follows:
1994 1993
Balance at January 1 $ 7,180,000 $ 5,400,000
Provision for loan losses
charged to operating expenses 607,000 1,568,000
----------- -----------
$ 7,787,000 $ 6,968,000
----------- -----------
Losses charged to allowance 287,841 326,014
Recoveries credited to allowance 45,466 63,318
----------- -----------
Net charge-offs 242,375 262,696
----------- -----------
Balance at June 30, $ 7,544,625 $ 6,705,304
=========== ===========
Allowance as a percent of
period-end loans 2.01% 1.83%
The net charge-offs for the first six months of 1994 were
within our expectations. In view of the economy and the
current state of our loan portfolio, it is our intention to
continue to add to the loan loss reserve in an amount of not less
than $300,000 through operating expense. We anticipate that our
loan loss reserve, as a percentage of net loans, will
be in excess of 1.90% by year end.
The following table presents information concerning the
aggregate amount of nonaccrual, past due and restructured
loans:
June 30, December 31, June 30,
1994 1993 1993
Nonaccrual loans $2,770,677 $2,960,038 $3,612,712
Accruing loans, past due 90
days or more $ 740,890 $ 522,024 $ 869,072
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. If interest income had been recorded on such loans
for the periods indicated, such interest income would
have been increased by approximately $133,381 and $165,772 at
June 30, 1994 and 1993 respectively, and $267,295 at
December 31, 1993. Interest income recorded on the nonaccrual
loans in 1994 and 1993 was none. 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
June 30,1994, there was one commercial loan totalling
$484,000 which was considered a potential problem loan which was
not included as a nonaccrual loan.
At June 30, 1994, 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 June 30, 1994.
Liquidity is the ability to meet the requirements of
customers for loans and deposit withdrawals in the most
economical manner. Liquidity must constantly be monitored
because future customer demands for funds are uncertain.
The liquidity position remains relatively unchanged since
December 31, 1993. Management believes that the funds
available provides the liquidity to meet customer demands for
funds.
Results of Operations
The following discussion analyzes the specific components
affecting the changes in net income for the periods
analyzed.
Three months ended June 30, 1994 compared to three months ended
June 30, 1993
Net income for the second quarter of 1994 amounted to
$1,996,267 compared to $1,870,831 for the second quarter
of 1993. This represents an increase of $125,436 or 6.7%. On a
per share basis, income was $.69 compared to $.66.
Total interest income increased $243,250 or 2.4% while total
interest expense decreased $307,220 or 8.1%.
Increased volumes in loans was primarily responsible for an
increase in interest and fees of $135,177 or 1.7% over
1993. Interest on deposits with banks decreased $9,422, while
interest on federal funds sold increased $2,950 or
12.8%. Income on investment securities increased $114,545 or
5.3% in 1994 as a result of increased volumes of
various investment securities. Increased volumes in loans and
investment securities was the primary reason for the
increase in interest income.
Total interest expense amounted to $3,467,690 compared to
$3,774,910. This represents a decrease of $307,220
or 8.1%. Interest paid on time certificates of deposit of
$100,000 or more decreased $15,316 or 11.6% in 1994 over
the same period in 1993, while interest paid on all other
deposits decreased $336,066 or 10%. Interest expense on
other interest bearing liabilities increased $44,162 during the
same period of time. Even though deposits increased
over this period of time, lower interest rates paid on deposits
was the primary factor for the decrease in interest
expenses.
The provision for possible loan losses decreased $323,000
from a charge of $748,000 in 1993 to $425,000 in
1994. The provision reflects the amount deemed appropriate by
management to provide an adequate reserve to meet
the present and foreseeable risk characteristics of the loan
portfolio.
Total other operating income decreased $476,723 or 21.8%.
An increase was reflected in income from fiduciary
activities while other areas of income decreased. Income from
fiduciary activities increased $30,375. Service charges
on deposit accounts and other various service charges decreased
$52,569. Other operating income decreased $8,570.
Mortgage banking income decreased $442,799. There were gains on
investment securities of $3,160 in 1993 compared
to none in 1994. The decrease in mortgage banking income was a
result of the sudden and continuing increases in
rates on mortgages originated and sold, as well as decreased
volumes of originations and subsequent sales. The period
in 1993 reflected larger volumes due to refinancings. The gain
on sales was not as great as the same period last year.
Total other operating expenses increased $227,577 or 4.4%.
Increases of $196,037 in salaries and employee
benefits; $84,021 in occupancy and furniture and equipment
expense; $18,656 in FDIC insurance assessment; and a
decrease of $71,137 in other operating expenses constitute the
total increase. Two new branch facilities were added in
late 1993. One of the facilities was a branch relocation. These
additions contributed to the increase in occupancy and
furniture and equipment expense.
Applicable income taxes increased $43,734 due in part to
increased taxable income. The effective tax rate was
25.6% for the second quarter of 1994 compared to 25.5% for 1993.
Six months ended June 30, 1994 compared to six months ended June
30, 1993
Net income decreased from $3,681,748 in June 30, 1993 to
$3,961,414 in June 30, 1994. This represents an
increase of $279,666 or 7.6%. Net income on a per share basis
was $1.36 for six months ended June 30, 1994
compared to $1.29 for the same period 1993. Sterling's return on
average assets was 1.35% for 1994 compared to
1.36% for 1993. Return on average stockholders' equity was
15.18% and 16.55% respectively for 1994 and 1993.
