<PAGE>
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 March 31, 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
(Address of principal executive offices)
17605-0608
(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, $5.00 Par Value-2,914,739 shares outstanding as of
April 30, 1994.
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Sterling Financial Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheets
as of March 31, 1994 (Unaudited), December 31, 1993,
and March 31, 1993 (Unaudited). 3
Consolidated Statements of Income
for the Three Months ended March 31, 1994
and 1993 (Unaudited). 4
Consolidated Statements of Cash Flows
for the Three Months ended
March 31, 1994 and 1993 (Unaudited). 5
Notes to Consolidated Financial
Statements (Unaudited). 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature Page 14
List of Subsidiaries 15
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Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Balance Sheet
March 31, December 31, March 31,
1994 1993 1993
ASSETS (Unaudited) (Unaudited)
Cash and due from banks.....$ 31,458,834$ 36,189,703$ 18,416,196
Interest-bearing deposits in
other banks................ 19,886 40,595 1,000,000
Federal funds sold.......... 8,450,000 12,350,000 19,950,000
Mortgage loans held for sale 3,250,146 3,431,375 none
Investment Securities:
Securities held to maturity
(market value-$146,325,367;
$151,443,866;$136,552,777). 145,466,832 146,465,280 130,622,545
Securities available for
sale...................... 8,885,536 none none
Loans....................... 366,817,592 360,730,048 347,858,717
Less: Unearned Income..... (1,160,965) (1,365,646) (2,201,620)
Allowance for loan
losses............. (7,226,599) (7,180,000) (6,077,281)
----------- ----------- -----------
Loans, Net.................. 358,430,028 352,184,402 339,579,816
----------- ----------- -----------
Premises and Equipment...... 7,664,308 7,424,265 7,486,071
Other real estate owned..... 121,082 250,608 380,000
Accrued interest receivable
and prepaid expenses...... 9,666,989 8,816,336 8,840,298
Other assets................ 21,134,426 20,730,706 19,174,772
----------- ----------- -----------
TOTAL ASSETS................$594,548,067$587,883,270$544,403,625
=========== =========== ===========
LIABILITIES
Deposits:
Non-interest bearing.....$ 69,227,666$ 68,197,423$ 53,830,233
Interest-bearing......... 439,615,613 437,482,475 417,098,059
----------- ----------- -----------
TOTAL DEPOSITS.............. 508,843,279 505,679,898 470,928,292
----------- ----------- -----------
Interest-bearing demand
notes issued to U.S.
Treasury................... 3,000,000 3,000,000 3,000,000
Other liabilities for
borrowed money............. 19,620,151 19,410,045 15,925,497
Mortgages payable and
capitalized lease liability 7,936 11,188 205,428
Accrued interest payable
and accrued expenses....... 6,010,625 5,413,784 5,821,934
Other liabilities........... 4,852,222 4,900,917 5,166,534
----------- ----------- -----------
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TOTAL LIABILITIES........... 542,334,213 538,415,832 501,047,685
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common Stock - (Par Value: $5.00)
No. Shares authorized: 10,000,000
No. Shares issued:
2,900,768;2,882,920;2,712,909
No. Shares outstanding:
2,900,768;2,882,920;2,710,909
14,503,840 14,414,600 13,564,545
Capital Surplus............ 21,553,029 20,830,185 14,385,544
Retained Earnings.......... 15,375,591 14,222,653 16,519,924
Net unrealized gain on
securities available for
sale..................... 781,394 none none
Less: Treasury Stock
(0; 0; 2,000 ) - at cost. none none (68,000)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY. 52,213,854 49,467,438 44,402,013
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.......$594,548,067$587,883,270$545,449,698
=========== =========== ===========
See accompanying notes to financial statements
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<PAGE>
Part 1 - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
Three Months Ended
March 31,
1994 1993
INTEREST INCOME
Interest and fees on loans..............$ 7,494,151 $ 7,620,949
Interest on deposits in other banks..... 746 8,495
Interest on federal funds sold.......... 57,683 49,324
Interest and dividends on investment
securities:
Taxable............................... 1,595,856 1,620,002
Tax-exempt............................ 617,121 546,582
Dividends on stock.................... 44,614 45,784
---------- ----------
TOTAL INTEREST INCOME................... 9,810,171 9,891,136
INTEREST EXPENSE ---------- ----------
Interest on time certificates of
deposit of $100,000 or more......... 96,630 118,082
Interest on all other deposits........ 3,005,699 3,462,838
Interest on demand notes issued
to the U.S. Treasury................ 17,536 18,078
Interest on other borrowed money...... 301,161 267,270
Interest on mortgage indebtedness and
obligations under capitalized leases. 275 4,069
---------- ----------
TOTAL INTEREST EXPENSE.................. 3,421,301 3,870,337
---------- ----------
NET INTEREST INCOME..................... 6,388,870 6,020,799
Provision for loan losses............... 182,000 820,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES.......................... 6,206,870 5,200,799
---------- ----------
OTHER OPERATING INCOME
