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, 1995
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 23-2449551
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) 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-5,905,143 shares outstanding as of April 30, 1995.
Sterling Financial Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheets
as of March 31, 1995 (Unaudited), December 31, 1994,
and March 31, 1994 (Unaudited). 3
Consolidated Statements of Income
for the Three Months ended March 31, 1995
and 1994 (Unaudited). 4
Consolidated Statements of Cash Flows
for the Three Months ended
March 31, 1995 and 1994 (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 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signature Page 15
Subsidiaries of the Registrant 16
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash and due form banks.......................... $ 34,262,036 $ 32,374,138 $ 31,458,834
Interest-bearing deposits in other banks......... 15,874 23,535 19,886
Federal funds sold............................... 5,250,000 none 8,450,000
Mortgage loans held for sale..................... 404,200 523,791 3,250,146
Investment Securities::
Securities held to maturity
(market value-$146,325,367;$151,443,866;
$136,552,777)................................. 154,132,964 161,159,805 145,466,832
Securities available for sale.................. 10,794,571 9,051,144 8,885,536
Loans............................................ 400,248,149 393,656,882 366,817,592
Less: Unearned Income.......................... (1,051,026) (1,008,457) (1,160,965)
Allowance for loan losses................ (7,733,307) (7,640,000) (7,226,599)
------------ ------------ ------------
Loans, Net....................................... 391,463,816 385,008,425 358,430,028
------------ ------------ ------------
Premises and Equipment........................... 12,857,095 11,977,423 7,664,308
Other real estate owned.......................... 473,446 759,372 121,082
Accrued interest receivable and prepaid expenses. 9,341,229 8,954,172 9,666,989
Other assets..................................... 24,314,752 23,562,861 21,134,426
------------ ------------ ------------
TOTAL ASSETS..................................... $643,309,983 $633,394,666 $594,548,067
============ ============ ============
LIABILITIES
Deposits:
Non-interest bearing.......................... $ 65,369,054 $ 73,458,916 $ 69,227,666
Interest-bearing.............................. 477,369,804 463,543,087 439,615,613
------------ ------------ ------------
TOTAL DEPOSITS................................... 542,738,858 537,002,003 508,843,279
------------ ------------ ------------
Interest-bearing demand notes issued
to U.S. Treasury............................... 1,426,780 2,913,870 3,000,000
Other liabilities for borrowed money............. 28,184,148 19,172,526 19,620,151
Federal funds purchased.......................... none 6,000,000 none
Mortgages payable and capitalized lease liability none none 7,936
Accrued interest payable and accrued expenses.... 6,754,902 5,737,513 6,010,625
Other liabilities................................ 5,149,225 5,284,231 4,852,222
------------ ------------ ------------
TOTAL LIABILITIES................................ 584,253,913 576,110,143 542,334,213
STOCKHOLDERS' EQUITY ------------ ------------ ------------
Common Stock - (Par Value: $5.00)
No. Shares authorized: 10,000,000
No. Shares issued: 5,900,250; 5,874,417; 2,900,768
No. Shares outstanding: 5,882,020;
5,868,610; 2,900,768....................... 29,501,250 29,372,085 14,503,840
Capital Surplus................................. 9,190,990 8,544,365 21,553,029
Retained Earnings............................... 20,359,905 19,113,958 15,375,591
Net unrealized gain on securities
available for sale............................ 547,046 419,614 781,394
Less: Treasury Stock (18,230;5,807;0)-at cost... (543,121) (165,499) none
------------ ------------ -----------
TOTAL STOCKHOLDERS' EQUITY...................... 59,056,070 57,284,523 52,213,854
------------ ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......$ 643,309,983 $633,394,666 $594,548,067
============== ============ ============
See accompanying notes to financial statements
</TABLE>
Part 1 - Financial Information
Sterling Financial Corporation and Subsidiarie
Consolidated Statement of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.......................... $ 8,993,200 $ 7,494,151
Interest on deposits in other banks................. 470 746
Interest on federal funds sold...................... 26,146 57,683
Interest and dividends on investment securities:
Taxable.......................................... 1,810,117 1,595,856
Tax-exempt....................................... 657,915 617,121
Dividends on stock............................... 48,171 44,614
------------- -------------
TOTAL INTEREST INCOME................................. 11,536,019 9,810,171
INTEREST EXPENSE ------------- -------------
Interest on time certificates of deposit of
$100,000 or more................................. 237,736 96,630
Interest on all other deposits...................... 4,009,486 3,005,699
Interest on demand notes issued to the U.S. Treasury 29,929 17,536
Interest on federal funds purchased................. 57,046 none
Interest on other borrowed money.................... 442,377 301,161
Interest on mortgage indebtedness and obligations
under capitalized leases......................... none 275
------------- -------------
TOTAL INTEREST EXPENSE................................ 4,776,574 3,421,301
