UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to _______________
Commission file number 0-16276
STERLING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2449551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
525 Greenfield Road, P.O. Box 10608
Lancaster, Pennsylvania 17605-0608
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 295-7551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $5.00 Per Share
(Title of class)
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at February 28, 1995 was approximately $129,291,574.
The number of shares of Registrant's Common Stock outstanding on February 28,
1995 was 5,900,250.
Documents Incorporated by Reference
Portions of the Proxy Statement of Registrant dated March 28, 1995 are
incorporated by reference into Part III of this report.
Sterling FinancialCorporation
Table of Contents
Page
Part I
Item 1. Business............................................. 1
Item 2. Properties........................................... 3
Item 3. Legal Proceedings.................................... 3
Item 4. Submission of Matters to a Vote of Security Holders.. 4
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.......................... 4
Item 6. Selected Financial Data.............................. 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6
Item 8. Financial Statements and Supplementary Data.......... 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 48
Part III
Item 10. Directors and Executive Officers of the Registrant... 49
Item 11. Executive Compensation............................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 49
Item 13. Certain Relationships and Related Transactions....... 49
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 50
Signatures......................................................51
PART I
Item 1 - Business
Sterling Financial Corporation
Sterling Financial Corporation (the "Corporation") is a Pennsylvania
business corporation, based in Lancaster, Pennsylvania. The Corporation was
organized on February 23, 1987 and became a bank holding company through the
acquisition on June 30, 1987 of all the outstanding stock of The First
National Bank of Lancaster County, now by change of name, Bank of Lancaster
County, N.A.
In addition, Sterling Financial Corporation also owns all of the
outstanding stock of a non-bank subsidiary, Sterling Mortgage Services, Inc.
Sterling Mortgage Services, Inc. is a mortgage service company formed by
Sterling Financial Corporation as a wholly owned subsidiary that presently is
considered inactive.
Sterling Financial Corporation provides a wide variety of commercial
banking and trust services through its wholly owned subsidiary, Bank of
Lancaster County, N.A.
A partial source of operating funds for the Corporation is dividends
provided by the Bank of Lancaster County, N.A. The Corporation's expenses
consist principally of operating expenses. Dividends paid to stockholders
are, in part, obtained by the Corporation from dividends declared and paid to
it by Bank of Lancaster County, N.A.
As a bank holding company, Sterling Financial Corporation is registered
with the Federal Reserve Board in accordance with the requirements of the
Federal Bank Holding Company Act and is subject to regulation by the Federal
Reserve Board and by the Pennsylvania Department of Banking.
Bank of Lancaster County
Bank of Lancaster County, N.A. (the "Bank"), a full service commercial
bank operating under charter from the Comptroller of the Currency, was
organized in 1863. On July 29, 1863, authorization was given by the
Comptroller of the Currency to The First National Bank of Strasburg to
commence the business of banking. On September 1, 1980, the name was changed
to The First National Bank of Lancaster County and at the time of the holding
company reorganization, June 30, 1987, the name was changed to its present
name, Bank of Lancaster County, N.A. At December 31, 1994, the Bank had total
assets of $633,395,000 and total deposits of $537,354,000.
The main office of the Bank is located at 1 East Main Street, Strasburg,
Pennsylvania. In addition to its main office, the Bank had eighteen (18)
branches in Lancaster County and one (1) branch in Chester County in operation
at December 31, 1994.
The Bank provides a full range of banking services. These include
demand, savings and time deposit services, NOW (Negotiable Order of
Withdrawal) accounts, money market accounts, safe deposit boxes, VISA credit
card, and a full spectrum of personal and commercial lending activities. The
Bank maintains correspondent relationships with major banks in New York City
and Philadelphia. Through these correspondent relationships, the Bank can
offer a variety of collection and international services.
With the installation of three automated teller machines (ATMs) in April
of 1983, the Bank was the first financial institution in Lancaster County to
join the MAC (Money Access Center) Network. Presently the Bank has 16 ATMs in
Lancaster County. The Bank became a participating member of the Plus System
in the Fall of 1984. This membership entitles the Bank's MAC/Plus cardholders
to have access to a nationwide network of over 117,000 ATMs.
The Bank introduced Discount Brokerage Service in July, 1983. This
service is offered in coordination with Trade Saver, Inc., a subsidiary of PNC
Bank Corporation of Philadelphia, Pennsylvania and meets the needs of the
commission-conscious, independent-minded investor. In 1992 the Bank began
offering mutual funds to customers. We believe these services are important
additions to our product line and make a statement about our aggressive
attitude in providing financial services for the future.
The Bank was given permission to open a Trust Department by the
Comptroller of the Currency on May 10, 1971. The Trust Department provides
personal and corporate trust services. These include estate planning,
administration of estates and the management of living and testamentary trusts
and investment management services. Other services available are pension and
profit sharing trusts and self-employed retirement trusts. Trust Department
assets totaled over $190 million at December 31, 1994.
On January 31, 1983, the Bank purchased Town & Country, Inc. which is a
vehicle and equipment leasing company operating in Pennsylvania and other
states. Its principal office is located at 640 East Oregon Road, Lancaster,
PA. Town & Country, Inc. employs twenty nine (29) people.
The Bank's principal market area is Lancaster County, which continues to
be one of the fastest growing counties in Pennsylvania. Lancaster County is
now the sixth largest county in Pennsylvania, behind Philadelphia, Allegheny,
Montgomery, Delaware and Bucks. Lancaster County, with an area of 946 square
miles has a population of approximately 430,000 people. Lancaster's tradition
of economic stability has continued, with agriculture, industry and tourism
all contributing to the overall strength of the economy.
One of the best agricultural areas in the nation, Lancaster County ranks
first among Pennsylvania counties and one of the top 20 farm markets in the
country. Lancaster County is also one of the leading industrial areas in the
state. The county is considered a prime location for manufacturing, away from
congested areas, yet close to major east coast markets.
Diversification of industry helps to maintain the economic stability of the
county. The unemployment rate of the county in December 1994 was 4.4% which
was lower than the state (5.9%) and national (5.4%) levels. The 1994 average
county jobless rate was 4.3% of the work force, down from 4.9% in 1993 and 5.5%
in 1992. Lancaster County, with its many historic sites, well-kept
farmlands and the large Amish community has become very attractive
is one of the top tourist attractions in the U.S.