Income from fiduciary activities........ 167,882 147,817
Service charges on deposit accounts..... 440,539 448,542
Other service charges, commissions and
fees................................... 319,025 317,317
Mortgage banking income................. 283,371 624,061
Other operating income.................. 567,311 587,065
Investment securities gains and
(losses)................................ none 4,000
---------- ---------
TOTAL OTHER OPERATING INCOME............ 1,788,128 2,128,802
OTHER OPERATING EXPENSES ---------- ---------
Salaries and employee benefits.......... 2,881,413 2,774,658
Net occupancy expense................... 394,616 330,689
Furniture and equipment expense......... 335,257 307,439
FDIC insurance assessment............... 278,493 259,837
Other operating expenses................ 1,463,814 1,230,684
</page>
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---------- ----------
TOTAL OTHER OPERATING EXPENSES.......... 5,353,593 4,903,307
---------- ----------
Income before income taxes.............. 2,631,405 2,426,294
Applicable income taxes................. 666,258 614,927
---------- ----------
NET INCOME..............................$ 1,965,147 $ 1,811,367
========== ===========
Earnings per common share:
Net Income.............................$ .68 $ .64
Cash dividends declared per common
share.................................$ .28 $ .26
See accompanying notes to financial statements
</page>
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Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31
1994 1993
---- ----
Cash Flows from Operating Activities
Net Income..............................$ 1,965,147$ 1,811,367
Adjustments to reconcile net income to
net cash provided by/(used in)
operating activities:
Depreciation............................ 254,565 250,535
Provision for possible loan and lease
losses................................. 182,000 820,000
(Gain) loss on sale of property and
equipment.............................. (1,352) none
(Gain) loss on maturities/sales of
investment securities.................. none (4,000)
(Gain) loss on sale of mortgage
loans.................................. (200,659) (561,545)
Proceeds from sales of mortgage loans... 12,600,285 17,198,890
Origination of mortgage loans held for
sale................................... (12,218,397)(16,637,345)
Change in operating assets and
liabilities:
(Increase) decrease in accrued interest
receivable and prepaid expenses...... (850,653) (729,444)
(Increase) decrease in other assets.... (274,194) 192,027
Increase (decrease) in accrued interest
payable and accrued expenses.......... 194,305 336,318
Increase (decrease) in other liabilities. (48,695) 167,822
---------- ---------
Net cash provided by/(used in) operating
activities............................ 1,602,352 2,844,625
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits
in other banks........................ 150,268 900,000
Purchase of interest-bearing deposits
in other banks........................ (129,559) (1,000,000)
Proceeds from maturities of investment
securities............................ 10,030,093 8,199,701
Purchase of investment securities...... (16,733,251)(10,314,769)
Federal funds sold, net................ 3,900,000 (16,750,000)
Net loans and leases made to customers. (6,427,626) 2,728,748
Purchases of premises and equipment.... (697,393) (147,955)
Proceeds from sale of premises and
equipment............................. 204,137 3,338
---------- ----------
Net cash provided by/(used in) investing
activities............................ (9,703,331)(16,380,937)
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<PAGE>
Cash Flows from Financing Activities
Net increase (decrease) in demand
deposits, NOW and savings accounts.... 5,352,303 660,458
Net increase (decrease) in time deposits (2,188,922) (2,915,664)
Net increase (decrease) in interest-
bearing demand notes issued to U.S.
Treasury.............................. none none
Proceeds from borrowings............... 2,800,000 3,250,000
Repayments of borrowings............... (2,589,894) (2,047,475)
Repayments of mortgages payable
and capitalized lease liability....... (3,252) (13,058)
Proceeds from issuance of common stock. 812,084 323,883
Cash dividends paid.................... (812,209) (704,837)
Acquisition of treasury stock.......... none (68,000)
Proceeds from issuance of treasury
stock................................. none 245,259
---------- ---------
Net cash provided by/(used in) financing
activities............................ 3,370,110 (1,269,434)
Increase (decrease) in cash and due from
banks................................. (4,730,869)(14,805,746)
Cash and due from banks:
Beginning............................. 36,187,703 33,221,942
---------- ----------
Ending................................ $ 31,458,834$ 18,416,196
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on
borrowed money.................... $ 3,508,844$ 3,981,666
Income taxes...................... none 135,000
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
</page>
<PAGE>
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
three-month period ended March 31, 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
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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 $781,394 as of March 31,1994.