------------- -------------
NET INTEREST INCOME................................... 6,759,445 6,388,870
Provision for loan losses........................... 151,000 182,000
NET INTEREST INCOME AFTER PROVISION FOR ------------- -------------
LOAN LOSSES........................................ 6,608,445 6,206,870
OTHER OPERATING INCOME ------------- -------------
Income from fiduciary activities................... 199,754 167,882
Service charges on deposit accounts................ 458,543 440,539
Other service charges, commissions and fees........ 391,154 319,025
Mortgage banking income............................ 115,516 283,371
Other operating income............................. 740,443 567,311
------------- -------------
TOTAL OTHER OPERATING INCOME.......................... 1,905,410 1,788,128
OTHER OPERATING EXPENSES ------------- -------------
Salaries and employee benefits..................... 3,163,561 2,881,413
Net occupancy expense.............................. 389,919 394,616
Furniture and equipment expense.................... 367,712 335,257
FDIC insurance assessment.......................... 298,019 278,493
Other operating expenses........................... 1,467,888 1,463,814
------------- ------------
TOTAL OTHER OPERATING EXPENSES........................ 5,687,099 5,353,593
------------- ------------
Income before income taxes......................... 2,826,756 2,631,405
Applicable income taxes............................ 695,772 666,258
------------- ------------
NET INCOME............................................ $ 2,130,984 $ 1,965,147
============== ============
Earnings per common share:
Net Income........................................... $ .36 $ .34
Cash dividends declared per common share............. $ .15 $ .14
See accompanying notes to financial statements
</TABLE>
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net Income............................................$ 2,130,984 $ 1,965,147
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation.......................................... 258,530 254,565
Accretion and amortization of investment securities... 111,167 180,668
Provision for possible loan and lease losses.......... 151,000 182,000
(Gain) loss on disposition of property and equipment. 66 (1,352)
(Gain) loss on sale of mortgage loans................ (20,289) (200,659)
Proceeds from sales of mortgage loans................ 1,869,480 12,600,285
Originations of mortgage loans held for sale......... (1,729,600) (12,218,397)
Change in operating assets and liabilities:
(Increase) decrease in accrued interest receivable
and prepaid expenses............................... (387,057) (850,653)
(Increase) decrease in other assets................. (465,965) (274,194)
Increase (decrease) in accrued interest payable
and accrued expenses.............................. 1,017,389 194,305
Increase (decrease) in other liabilities............ (200,651) (48,695)
----------- -----------
Net cash provided by/(used in) operating activities.. 2,735,054 1,783,020
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits in other banks 241,776 150,268
Purchase of interest-bearing deposits in other banks.. (234,115) (129,559)
Proceeds from maturities of investment securities..... 8,584,095) 9,824,374
Purchase of investment securities..................... (3,218,771) (16,708,200)
Federal funds sold, net............................... (5,250,000) 3,900,000
Net loans and leases made to customers................ (6,606,391 (6,427,626)
Purchases of premises and equipment................... (1,138,268) (697,393)
Proceeds from sale of premises and equipment.......... none 204,137
----------- -----------
Net cash provided by/(used in) investing activities.. (7,621,674) (9,883,999)
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits, NOW and
savings accounts..................................... (8,313,321) 5,352,303
Net increase (decrease) in time deposits.............. 14,050,176 (2,188,922)
Federal funds, purchased, net......................... (6,000,000) none
Net increase (decrease) in interest-bearing demand
notes issued to U.S. Treasury ....................... (1,487,090) none
Proceeds from borrowings.............................. 17,975,000 2,800,000
Repayments of borrowings.............................. (8,963,378) (2,589,894)
Repayments of mortgages payable and capitalized
lease liability...................................... none (3,252)
Proceeds from issuance of common stock................ 768,532 812,084
Cash dividends paid................................... (885,037) (812,209)
Acquisition of treasury stock......................... (543,121) none
Proceeds from issuance of treasury stock.............. 172,757 none
----------- -----------
Net cash provided by/(used in) financing............. 6,774,518 3,370,110
Increase (decrease) in cash and due from banks......... 1,887,898 (4,730,869)
Cash and due from banks:
Beginning.............................................. 32,374,138 36,187,703
----------- -----------
Ending.................................................$ 34,262,036 $ 31,458,834
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on borrowed money.....$ 4,396,282 $ 3,508,844
Income taxes.......................................... none none
Supplemental Schedule of Noncash Investing
and Financing Activities
Other Real Estate acquired in settlement of loans....... 39,459 none
See accompanying notes to financial statements
</TABLE>
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, 1995 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995.