The Bank is subject to intense competition in all respects
and areas of its business from banks and other financial institutions,
including savings and loan associations, finance companies, credit unions and
other providers of financial services. There are 15 full-service commercial
banks with offices in Lancaster County with some of these banks having branches
located throughout Lancaster County and beyond. The institutions range
in asset size from approximately $160 million to over $44 billion. Of these
institutions, eight (8) exceed $775 million in assets and seven (7) of the
eight (8) exceed $1.3 billion in total assets. Five (5) banks in our trade
area exceed $4.9 billion. Several banks are part of bank holding companies.
One bank is part of a bank holding company that has assets in excess of $64
billion while another bank is part of a bank holding company that has over $38
billion in assets. Due to our location, we are in direct competition with
the larger banks as well as a number of smaller banks. As of December 31,
1994, the Bank ranked, as measured by total deposits, as the fourth largest in
market share within Lancaster County of the banks doing business in Lancaster
County. The Bank is not, however, the fourth largest bank in Lancaster
County. As of December 31, 1994, the Bank had total assets of over $633
million and ranked tenth on this basis among the commercial banks with offices
located in Lancaster County.
There has not been a material portion of the Bank's deposits
obtained from a single person or a few persons, including federal, state
or local governments and agencies thereunder and the loss of any single or
any few customers would not have a materially adverse effect on the
business of the bank.
The Bank has no significant foreign sources or applications
of funds.
As of December 31, 1994, there were 354 persons employed by the Bank, of
which 269 were full-time and 85 were part-time. These figures do not include
employees of Town & Country, Inc. which employed 29 persons.
The Bank is subject to regulation and periodic examination by the
Comptroller of the Currency. Its deposits are insured by the Federal Deposit
Insurance Corporation, as provided by law.
Item 2 - Properties
The Bank, in addition to its main office, had, at December 31, 1994, a
branch network of 19 offices and 2 off-site electronic MAC/ATM installations.
All branches are located in Lancaster County with the exception of one office
which is located in Chester County. Branches at seven (7) locations are
occupied under leases and at three branches, the Bank owns the building, but
leases the land. One off-site MAC/ATM installation is occupied under lease.
All other properties were owned in fee. All real estate and buildings owned
by the Bank are free and clear of encumbrances. The Corporation owns no real
estate.
The Administrative Service Center of Bank of Lancaster County, N.A. is
owned in fee by the Bank, free and clear of encumbrances.
The building occupied by Town & Country, Inc., a wholly owned subsidiary
of the Bank, is owned in fee by Town & Country, Inc., free and clear of
encumbrances.
The leases referred to above expire intermittently over the years through
2022 and most are subject to one or more renewal options. Aggregate annual
rentals for real estate paid during 1994 did not exceed two percent of its
operating expenses.
The Bank is in the process of constructing a new headquarters building
which will include a branch banking office and also serve as headquarters for
Sterling Financial Corporation. Occupancy is expected to take place in the
Fall of 1995. The three-story building will contain approximately 53,000
square feet. The Bank and the Corporation will occupy approximately 43,000
square feet while nearly 10,000 square feet will be available to lease to
other tenants.
Item 3 - Legal Proceedings
As of December 31, 1994, there were no material pending legal
proceedings, other than ordinary routine litigation incidental to the
business, to which the Corporation or its subsidiaries are a party or of which
any of their property is the subject.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of 1994.
Part II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters
The common stock of the Corporation is not actively traded.
There are 10,000,000 shares of common stock authorized and the total number
of shares outstanding as of December 31, 1994 was 5,868,610. As of
December 31, 1994, the Corporation had approximately 2,336 holders of record
of its common stock.
There is no other class of common stock authorized or outstanding. During
1994, the price range of the common stock known by management to have traded
was $22.75 to $30.25 per share. The Corporation declared a two-for-one stock
split in the form of a 100% stock dividend in 1994. The following table
reflects the bid and asked prices reported for the common stock at the end of
the period indicated and the cash dividends declared on the common stock for
the periods indicated. All information has been retroactively restated to
give effect to the two-for-one stock split in 1994. In the absence of an
active market, these prices may not reflect the actual market value of
the Corporation's stock for the periods reported.
1994 Bid Ask Dividend
First Quarter $23.125 $24.375 $.14
Second Quarter 24.25 25.125 .14
Third Quarter 27.00 28.50 .15
Fourth Quarter 28.75 30.75 .15
1993 Bid Ask Dividend
First Quarter $17.50 $18.25 $.13
Second Quarter 19.00 19.875 .13
Third Quarter 20.50 22.00 .14
Fourth Quarter 22.25 23.00 .14
The prices used in the previous table represent bid and
asked prices furnished by F.J. Morrissey & Company; Hopper Soliday & Co.,
Inc.; Legg Mason Wood Walker, Inc.; Prudential Securities; Ryan, Beck & Company;
Sandler O'Neill & Partners, L.P.; or The National Quotation Bureau.
These quotations reflect inter-dealer prices, without retail markup, markdown or
commission.
The Corporation maintains a Dividend Reinvestment and Stock Purchase Plan
for eligible shareholders who elect to participate in the plan.
A copy of the Prospectus for this plan can be obtained by writing to: Bank of
Lancaster County, N.A. Dividend Reinvestment and Stock Purchase Plan, 25
North Duke Street, Lancaster, Pennsylvania 17602.
Item 6 - Selected Financial Data
The following selected financial data should be read in conjunction with
the Corporation's consolidated financial statements and the accompanying notes
presented elsewhere herein.