Total interest income increased $162,735 or .8%. Earning
assets increased $33,012,565 or 6.5%. Loans
increased approximately $8.4 million or 2.3%, while securities
increased nearly $20 million or 15.2% over the same
period last year. Increased volumes generated the increase in
interest income. Interest and fees on loans increased
$8,379. Interest on deposits with banks decreased $17,171 while
interest on federal funds sold increased $11,309.
Interest on investment securities increased $160,218. The daily
average balance on time deposits with banks was
$80,100 in 1994 compared to $919,337 in 1993. During this time
the daily average balance of federal funds sold
increased from $4,732,320 in 1993 to $4,878,453 in 1994. The
daily average balance of investment securities was
$153,860,476 at June 30, 1994 and $130,805,348 at June 30, 1993.
Total interest expense amounted to $6,888,991 reflecting a
decrease of $756,256 or 9.9% from the $7,645,247 reported in
1993. Interest-bearing deposits increased 6.6%.
However, lower interest rates paid on deposits resulted in a
decrease in interest expense of $829,973 or 11.7%.
Interest paid on other interest-bearing liabilities increased
$73,717 primarily as a result of increased borrowings by
Town & Country, Inc. for leasing operations.
The provision for loan loss decreased $961,000 in 1994 over
1993. The provision for loan losses is based upon the monthly
review of the loan portfolio.
Total other operating income decreased $827,397 during the
first six months of 1994 over the same period in
1993. Contributing to this decrease was a decrease in income
from service charges on deposit accounts and other
various service charges and fees in the amount of $58,864.
Another significant contributor to the decrease was a
decrease of $783,489 in mortgage banking income due to rising
interest rates as well as decreased volumes in
originations. Other income decreased $28,324 during this period
of time while income from fiduciary activities increased $50,440.
Total other operating expenses rose $677,863 or 6.7%
reflecting normal increases experienced through
growth. Increases in employee related expenses of $302,792;
$175,766 in occupancy and furniture and equipment
expense; $37,312 in FDIC insurance assessment and $161,993 in
other expenses comprise the increase in total other
operating expenses. Contributing to the increase in other
operating expenses were increases in marketing expense,
education and training, MAC fees, printing and supplies, postage
and various other operating expenses in the normal
course of business. Two new branch facilities were added in late
1993. One of the facilities was a branch relocation.
These additions contributed to the increase in occupancy and
furniture and equipment expense.
Applicable income taxes amounted to $1,351,947 in 1994
compared to $1,256,882 in 1993. The increase in
taxes is due in part to increases in taxable income. The
effective tax rate was 25.4% and 25.5% respectively for 1994
and 1993.
Three Months ended June 30, 1994 compared to three months ended
March 31, 1994
Net income increased $31,120 or 1.6% in the second quarter
of 1994 over the first quarter of 1994. Net
income for the three months ended June 30, 1994 was $1,996,267
compared to $1,965,147 for the three months ended
March 31, 1994.
Total interest income increased $442,405 or 4.5% while total
interest expense increased $46,389 or 1.4%.
This resulted in an increase in net interest income of $396,016.
Earning assets increased $5,350,460 or 1% while
interest-bearing liabilities increased $7,600,117 or 1.6%. Both
interest income and interest expense increased due to
this increased volumes as well as rising interest rates.
The loan loss provision increased $243,000 over the first
quarter of 1994.
Total other operating income decreased $68,069 or 3.8% over
the first quarter. Various service charges,
commissions and fees increased $73,094 while income from
fiduciary activities increased $11,224 and other income
increased $26,270. The major contributor to the decrease in
total other operating income was a decrease of $178,657
in mortgage banking income due to rising interest rates as well
as decreased volumes in originations.
Total other operating expenses increased $34,396 or .6% over
the first quarter. There was an increase of
$135,343 in employee related expenses while occupancy and
furniture and equipment expenses decreased $9,839 and
other expenses decreased $91,108.
Applicable income taxes increased $19,431 over the first
quarter as a result of an increase in taxable income.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
As of June 30, 1994, there were no material pending legal
proceedings, other than ordinary routine litigation
incidental to 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
The Annual Meeting of Shareholders of Sterling Financial
Corporation was held on May 3, 1994. The following
individuals were elected to Sterling's Board of Directors to hold
office for a term of three years:
Nominee In Favor Withheld
Robert H. Caldwell 2,181,706 4,587
J. Robert Hess 2,180,310 5,983
There are seven continuing directors whose terms of office
will expire at the 1995 or 1996 Annual Meeting. They are as
follows:
Richard H. Albright, Jr. E. Glenn Nauman
John E. Burkholder John E. Stefan
Howard E. Groff, Jr. Glenn R. Walz
Calvin G. High
The results of the voting on the following additional item
were as follows:
Proposal to ratify the selection of Trout, Ebersole &
Groff as the Corporation's independent certified public
accountants for the year ending December 31, 1994
In Favor Opposed Abstained
2,162,712 6,859 16,718
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS
1. List of Subsidiaries
(b) REPORTS ON FORM 8-K - There were no reports filed on
Form 8-K during the second quarter of 1994.
Signatures
Pursuant to the requirements 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
Date: August 11, 1994 By: John E. Stefan
John E. Stefan
Chairman of the Board,
President and
Chief Executive Officer
Date: August 11, 1994 By: Jere L. Obetz
Jere L. Obetz
Senior Vice President/
Chief Financial Officer
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
525 Greenfield Road P.O. Box 10608
Lancaster, PA 17605-0608
(Presently inactive)