The consolidated financial statements of Sterling include the accounts 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, 1994, Sterling adopted Statement of Financial
Accounting Standards (SFAS) 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 resulted in an increase to
shareholders' equity of $781,394 at March 31,1994. The net unrealized gain on
securities available-for-sale, net of taxes at March 31, 1995
was $547,046. 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 (FASB) 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
historically, expenditures for benefits in this category have been immaterial.
Consequently, adoption of this statement did not affect the financial
position or results of operations.
The Financial Accounting Standards Board Statement No. 118, an amendment of
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 is effective for financial
statements for fiscal years beginning after December 15, 1994. There was no
significant impact on the financial condition and results of operations as a
result of adoption of SFAS No. 118 and No. 114.
The Financial Accounting Standards Board issued SFAS No. 116 - Accounting
for Contributions Received and Contributions Made. This Statement is 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
5,899,008 and 5,800,714 for 1995 and 1994 respectively. Figures for 1994
were retroactively restated to reflect a two-for-one stock split in the form
of a 100% stock dividend in September 1994.
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, 1995 amounted to $643,309,983 compared to
$594,548,067 at March 31, 1994. This represents an increase of $48,761,916
or 8.2% over that period of time. Total assets at March 31, 1995 increased
$9,915,317 or 1.6% over the $633,394,666 reported at December 31, 1994.
The investment securities portfolio reflects a 6.9% increase of $10,575,167
during the twelve month period March 31, 1994 to March 31, 1995. Effective
January 1, 1994, Sterling adopted SFAS 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 securitiesinto 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 at
March 31, 1994. The net unrealized gain on securities available-for-sale at
March 31, 1995 amounted to $547,046. During the first three months of 1995,
there was a decrease in investment securities in the amount of $5,283,414 or
3.1% from the $170,210,949 reported at December 31, 1994.
Net loans have grown from $358,430,028 at March 31, 1994 to $391,463,816 at
March 31, 1995. This represents an increase of $33,033,788 or 9.2%. Net
loans have grown from $385,008,425 to $391,463,816 during the three month
period ended March 31, 1995. This represents an increase of 1.7% since
December 31, 1994.
Premises and equipment increased $5,192,787 or 67.8% from $7,664,308 at
March 31, 1994 to $12,857,095 at March 31, 1995. During the first three
months of 1995, total premises and equipment increased $879,672 or 7.3% from
$11,977,423 at December 31, 1994. Contributing to the increase in premises
and equipment was the purchase of land for the
headquarters of Sterling Financial Corporation and Bank of Lancaster County and
initial advances for construction of the headquarters building.
Total deposits increased $33,895,579 or 6.7% from $508,843,279 at March 31,
1994 to $542,738,858 at March 31, 1995. During the first three months of 1995,
total deposits increased $5,736,855 from the $537,002,003 reported at December
31, 1994. Noninterest-bearing deposits decreased $3,858,612 from $69,227,666 at
March 31, 1994 to $65,369,054 at March 31, 1995. During the same period,
interest-bearing deposits increased $37,754,191 or 8.6%. Noninterest-bearing
deposits decreased $8,089,862 during the first three months of 1995 while
interest-bearing deposits increased $13,826,717 or 3%.