Summary of Operations
Years Ended 1994 1993 1992 1991 1990
(Dollars in Thousands, except per share data)
Interest income............$ 41,931 $ 40,092 $ 40,284 $42,689 $ 42,049
Interest expense........... 14,926 15,042 17,818 22,793 23,522
------ ------ ------ ------ ------
Net interest income........ 27,005 25,050 22,466 19,896 18,527
Provision for loan losses.. 1,081 2,430 2,296 1,789 1,661
------ ------ ------ ------ ------
Net interest income after
provision for loan losses. 25,924 22,620 20,170 18,107 16,866
Other income............... 7,043 8,979 7,926 6,721 4,925
Other expenses............. 22,053 21,048 18,922 16,995 14,917
------ ------ ------ ------ ------
Income before income taxes. 10,914 10,551 9,174 7,833 6,874
Applicable income taxes.... 2,637 2,749 2,331 1,929 1,609
------ ------ ------ ------ ------
NET INCOME.................$ 8,277 $ 7,802 $ 6,843 $ 5,904 $ 5,265
====== ====== ====== ====== ======
Per Common Share:*
Net income.................$ 1.42 $ 1.36 $ 1.21 $ 1.06 $ .97
Dividends.................. .58 .54 .48 .44 .44
Book value................. 9.76 8.58 7.56 6.75 6.01
Book value (excluding
SFAS 115)................ 9.69 8.58 7.56 6.75 6.01
Average shares
outstanding.............5,837,103 5,728,400 5,635,302 5,551,556 5,449,970
Ratios:
Return on average assets.. 1.38% 1.41% 1.34% 1.25% 1.21%
Return on average equity.. 15.47% 16.90% 16.99% 16.63% 16.92%
Financial Condition at
Year-End:
Assets.....................$633,395 $587,883 $544,404 $495,234 $457,886
Loans (net of unearned).... 392,649 359,365 348,529 317,730 310,830
Deposits................... 537,002 505,680 473,184 434,523 399,823
Stockholders' Equity**..... 57,285 49,467 42,794 37,737 32,941
Average Assets............. 600,263 555,216 510,439 471,488 433,558
*Figures prior to 1994 were retroactively restated for various stock
dividends, a three-for-two stock split on November 30, 1992, a two-for-one
stock split on September 1, 1994 and for comparative purposes.
**Stockholders' Equity prior to 1993 has been restated for the retroactive
effect of SFAS No. 109.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion provides management's analysis of the
consolidated financial condition and results of operations of Sterling
Financial Corporation (the "Corporation") and subsidiaries, Bank of Lancaster
County, N.A. (the "Bank") and its subsidiary, Town & Country, Inc. and
Sterling Mortgage Services, Inc. (presently inactive). It should be read in
conjunction with the audited financial statements and footnotes appearing
elsewhere in this report.
Results of Operations Summary
Net income for 1994 was $8,277,000, an increase of $475,000 or 6.1% over
the $7,802,000 earned in 1993. The results of 1993 were $959,000 or 14%
higher than the $6,843,000 reported in 1992. Earnings per share on net income
amounted to $1.42, $1.36, and $1.21 for the years ended 1994, 1993 and 1992
respectively. Earnings per share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
which were 5,837,103, 5,728,400 and 5,635,302 for 1994, 1993 and 1992
respectively. Figures prior to 1994 were retroactively restated to reflect a
two-for-one stock split in the form of a 100% stock dividend paid in 1994, a
5% stock dividend paid in December 1993 and a three-for-two stock split in
the form of a 50% stock dividend paid in 1992.
Return on average total assets was 1.38% in 1994 compared to
1.41% in 1993 and 1.34% in 1992. Return on average stockholders' equity
was 15.47% in 1994 compared to 16.90% in 1993 and 16.99% in 1992.
Growth in earning assets was the primary factor contributing to the
increased earnings for both 1994 and 1993. As of December 31, 1994, earning
assets were approximately $563 million compared to $522 million
at December 31, 1993 and $481 million at December 31, 1992. Average earning
assets for 1994 increased nearly $40 million to approximately $538 million,
up 8% from the prior year. Similarly, in 1993 average earning assets
increased approximately $43 million, up 9.5% from 1992. The current year
increase as well as the increase in 1993 was primarily due to increases in
both loans and investments.
Average interest-bearing liabilities increased nearly $29.1 million or
6.6% in 1994 compared to an increase of nearly $31.5 million, or 7.7% in 1993.
The increase in average earning assets exceeded the increase in average
interest-bearing liabilities in both 1994 and 1993. These increases along
with lower cost of funds contributed to strong net interest margins in each
period.
Provision for loan losses decreased to $1,081,000 in 1994 from $2,430,000
in 1993. The provision in 1992 was $2,296,000.
Non-interest income decreased $1,936,000 in 1994. This compares to an
increase of $1,053,000 in 1993. The decrease in 1994 is primarily a result of
a decrease in mortgage banking activities due to sudden and continuing
increases in rates on mortgages originated and sold, as well as decreased
volumes of originations and subsequent sales.
Non-interest expenses increased $1,005,000 or 4.8% in 1994, down from the
comparable period last year. There was an increase in 1993 over 1992 in the
amount of $2,126,000 or 11.2%.
The majority of assets and liabilities of a financial institution are
monetary in nature and, therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth
of total assets and on non-interest expenses, which tend to rise during
periods of general inflation. The level of inflation over the last few years
has been declining.
The Federal Deposit Insurance Corporation Improvement Act of 1991 was
signed into law on December 19, 1991 (the "Act"). The Act addresses the
recapitalization of the bank insurance fund and is designed to limit risk
within the banking industry. Management does not believe that full
implementation of the Act will have a material impact on liquidity, capital
resources or reported results of operations in future periods.
The recent passage of the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 may have a significant impact upon the
Corporation. The key provisions pertain to interstate banking and interstate
branching. In September 1995, bank holding companies may acquire banks in other
states without regard to state law. In addition, banks can merge with
other banks in another state beginning in June 1997. States may adopt laws
preventing interstate branching but, if so, no out-of-state bank can
establish a branch in such state and no bank in such state may branch outside
the state. Predictions are that consolidation will occur as the banking
industry strives for greater cost efficiencies and market share. Management
believes that such consolidation may enhance its competitive position as a
community bank.
Aside from those matters described above, management does not believe
that there are any trends or uncertainties which would have a material impact
on future operating results, liquidity or capital resources nor is it aware of
any current recommendations by the regulatory authorities which if they were
to be implemented would have such an effect.