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
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Earnings per common share were computed by dividing net
income by the weighted average number of shares of common stock
outstanding which were 2,900,357 and 2,846,542 for 1994 and 1993
respectively. Figures for 1993 were retroactively restated to
reflect a 5% stock dividend paid in December 1993.
</page>
<PAGE>
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 March 31, 1994 amounted to $594,548,067
compared to $545,449,698 at March 31,1993. This represents an
increase of $49,098,369 or 9.0% over that period of time. The
investment securities portfolio reflects a 18.2% increase or
$23,729,823 during the twelve month period. Of this increase,
$1,183,930 resulted due to adoption of SFAS No. 115. Certain
securities were designated as available-for-sale and were
reported at fair value. Net loans recorded a 5.6% increase of
$18,850,212. Total assets at March 31, 1994 increased $6,664,797
or 1.1% over the $587,883,270 reported at December 31, 1993.
During that period, net loans increased $6,245,626 while
investment securities increased $7,887,088. Federal Funds sold
decreased $3,900,000 in this period of time.
Total deposits increased $37,914,987 or 8.1% from
$470,928,292 at March 31, 1993 to $508,843,279 at March 31, 1994.
During the first three months of 1994, total deposits increased
$3,163,381 from the $505,679,898 reported at December 31, 1993.
Noninterest-bearing deposits increased $15,397,433 or 28.6% from
$53,830,233 at March 31, 1993 to $69,227,666 at March 31, 1994.
During the same period, interest-bearing deposits increased
$22,517,554 or 5.4%. Noninterest-bearing deposits increased
$1,030,243 or 1.5% during the first three months of 1994 while
interest-bearing deposits increased $2,133,138 or .5%.
Stockholders' equity increased $7,811,841 or 17.6% from the
$44,402,013 reported at March 31, 1993 to $52,213,854 at March
31, 1994. There was an increase of $2,746,416 or 5.6% 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 $781,394, as a result of
adoption of SFAS No. 115, also contributed to this increase.
Total stockholders' equity to total assets at the end of March
31, 1994 was 8.78% compared to 8.14% 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
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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 10.35% and the
total capital ratio was 11.77% at March 31, 1993 while at March
31, 1994 the Tier 1 capital ratio was 11.12% and the total
capital ratio was 12.38%.
The following table reflects the various capital ratios for
the periods indicated:
March 31 December 31 March 31
1994 1993 1993
"Statement"
Equity Capital 8.78% 8.41% 8.14%
Primary and
Total Capital 9.88% 9.52% 9.15%
"Risk-based"
Tier 1 Capital 11.12% 10.67% 10.35%
Total Capital 12.38% 11.92% 10.77%
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<PAGE>
Changes in the Allowance for Loan Losses for the three
months ended March 31, 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 182,000 820,000
--------- ---------
$7,362,000 $6,220,000
--------- ---------
Losses charged to allowance 162,239 155,579
Recoveries credited to allowance 26,838 12,860
--------- ---------
Net charge-offs 135,401 142,719
--------- ---------
Balance at March 31, $7,226,599 $6,077,281
========= =========
Allowance as a percent of
period-end loans 1.98% 1.76%
The net charge-offs for the first three 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
$900,000 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:
March 31, December 31, March 31,
1994 1993 1993
Nonaccrual loans $3,007,186 $2,960,038 $3,920,902
Accruing loans, past due
90 days or more $ 420,322 $ 522,024 $ 790,770
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 $62,997 and $82,803 at March 31,
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
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may eventually result in disclosure as a non-performing loan. At
March 31,1994, there were commercial loans to two related
borrowers aggregating $1.18 million which were considered as
potential problem loans which were not included as nonaccrual
loans.
At March 31, 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 March 31, 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.
</page>
<PAGE>
Results of Operations
The following discussion analyzes the specific components
affecting the changes in net income for the periods analyzed.
Three months ended March 31, 1994 compared to three months ended
March 31, 1993
Net income for the first quarter of 1994 amounted to
$1,965,147 compared to $1,811,367 for the first quarter of 1993.
This represents an increase of $153,780 or 8.5%. On a per share
basis, income was $.68 compared to $.64.
Total interest income decreased $80,965 or .8% while total
interest expense decreased $449,036 or 11.6%. Therefore, the
interest differential increased $368,071. Loans increased nearly
$19 million over the same period in 1993. However, lower
interest rates generated a decrease of $126,798 in interest and
fees on loans. Interest on deposits with banks decreased $7,749.