Stockholders' equity increased $6,842,216 or 13.1% from the $52,213,854
reported at March 31, 1994 to $59,056,070 at March 31, 1995. There was an
increase of $1,771,547 or 3.1% from the $57,284,523 reported at December 31,
1994. 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 is included in calculating the increases above.
However, regulatory authorities have decided to exclude the net unrealized
holding gains and losses on available-for-sale securities from the definition of
common stockholders' equity for regulatory capital purposes. The capital
ratios reflect that exclusion. Total stockholders' equity to total assets at
March 31, 1995 was 9.11% compared to 8.67% at March 31, 1994. At December
31, 1994 the ratio was 8.99%.
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 guidelines
require that banking organizations meet a minimum risk-based capital, define
the components of capital, categorize assets into differ
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. The Tier 1 capital ratio was 11.14%
and the total risk-based capital ratio was 12.39% at March 31,
1995 while the Tier 1 capital ratio was 10.74% and the total risk-based
capital ratio was 11.99% at March 31, 1994.
The following table reflects the various capital ratios for the periods
indicated:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994 March 31, 1994
<S> <C> <C> <C>
"Statement"
Equity Capital 9.11% 8.99% 8.67%
Primary and
Total Capital 10.19% 10.07% 9.77%
"Risk-based"
Tier 1 Capital 11.14% 11.05% 10.74%
Total Capital 12.39% 12.30% 11.99%
</TABLE>
Changes in the Allowance for Loan Losses for the three months ended March
31, 1995 and 1994 were as follows:
1995 1994
Balance at January 1 $7,640,000 $7,180,000
Provision for loan losses
charged to operating expenses 151,000 182,000
---------- ----------
$7,791,000 $7,362,000
---------- ----------
Losses charged to allowance 118,418 162,239
Recoveries credited to allowance 60,725 26,838
---------- ----------
Net charge-offs 57,693 135,401
---------- ----------
Balance at March 31, $7,733,307 $7,226,599
========== ==========
Allowance as a percent of
period-end loans 1.94% 1.98%
The net charge-offs for the first three months of 1995 were within our
expectations. Management makes a determination no less frequently than
quarterly as to the appropriate provision necessary to maintain an adequate
allowance for potential loan losses. The amount of provision made is based
upon a variety of factors including a specific allocation by individual
credits, loss experience for classified loans using migration
analysis, loss experience for homogenous loan pools, levels and trends in
delinquency, specific non-accruing and problem loans, evaluation of economic
conditions and forecasts and other factors deemed appropriate by management.
With respect to the variation in amounts charged during the period of 1995 in
comparison to the corresponding period in the prior year, the specific reason
for the improvement relates to lower levels of delinquency and non-accruing
loans, as well as an improvement in the local economic conditions. While
there can be no assurance that material amounts of additional loan
loss provisions will not be required in the future, management believes that,
based upon information presently available, the amount of the allowance for
possible loan losses is adequate.
The following table presents information concerning the aggregate amount of
nonaccrual, past due and restructured loans:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
<S> <C> <C> <C>
Nonaccrual loans $2,260,291 $2,127,277 $3,007,186
Accruing loans, past due 90 days or more $ 367,043 $1,126,534 $ 420,322
Non-performing loans to total loans .66% .83% .94%
Allowance for loan losses to
non-performing loans 294.3% 234.8% 210.8%
</TABLE>
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 $63,252 and $62,997 at March 31, 1995
and 1994 respectively, and $276,956 at December 31, 1994. Interest
income recorded on the nonaccrual loans in 1995 was $2,712 and 1994 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 March 31,1995, there were no such loans that had to
be dislosed as potential problem loans.
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures", an amendment of SFAS No. 114, was implemented
at the beginning of 1995. The Bank has defined impaired loans as all loans
on nonaccrual status, except those specifically excluded from the scope of
SFAS No. 114, regardless of the credit grade assigned by loan review. When
the measure of an impaired loan is less than the recorded
investment in the loan, the Bank will compare the impairment to the existing
allowance assigned to the loan. If the impairment is greater than the
existing allowance, the Bank will adjust the existing allowance to reflect
the greater amount or take a corresponding charge to the provision for loan
and lease losses. If the impairment is less than the existing allowance for
a particular loan, no adjustments to the allowance or the
provision for loan and lease losses will be made. There was no adjustment
necessary for the impaired loans for the period indicated.