Net Interest Income
The primary component of the Corporation's net earnings is
net interest income, which is the difference between interest and fees earned
on interest- earning assets and interest paid on deposits and borrowed funds.
For presentation and analytical purposes, net interest income is
adjusted to a taxable equivalent basis. For purposes of calculating yields on
tax-exempt interest income, the taxable equivalent adjustment equates
tax-exempt interest rates to taxable interest rates as noted in Table 1.
Adjustments are made using a statutory federal tax rate of 34% for 1994, 1993
and 1992.
Table 1 presents average balances, taxable equivalent interest income and
expense and the yields earned or paid on these assets and liabilities. The
increase in net interest income during 1994 and 1993 was due primarily to
increases in average earning assets. Average earning assets increased 8% in
1994 and 9.5% in 1993. These increases were primarily funded with interest-
bearing liabilities which increased 6.6% in 1994 and 7.7% in 1993.
Table 1 - Distribution of Assets, Liabilities and Stockholders'
Equity
Interest Rates and Interest Differential-Tax Equivalent Yields
<TABLE>
<CAPTION>
(Unaudited)
Years ended December 31,
1994 1993 1992
Average Annual Average Annual Average Annual
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Assets (Dollars in Thousands)
Interest bearing deposits
with banks.............$ 55 $ 2 3.79% $ 690 $ 27 3.84% $ 1,366 $ 89 6.52%
Federal Funds sold....... 6,247 264 4.24% 6,234 191 3.07% 6,279 220 3.50%
Investment securities:
U.S. Treasury
securities............ 26,560 1,471 5.54% 21,447 1,253 5.84% 16,782 1,129 6.73%
U.S. Government
agencies.............. 23,353 1,395 5.97% 21,832 1,458 6.68% 26,387 2,027 7.68%
State and Municipal
securities............ 44,442 3,781 8.51% 37,451 3,440 9.18% 30,271 3,041 10.05%
Other securities....... 62,476 3,961 6.34% 52,941 3,726 7.04% 44,642 3,463 7.76%
------- ------- ------ ------- ------- ------ ------- ------- ------
Total investment
securities.............156,831 10,608 6.76% 133,671 9,877 7.39% 118,082 9,660 8.18%
Loans:
Commercial.............207,844 17,743 8.54% 195,562 16,327 8.35% 172,097 15,649 9.09%
Consumer...............103,572 8,861 8.56% 99,761 8,878 8.90% 96,854 9,464 9.77%
Mortgages.............. 26,704 2,274 8.51% 27,714 2,490 8.99% 28,932 2,767 9.56%
Leases................. 36,802 3,667 9.96% 34,533 3,658 10.59% 31,321 3,702 11.82%
------- ------- ------ ------- ------- ------ ------- ------- ------
Total loans..............374,922 32,545 8.68% 357,570 31,353 8.77% 329,204 31,582 9.59%
------- ------- ------ ------- ------- ------ ------- ------- ------
Total earning assets.....538,055 43,419 8.07% 498,165 41,448 8.32% 454,931 41,551 9.13%
Allowance for loan losses (7,472) (5,984) (4,969)
Cash and due from banks.. 27,746 26,863 24,382
Other non-earning assets. 41,934 36,172 36,095
------- ------- -------
Total non-earning assets. 62,208 57,051 55,508
------- ------- ------ ------- ------- ------ ------- ------- ------
Total assets............$600,263 $ 43,419 7.23% $555,216 $41,448 7.47% $510,439$ 41,551 8.14%
======= ======= ====== ======= ======= ====== ======= ======= ======
Liabilities and Stockholders' Equity
Deposits:
Demand deposits
Noninterest-bearing..$ 64,446 $ 0 0.00% $ 57,869 $ 0 0.00% $ 50,601$ 0 0.00%
Demand deposits
Interest-bearing......229,693 5,375 2.34% 211,406 5,484 2.59% 184,959 6,207 3.36%
Savings deposits....... 58,864 1,324 2.25% 45,302 1,222 2.70% 34,927 1,199 3.43%
Time deposits..........158,994 6,884 4.33% 163,497 7,085 4.33% 175,590 9,423 5.37%
------- ------- ------ ------- ------- ------ ------- ------ ------
Total deposits...........511,997 13,583 2.65% 478,074 13,791 2.88% 446,077 16,829 3.77%
Other borrowed funds..... 22,144 1,343 6.06% 20,367 1,251 6.15% 13,659 989 7.24%
Other liabilities........ 12,227 10,613 10,439
Stockholders' equity..... 53,895 46,162 40,264
------- ------- ------ ------- ------- ------ ------- ------ ------
Total liabilities and
Stockholders' equity..$600,263 $ 14,926 2.49% $555,216 $15,042 2.71% $510,439$ 17,818 3.49%
======= ======= ====== ======= ======= ====== ======= ======= ======
Net interest income/
Average total assets... $ 28,493 4.75% $26,406 4.76% $ 23,733 4.65%
Net interest income/
Average earning assets. $ 28,493 5.30% $26,406 5.30% $ 23,733 5.22%
</TABLE>
Net interest income on a fully taxable equivalent basis increased by
$2,087,000 in 1994 compared to an increase of $2,673,000 in 1993.
Table 2 indicates that of the increase in 1994, $2,453,000 was the result
of increased volumes while $366,000 of the increase was the result
of overall rate decreases. Likewise, the increase in 1993 was a
result of increased volumes totaling $2,872,000 while $199,000 of the
increase was a result of rate decreases.
Table 2 - Analysis of Changes in Net Interest Income
The rate-volume variance analysis set forth in the table below, which is
computed on a tax equivalent basis, analyses changes in net interest income
for the periods indicated by their rate and volume components.