The average daily balance on time deposits with banks was
$133,276 in 1994 compared to $837,777 in 1993. Interest on
federal funds sold increased $8,359 or 16.9%. The daily average
of federal funds sold was $7,219,444 in 1994 compared to
$6,407,222 in 1993. Income on investment securities increased
$45,223 or 2% in 1994. The daily average of investment
securities in 1994 was $153,109,108 compared to $128,497,707 in
1993. Adoption of SFAS No. 115 contributed in excess of $1
million to the increase in 1994 over 1993.
Total interest expense amounted to $3,421,301 reflecting
decrease of $449,036 or 11.6% over the $3,870,337 reported in
1993. Interest paid on interest-bearing deposits decreased
$478,591 or 13.4% in 1994 over the same period in 1993. Although
interest-bearing deposits increased, lower interest rates
generated this decrease. Interest expense on other interest
bearing liabilities increased $29,555 during the same period of
time as a result of increased volumes in this category of
liabilities.
The provision for possible loan losses decreased $638,000
from a charge of $820,000 in 1993 to $182,000 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 $350,674 or 16.5%.
An increase was reflected in income from fiduciary activities
while other areas of income decreased. Income from fiduciary
activities increased $20,065. Service charges on deposit
accounts and other various service charges decreased $6,295.
Other operating income decreased $19,754. Mortgage banking
income decreased $340,690. There were gains on investment
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securities of $4,000 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 rose $450,286 or 9.2%
reflecting normal increases experienced through growth.
Increases of $106,755 in salaries and employee benefits;
$233,130 in other operating expenses, $91,745 in occupancy and
furniture and equipment expense and $18,656 in FDIC insurance
constitute the total increase. Contributing to the increase in
other operating expenses were increases in VISA and MAC fees,
postage, PA Shares tax, insurance premiums, marketing expense,
education and training 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 $666,258 in 1994
compared to $614,927 in 1993. The increase in taxes is due in
part to increases in taxable income.
Three months ended March 31, 1994 compared to three months ended
December 31, 1993
Net income decreased $142,955 or 6.8% in the first quarter
of 1994 over the fourth quarter of 1993. Net income at March 31,
1994 was $1,965,147 compared to $2,108,102 for the quarter ending
December 31, 1993. Net income on a per share basis was $.68 for
the first quarter of 1994 compared to $.73 for the last quarter
of 1993.
Total interest income decreased $396,587 or 3.9%. Interest
and fees on loans decreased $452,221 while interest on investment
securities increased $79,527. Interest on other earning assets
decreased $23,893. Earning assets increased approximately $9
million during the first three months of 1994. The most
significant increase in earning assets was in the investment,
securities portfolio. Although loans increased, stable and
relatively lower interest rates resulted in a decrease in
interest and fees on loans.
Total interest expense decreased $214,307 or 5.9% during the
first quarter of 1994. Total interest-bearing liabilities
increased nearly $2.4 million in the first quarter of 1994 over
the last quarter of 1993. Although interest- bearing liabilities
increased, rates paid on these liabilities were somewhat lower
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<PAGE>
generating a decrease in interest expense.
The loan loss provision for the first quarter of 1994 was
$182,000 compared to $392,790 for the last quarter of 1993.
Total other operating income decreased $500,989 in the first
quarter of 1994 over the last quarter of 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 $148,952. Another significant contributor to the
decrease was a decrease of $251,930 in mortgage banking income.
Other income during the last quarter of 1993 was significantly
higher due to income realized from other real estate sold.
Total other operating expenses decreased $247,400 or 4.4%
over the fourth quarter of 1993.
Occupancy and furniture and equipment expense increased
$51,106 and FDIC insurance increased $12,095. Salaries and
employee benefits and other operating expense decreased $152,458
and $158,143 respectively during the first quarter 1994 over the
last quarter of 1993. Incentive pay and taxes on this
compensation during the last quarter of 1993 was the major
contributor to salaries being greater in this period of time over
the first quarter of 1994.
Applicable income taxes were $82,124 less than those
recorded for the fourth quarter of 1993 due mainly to lower
taxable income.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
As of March 31, 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 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 first quarter of 1994.
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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: May 12, 1994 By:John E. Stefan
John E. Stefan
Chairman of the Board,
President and Chief
Executive Officer
Date: May 12, 1994 By:Jere L. Obetz
Jere L. Obetz
Senior Vice President/
Chief Financial Officer
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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 (National Banking
Association)
1 East Main Street
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)
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