The average amount of nonaccruals for the first quarter of 1995 was
$2,246,809.
The following table presents information concerning impaired loans at
March 31, 1995:
Gross impaired loans which have allowances...............$2,260,291
Less: Related allowances for loan losses............... 717,131
----------
Net impaired loans.......................................$1,543,160
At March 31, 1995, 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, 1995.
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, 1994.
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 March 31, 1995 compared to three months ended March 31, 1994
Net income for the first quarter of 1995 amounted to $2,130,984 compared to
$1,965,147 for the first quarter of 1994. This represents an increase of
$165,837 or 8.4%. On a per share basis, income was $.36 compared to $.34.
Return on average assets for the first quarter of 1995 was 1.35% which
equalled the return for the first quarter of 1994. Return on equity was
14.51 % for the first quarter of 1995 compared to 15.29% for the same period
in 1994.
Total interest income increased $1,725,848 or 17.6% while total interest
expense increased $1,355,273 or 39.6%. Therefore, the interest differential
increased $370,575. Loans increased over $33 million over the same period in
1994. Increased volumes, as well as an increase in interest rates generated
an increase of $1,499,049 in interest and fees on loans. Interest on deposits
with banks decreased $276. The average daily balance on time deposits with
banks was $22,210 in 1995 compared to $133,276 in 1994. Interest on federal
funds sold decreased $31,537 or 54.7%. The daily average of federal
funds sold was $1,754,444 in 1995 compared to $7,219,444 in 1994. Income on
investment securities increased $258,612 or 11.5% in 1995. The daily average
of investment securities in 1995 was $167,276,427 compared to $153,109,108 in
1994.
Total interest expense amounted to $4,776,574 reflecting an increase of
$1,355,273 or 39.6% over the $3,421,301 reported in 1994. Interest paid on
interest-bearing deposits increased $1,144,893 or 36.9% in 1995 over the same
period in 1994. Increased volumes in interest-bearing deposits, as well as
an increase in interest rates, generated this increase. Interest expense on
other interest bearing liabilities increased $210,380 during the same period
of time primarily as a result of increased volumes in this category of
liabilities.
The provision for possible loan losses decreased $31,000 from a charge of
$182,000 in 1994 to $151,000 in 1995. 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 increased $127,282 or 7.2%. An increase was
reflected in all categories of income with the exception of mortgage banking
income. Income from fiduciary activities increased $31,872 or 19%. Service
charges on deposit accounts and other various service charges increased
$90,133. Other operating income increased $173,132. Contributing to the
increase in other income was income realized from other real estate owned and
an increase in income from Visa operations. Income generated from
operating leases is also a contributor to other operating income. Mortgage
banking income decreased $167,855. The decrease in mortgage banking income
was a result of the continuing increases in rates on mortgages originated and
sold, as well as decreased volumes of originations and subsequent sales. The
period in 1994 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 $333,506 or 6.2% reflecting normal
increases experienced through growth. Increases of $282,148 in salaries and
employee benefits; $4,074 in other operating expenses, $27,758 in occupancy
and furniture and equipment expense and $19,526 in FDIC insurance constitute
the total increase. Two new branch facilities were added in the first
quarter of 1995.
Applicable income taxes amounted to $695,772 in 1995 compared to $666,258
in 1994. The increase in taxes is due in part to increases in taxable income.
Three months ended March 31, 1995 compared to three months ended December 31,
1994
Net income decreased $79,968 or 3.6% in the first quarter of 1995 over the
fourth quarter of 1994. Net income at March 31, 1995 was $2,130,984 compared to
$2,,210,952 for the quarter ending December 31, 1994. Net income on a per
share basis was $.36 for the first quarter of 1995 compared to $.38 for the
last quarter of 1994. Return on average assets for the first quarter of 1995
was 1.35% compared to 1.42% for the last quarter of 1994. Return on equity
was 14.51% and 15.65% respectively for March 31, 1995 and December 31, 1994.