<TABLE>
1994 Versus 1993 1993 Versus 1992
(Dollars in Thousands)
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on deposits
with banks...........$ (25) $ 0 $ (25) $ (44) $ (18) $ (62)
Interest on federal
funds sold........... 0 73 73 (2) (27) (29)
Interest on investment
securities........... 1,711 (980) 731 1,275 (1,058) 217
Interest and fees on
loans................ 1,522 (330) 1,192 2,722 (2,951) (229)
------ ------- ------ ------- ------- ------
Total interest income...$ 3,208 $ (1,237) $ 1,971 $ 3,951 $(4,054) $ (103)
------ ------- ------ ------- ------- ------
Interest Expense
Interest on
interest-bearing
demand deposits......$ 474 $ (583) $ (109) $ 887 $(1,610) $ (723)
Interest on
savings deposits...... 366 (264) 102 356 (333) 23
Interest on
time deposits......... (195) (6) (201) (649) (1,689) (2,338)
Interest on
borrowed funds........ 110 (18) 92 485 (223) 262
------ ------- ------ ------- ------- ------
Total interest expense..$ 755 $ (871) $ (116) $ 1,079 $(3,855) $(2,776)
------ ------- ------ ------- ------- ------
Net interest income.....$ 2,453 $ (366) $ 2,087 $ 2,872 $ (199) $ 2,673
======= ======= ====== ======= ======= ======
</TABLE>
For the year 1994 compared to 1993, loan volumes, on average, increased
over $17.3 million and income earned on loans increased $1,192,000, tax
adjusted. This compares to a volume increase of over $28.3 million in 1993
over 1992 with a decrease in income earned on loans amounting to $229,000.
Rates charged on loans began to increase in 1994. Therefore, the decrease in
interest due to rate changes was not as great in 1994 compared to 1993 when
rates were lower. Due to increased volumes and a rising rate environment,
interest income increased significantly in 1994 over 1993. Total loans at
December 31, 1994 were nearly $33.3 million greater than at December 31, 1993.
This compares to an increase of nearly $10 million in 1993 over 1992.
The Bank experienced an increase in its holdings in
investment securities during 1994. Total investment securities increased
nearly $23.7 million in
1994 over 1993 compared to an increase of over $17.9 million in
1993 over 1992. The increased volumes were primarily responsible for the
increase in interest income on securities. Table 2 indicates that of the
increase in interest income in 1994, $1,711,000 was the result of increased
volumes while there was a decrease of $980,000 due to rate changes resulting in
a total increase of $731,000. In 1993, interest income increased
$217,000.
Interest-bearing deposits, on average, grew over $27 million in 1994.
However, the lower cost of funds reflect a decrease in interest expense.
Interest rates paid on deposits have increased beginning in 1994.
Therefore, the decrease in interest expense due to rate change is not as
significant as the comparable 1993 period.
Provision for Loan Losses
The provision for loan losses charged against earnings was
$1,081,000 in 1994 compared to $2,430,000 in 1993 and $2,296,000 in 1992. The
provision reflects the amount deemed appropriate by management to produce
an adequate reserve to meet the present and foreseeable risk characteristics
of the loan portfolio.
Management's judgement is based on the evaluation of individual loans and
their overall risk characteristics, past loan loss experience, and other
relevant factors. Net charge-offs amounted to $621,000 in 1994,
$650,000 in 1993 and $1,296,000 in 1992.
The provision for loan loss was increased during 1993 in order for the
Bank to provide an adequate reserve based on the evaluation of individual
loans and their current characteristics and current economic condition. The
reserve accordingly was increased to 2.00% of net loans outstanding from 1.55%
in 1992. The allowance for loan losses as a percent of loans at
December 31, 1994 was 1.95%.
Non-Interest Income
Table 3 - Non-Interest Income
<TABLE>
<CAPTION>
1994/1993 1993/1992
Increase Increase
(Decrease) (Decrease)
(Dollars in Thousands) 1994 Amount % 1993 Amount % 1992
<S> <C> <C> <C> <C>
<C> <C> <C>
Income from fiduciary activities..$ 742 $ 103 16.1% $ 639 $ 43 7.2% $ 596
Service charges on deposit
accounts....................... 1,798 (93) (4.9%) 1,891 10 .5% 1,881
Other service charges, commissions
and fees....................... 1,539 (38) (2.4%) 1,577 207 15.1% 1,370
Mortgage banking income........... 635 (1,800) (73.9%) 2,435 934 62.2% 1,501
Other operating income............ 2,329 (100) (4.1%) 2,429 (122) (4.8%) 2,551
Investment securities gains or
(losses)....................... 0 (8)(100.0%) 8 (19) (70.4%) 27
----- ------ ------ ----- ----- ----- -----
Total.............................$7,043 $(1,936) (21.6%) $8,979$1,053 13.3% $7,926
===== ====== ====== ===== ===== ===== =====
</TABLE>
Non-interest income, recorded as other operating income, consists of
income from fiduciary activities, service charges on deposit accounts, other
service charges, commissions and fees, mortgage banking income and other
income such as safe deposit box rents and income from operating leases.
Income from fiduciary activities in the amount of $742,000 in 1994 was
$103,000 or 16.1% over the $639,000 recorded in 1993. Income in 1993 was
$43,000 or 7.2% greater than the $596,000 recorded in 1992. Fees increased
primarily due to increased transaction volumes.
Service charges on deposit accounts decreased to $1,798,000, a decrease
of $93,000 or 4.9% over 1993 service charge income of $1,891,000. Service
charges on deposit accounts in 1993 exceeded the 1992 income of $1,881,000 by
$10,000 or .5%.
Other service charges, commissions and fees amounted to $1,539,000 in
1994 compared to $1,577,000 in 1993 and $1,370,000 in 1992. A major
contributor to the increase in 1993 was certain fees relating to VISA
operations as well as fees generated from mutual funds sales, a new product
introduced in 1992. Income generated from mutual funds sales in 1994 was
$57,000 less than 1993.
Income from mortgage banking activities in the amount of $635,000
decreased $1,800,000 over 1993, due primarily to an increase in interest rates
which, in turn, caused a decrease in refinancings. This compares to an
increase of $934,000 in 1993 over 1992. In 1990 the Bank began originating and
selling qualified residential mortgage loans in the secondary market. All
mortgages sold were originated by the Bank's network of 20 branches within its
market area. All mortgages sold were purchased by the Federal Home Loan
Mortgage Corporation (Freddie Mac), with the Bank retaining all mortgage
servicing rights. No mortgages have been acquired from third parties, nor
have any servicing rights been purchased. The Bank's mortgage servicing
portfolio totaled $139 million as of December 31, 1994.
The year 1993 was outstanding for the Bank's mortgage banking operation,
with $72 million in mortgage sales from the Bank's marketplace. These
operations contributed $2.4 million of other income in 1993, as opposed to
$1.5 million 1992. The falling interest rate environment through most of this
period resulted in extraordinary volumes of mortgage refinancings, coupled
with a strong local market for real estate sales. An estimated 65% of this
volume involved mortgage refinancings. The decrease in mortgage banking
income in 1994 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 reflects larger volumes due to
refinancings. Mortgage sales amounted to approximately $24 million in 1994.
Other operating income decreased $100,000 to $2,329,000 in 1994 from
$2,429,000 in 1993. Other income for 1992 was $2,551,000. A major
contributor to other operating income is income generated from operating
leases.
Investment securities transactions reflect a gain of $8,000 in 1993
compared to $27,000 in 1992. The gains listed for these years resulted when
certain securities were called at a premium. Securities had been written to
par when calls were made thus generating a gain on the securities called.
There were no securities sold during 1994, 1993 or 1992.
The Bank does not engage in trading activities. Therefore, there was no
impact on current year earnings or a restatement of previously issued
financial statements in connection with the adoption of SFAS 115.
As a result of the above, total other operating income decreased
$1,936,000 in 1994 over 1993 compared to an increase of $1,053,000 in 1993
over 1992.
Non-Interest Expense
Table 4 - Non-Interest Expense
1994/1993 1993/1992
Increase Increase
(Decrease) (Decrease)
(Dollars in thousands) 1994 Amount % 1993 Amount % 1992
Salaries and employee
benefits..................$12,264 $ 698 6.0% $11,566 $1,212 11.7% $10,354
Net occupancy expense....... 1,477 122 9.0% 1,355 136 11.2% 1,219
Furniture & equipment
expense................... 1,379 126 10.1% 1,253 76 6.5% 1,177
FDIC insurance assessment... 1,128 76 7.2% 1,052 68 6.9% 984
Other operating expense..... 5,805 (17) (.3%) 5,822 634 12.2% 5,188
------ ----- ----- ------ ----- ----- ------
Total.......................$22,053 $1,005 4.8% $21,048 $2,126 11.2% $18,922
====== ===== ===== ====== ===== ===== ======
Non-interest expense consists of salaries and employee benefits, net
occupancy expense, furniture and equipment expense and other operating
expenses.
Total operating expenses for 1994 were $22,053,000 compared to
$21,048,000 in 1993. This represented an increase of $1,005,000 or 4.8%.
This compares to an increase of $2,126,000 or 11.2% in 1993.
Salaries and employee benefits expense increased to $12,264,000 in 1994
or $698,000 (6%) over the $11,566,000 reported in 1993. In 1993, expenses
increased $1,212,000 (11.7%) over the $10,354,000 reported in 1992. The
increase in 1994 and 1993 was primarily due to increases in staff as well as
increases in wages and increased costs of employee benefits.
Beginning in 1993, Sterling adopted Financial Accounting Standards Board
Standard No. 106 - Employer's Accounting for Postretirement Benefits Other
than Pensions. Under SFAS No. 106, the cost of postretirement benefits other
than pensions must be recognized on an accrual basis as employees perform
services to earn the benefits. This is a significant change from the previous
generally accepted practice of accounting for these benefits which was on a
cash basis. As a result of the adoption of the Standard No. 106, an
additional expense of $192,060 was required in 1993 and $208,059 in 1994 to
comply with SFAS No. 106.
Occupancy expense increased $122,000 or 9% to $1,477,000 in 1994 from
$1,355,000 in 1993. By comparison, during 1993, there was an increase of
$136,000 or 11.2%. 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 expense.
Furniture and equipment expenses were $1,379,000 for 1994 and $1,253,000
for 1993. This represents an increase of $126,000 or 10.1%.
Reflected in this increase is an increase of depreciation expense in 1994
amounting to $26,000. Service contracts on equipment was another major
contributor to the increase in 1994. Expenses in 1993 were $76,000 greater than
those recorded in 1992.
Another contributor to the increase in total other operating expenses was
the increase in the assessment for FDIC insurance. The assessment for 1994
was $1,128,000 which was $76,000 or 7.2% greater than the $1,052,000 reported
in 1993. The assessment in 1993 was $68,000 or 6.9% greater than the $984,000
reported in 1992. The FDIC has proposed dropping the current average
assessment rate of 23 1/2 cents per $100 in domestic deposits to 4 1/2 cents.
This will have a positive effect on earnings in future periods when the
proposal is effective.
Other operating expenses decreased $17,000 or .3% in 1994 compared to an
increase of $634,000, or 12.2% in 1993. The expense of other real estate
owned was not as great in 1994 compared to 1993. This resulted in a
significant decrease. However, other expenses increased in line with 1993 to
produce a modest decrease in 1994. The increase noted in 1993 is in line with
rising costs associated with acquiring services covered in this category of
expense. Expenses covered in this category include postage, Pennsylvania
Shares Tax, advertising and marketing, professional services, telephone,
stationery and forms, ATM fees, Visa fees, insurance premiums and other
expense categories not specifically identified on the income statement.
Income Taxes
Income tax expense totaled $2,637,000 in 1994 compared to $2,749,000 in
1993 and $2,331,000 in 1992. These increases result from higher levels of
taxable income and increased earnings each year. The Corporation's effective
tax rate was 24.2% in 1994 compared with 26.1% in 1993 and 25.4% in 1992.
Utilization of tax credits in 1994 resulted in a lower effective tax rate even
though income before taxes increased.
Financial Condition
Investment Portfolio
Table 5 - Investment Securities at Cost
The following table shows the amortized cost of the
held-to-maturity securities owned by Sterling Financial Corporation as of the
dates indicated.
Investment securities are stated at cost adjusted for amortization of premiums
and accretion of discounts.