Total interest income increased $313,522 or 2.8%. Interest and fees on
loans increased $325,909 while interest on investment securities increased
$40,412. Interest on other earning assets decreased $52,799. Earning
assets increased approximately $6.4 million during the first three months of
1995. The most significant increase in earning assets was in the loan
portfolio. Loans, net of unearned income, increased over $6.5
million the first three months of 1995.
Total interest expense increased $597,429 or 14.3% during the first quarter
of 1995. Total interest-bearing liabilities increased nearly $15.4 million
in the first quarter of 1995 over the last quarter of 1994. Interest-bearing
deposits increased over $13.8 million during this period of time. Increased
volumes and slightly higher interest rates contributed to the increase in
interest expense.
Net interest income decreased $283,907 as a result of a larger increase in
interest expense over the increase in interest income.
The loan loss provision for the first quarter of 1995 was $151,000 compared
to $165,185 for the last quarter of 1994.
Total other operating income increased $114,483 or 6.4% in the first
quarter of 1995 over the last quarter of 1994. Contributing to this increase
was an increase in income from fiduciary activities and service charges on
deposit accounts. Other various service charges and fees and mortgage banking
income reflected decreases. Other income during the first quarter of 1995 was
significantly higher due to income realized from other estate sold.
Total other operating expenses decreased $131,379 or 2.3% over the fourth
quarter of 1994. Occupancy and furniture and equipment expense increased
$47,316 and FDIC insurance increased $12,223. Salaries and employee benefits
and other operating expense decreased $104,662 and $86,256 respectively
during the first quarter 1995 over the last quarter of 1994. Incentive pay
and taxes on this compensation during the last quarter of 1994 was the major
contributor to salaries being greater in this period of the first quarter of
1995.
Applicable income taxes were $56,108 greater than those recorded for the
fourth quarter of 1994 due mainly to tax credits used in the last quarter of
1994.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
As of March 31, 1995, 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
21. Subsidiaries of Registrant
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K - There were no reports filed on Form 8-K during
the first quarter of 1995.
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 11, 1995 By:
John E. Stefan
Chairman of the Board, President
and Chief Executive Officer
Date: May 11, 1995 By:
Jere L. Obetz
Senior Vice President/Treasurer
Chief Financial Officer
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following are the subsidiaries of Sterling Financial Corporation:
Subsidiary State of Incorporation or
Organization
Bank of Lancaster County, N.A. Pennsylvania (National Banking
1 East Main Street 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)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000811671
<NAME> STERLING FINANCIAL CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 34,262,036
<INT-BEARING-DEPOSITS> 15,874
<FED-FUNDS-SOLD> 5,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,794,571
<INVESTMENTS-CARRYING> 154,132,964
<INVESTMENTS-MARKET> 146,325,367
<LOANS> 399,197,123
<ALLOWANCE> 7,733,307
<TOTAL-ASSETS> 643,309,983
<DEPOSITS> 542,738,858
<SHORT-TERM> 1,426,780
<LIABILITIES-OTHER> 11,904,127
<LONG-TERM> 28,184,148
<COMMON> 29,501,250
0
0
<OTHER-SE> 29,554,820
<TOTAL-LIABILITIES-AND-EQUITY> 59,056,070
<INTEREST-LOAN> 8,993,200
<INTEREST-INVEST> 2,542,819
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,536,019
<INTEREST-DEPOSIT> 4,247,222
<INTEREST-EXPENSE> 529,352
<INTEREST-INCOME-NET> 6,759,445
<LOAN-LOSSES> 151,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,687,099
<INCOME-PRETAX> 2,826,756
<INCOME-PRE-EXTRAORDINARY> 2,826,756
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,130,984
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 0
<LOANS-NON> 2,260,291
<LOANS-PAST> 367,043
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 7,640,000
<CHARGE-OFFS> 151,000
<RECOVERIES> 60,725
<ALLOWANCE-CLOSE> 7,733,307
<ALLOWANCE-DOMESTIC> 7,733,307
<ALLOWANCE-FOREIGN> 0
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