December 31,
1994 1993 1992
(Dollars in Thousands)
U.S. Treasury securities................$ 28,225 $ 23,996 $ 20,732
Obligations of other U.S. Government
agencies and corporations............. 24,101 22,880 19,853
Obligations of states and political
subdivisions.......................... 50,472 43,491 35,119
Mortgage-backed securities.............. 5,122 5,834 7,175
Other bonds, notes and debentures....... 50,811 47,959 43,466
--------- --------- ---------
Subtotal................................ 158,731 144,160 126,345
Non-marketable securities (1)........... 2,429 2,305 2,158
--------- --------- ---------
Total...................................$ 161,160 $ 146,465 $ 128,503
========= ========= =========
(1) Prior to adoption of SFAS 115 at January 1, 1994, all equity securities
were included in this category.
The following table shows the amortized cost and estimated market value
of the available-for-sale securities owned by Sterling Financial Corporation
at December 31, 1994.
December 31, 1994
Amortized Estimated
Cost Market Value
(Dollars in Thousands) ----------- ------------
U.S. Treasury securities..............$ 1,472 $ 1,457
Mortgage-backed securities............ 1,344 1,256
Other bonds, notes & debentures....... 5,593 5,501
-------- --------
Subtotal.............................. 8,409 8,214
Equity securities..................... 7 837
-------- --------
Total.................................$ 8,416 $ 9,051
======== ========
Table 6 - Investment Securities (Yields)
The following table shows the maturities of held-to-maturity debt
securities at amortized cost as of December 31, 1994 and approximate weighted
average yields of such securities. Yields are shown on a tax equivalent
basis, assuming a 34% Federal income tax rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Over 1 thru Over 5 thru
1 Year and less 5 Years 10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities....$ 5,418 5.28% $ 21,785 5.83% $ 1,022 6.18% $ --- ---% $ 28,225 5.74%
Obligations of
other U.S.
Government
agencies and
corporations.. 2,781 5.68% 17,561 6.14% 3,259 5.91% 500 7.50% 24,101 6.08%
Obligations of
states and
political sub-
divisions..... 3,180 8.75% 14,109 8.58% 23,052 8.25% 10,131 8.22% 50,472 8.37%
Mortgage-backed
securities.... 133 8.74% 4,492 7.69% 46 8.67% 451 8.06% 5,122 7.75%
Other bonds,
notes and
debentures.... 11,495 5.67% 38,649 6.30% 667 6.27% --- ---% 50,811 6.16%
------- ------ ------- ------ ------- ------ ------ ------ ------- ------
$ 23,007 6.02% $ 96,596 6.56% $ 28,046 7.85% $11,082 8.18% $ 158,731 6.82%
======= ====== ======= ====== ======= ====== ====== ====== ======== ======
</TABLE>
The following table shows the maturities of available-for-sale debt
securities at amortized cost as of December 31, 1994 and approximate weighted
average yields of such securities. Yields are shown on a tax equivalent
basis, assuming a 34% Federal income tax rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Over 1 thru Over 5 thru
1 Year and less 5 Years 10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities....$ --- ---% $ 1,472 7.00% $ --- ---% $ --- ---% $ 1,472 7.00%
Mortgage-backed
securities.... --- ---% 842 6.70% 502 5.99% --- ---% 1,344 6.43%
Other bonds,
notes and
debentures.... 1,833 6.37% 3,760 6.46% --- ---% --- ---% 5,593 6.43%
------- ------ ------- ------ ------- ------ ------ ----- ------- ------
$ 1,833 6.37% $ 6,074 6.62% $ 502 5.99% $ --- ---% $ 8,409 6.53%
======= ====== ======= ====== ======= ====== ====== ===== ======= ======
</TABLE>
Loans
Table 7 - Loan Portfolio
The following table sets forth the composition of the
Corporation's loan portfolio as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural..............$ 208,918 $ 191,431 $ 172,482 $ 152,726 $ 144,837
Real estate-construction... 8,542 10,265 16,044 12,147 9,330
Real estate-mortgage....... 30,505 22,335 30,445 31,943 35,109
Consumer................... 106,921 101,256 99,444 94,404 96,298
Lease financing (net of
unearned income)......... 38,771 35,443 32,768 31,283 31,358
--------- -------- -------- --------- ---------
Total loans.................$ 393,657 $ 360,730 $ 351,183 $ 322,503 $ 316,932
========= ========= ======== ========= =========
</TABLE>
Table 8 - Loan Maturity and Interest Sensitivity
The following table sets forth the maturity and interest
sensitivity of the loan portfolio as of December 31, 1994:
After one
Within but within After
one year five years five years Total
(Dollars in Thousands)
Commercial, financial and
agricultural................$109,305 $ 86,290 $ 13,323 $ 208,918
Real estate-construction...... 7,608 934 --- 8,542
........................ ------- -------- ------- --------
$116,913 $ 87,224 $ 13,323 $ 217,460
======= ======== ======= ========
Loans due after one year totaling $57,265,000 have variable
interest rates. The remaining $43,282,000 in loans have fixed rates.
Table 9 - Nonaccrual, Past Due and Restructured Loans
The following table presents information concerning the
aggregate amount of nonaccrual, past due and restructured loans:
December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Nonaccrual loans..........$ 2,127 $ 2,960 $ 4,129 $ 1,414 $ 631
Accruing loans, past due
90 days or more......... 1,127 522 519 409 540
------- ------- ------- ------- -------
Total non-performing loan. 3,254 3,482 4,648 1,823 1,171
Other real estate owned... 759 251 360 250 350
------- ------- ------- ------- -------
Total non-performing
assets..................$ 4,013 $ 3,733 $ 5,008 $ 2,073 $ 1,521
======= ======= ======= ======= =======
Ratios:
Non-performing loans to
total loans.......... .83% .97% 1.33% .57% .38%
Non-performing assets to
total loans and other
real estate owned.... 1.02% 1.04% 1.44% .65% .49%
Non-performing assets to
total assets......... .63% .63% .92% .42% .33%
Allowance for loan
losses to
non-performing loans. 234.8% 206.2% 116.1% 241.4% 288.2%
The economic conditions within the Corporation's market area strengthened
during 1994. This improvement is reflected in the unemployment rate for
Lancaster County, which is the Bank's primary market area. The unemployment
rate for November was 4.2%. The average unemployment rate for the first 11
months of 1994 was 4.3% compared to 4.9% in 1993 and 5.5% in 1992. Lancaster
County's unemployment rate has historically been and continues to be one of
the lowest among Pennsylvania's 14 metropolitan regions. It also remains well
below the state unemployment rate of 5.9% that was reported for December 1994.
The improvements in the employment sector in Lancaster County were also
seen at both the national and state level. For December 1994, the nation's
jobless rate of 5.4% was reported to be the lowest level in more than four
years, while the overall state's jobless rate is slightly higher at 5.9%.
However, the state's unemployment rates declined in four out of the past five
months of 1994. The general feeling is that the state is recovering from the
recession, but at a slower pace than most of the rest of the nation.
The Bank's loan delinquency, as a percent of loans outstanding, declined
during 1994. At December 31, 1994, this rate stood at 1.33% compared to 1.45%
and 2.34% for December 31, 1993 and December 31, 1992 respectively. The Bank
anticipates this delinquency rate to remain in the 1.30% -1.50% range. During
the year, total non-accrual loans and other real estate owned decreased to
$2,886,000 representing a decline of 10% from December 31, 1993.
Total non-performing assets increased to $4,013,000 compared to $3,733,000
for December 31, 1993.
The Bank's reserve coverage continued its improvement during the year as
reserves as a percent of non-performing loans increased to 235% compared with
206% for December 31, 1993.
A portion of the Bank's loan portfolio consists of loans to agricultural-
related borrowers. These loans consist of loans for a variety of purposes
within the industry. Lancaster County ranks first in agriculture among
Pennsylvania counties and is one of the top 20 farm markets in the country.
Total agricultural receipts continue to show increases. While the Bank is
hopeful that this portion of its loan portfolio will continue to show
improvement, it should be noted that these loans are susceptible to a variety
of external factors such as adverse climate, economic conditions, etc., in
addition to factors common to other industries.
Statistics on the local real estate market indicate 1994 was a good year
for the construction and sales of residential real estate. During the first
half of 1994, sales of residential real estate were running 20% ahead of 1993,
which was a record-setting year. However, due to interest rate increases in
the second half of the year, the rapid growth slowed considerably and for the
year, sales finished 1% below the 1993 record levels.
For 1994, there was moderate improvement in the commercial real estate
market, whereas the industrial market showed little or no improvement when
compared to 1993.
Most of the Bank's business activity is with customers located within the
Bank's defined market area. Since the majority of the Bank's real estate
loans are located within this area, a substantial portion of the debtors'
ability to honor their obligations and increases and decreases in the market
value of the real estate collateralizing such loans, may be affected by the
level of economic activity in the market area.
The general policy has been to cease accruing interest on loans when it
is determined that a reasonable doubt exists as to the collectibility of
additional interest. Interest income on these loans is only recognized to the
extent payments are received. Loans on a nonaccrual status amounted to
$2,127,000 at December 31, 1994 compared to $2,960,000 at December 31, 1993.
If interest income had been recorded on all such loans for the years
indicated, such interest income would have been increased by approximately
$276,956 and $267,295 for 1994 and 1993 respectively. There was no interest
income recorded on the nonaccrual loans in 1994 and 1993.
Potential problem loans are loans which are included as performing loans, but
for
which possible credit problems of the borrower causes management to have doubts
as to the ability of such borrower to comply with present repayment terms
and which may eventually result in disclosure as a non-performing loan. At
December 31, 1994 there were no such loans that had to be disclosed as
potential problem loans.
At December 31, 1994, there were no concentrations exceeding 10% of total
loans. A concentration is defined as amounts loaned to a multiple number of
borrowers engaged in similar activities which would cause them to be similarly
affected by changes in economic or other conditions. There were no foreign
loans outstanding at December 31, 1994.
Allowance for Loan Losses
Table 10 - Summary of Loan Loss Experience
Years ended December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Allowance for Loan Losses:
Beginning balance.............$ 7,180 $ 5,400 $ 4,400 $ 3,375 $ 3,000
Loans charged off during year:
Commercial, financial and
agricultural.............. 157 194 843 327 1,043
Real estate mortgage........ 235 392 201 19 none
Consumer.................... 360 290 471 420 283
Lease financing............. 10 14 97 144 35
------- ------- ------- ------- -------
Total charge-offs........... 762 890 1,612 910 1,361
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and
agricultural.............. 61 157 232 37 27
Real estate mortgage........ 2 8 none 13 none
Consumer.................... 77 63 76 58 37
Lease financing............. 1 12 8 38 11
------- ------- ------- ------- -------
Total recoveries............ 141 240 316 146 75
------- ------- ------- ------- -------
Net loans charged off......... 621 650 1,296 764 1,286
Additions charged to
operations.................. 1,081 2,430 2,296 1,789 1,661
------- ------- ------- ------- -------
Balance at end of period......$ 7,640 $ 7,180 $ 5,400 $ 4,400 $ 3,375
======= ======= ======= ======= =======
Ratio of net loans charged
off to average loans
outstanding................. .17% .18% .39% .24% .43%
Ratio of net loans charged
off to loans at end of year. .16% .18% .37% .24% .41%
Net loans charged off to
allowance for loan losses.. 8.13% 9.05% 24.00% 17.36% 38.10%
Net loans charged off to
provision for loan losses.. 57.45% 26.75% 56.45% 42.71% 77.42%
Allowance for loan losses as a
percent of average loans... 2.04% 2.01% 1.64% 1.39% 1.12%
Allowance for loan losses
as a percent of loans at
end of period.............. 1.95% 2.00% 1.55% 1.38% 1.09%
The Bank experienced an improvement in net charge-offs
recorded during 1994. For the year, the Bank recorded net charge-offs of
$621,000 or .17% of average loans outstanding, compared to $650,000 or .18% of
average loans in 1993 and $1,296,000 or .39% of average loans in 1992. From
1990 through 1992, a period during which the national economy went through a
recession, the Bank's charge-off ratio fluctuated between .41% and .24% of
outstanding loans.
The reduction in the provision for loan losses in 1994 reflects continued
improvement in the local economy. The provision for loan losses for 1993 was
based on, among other things, 1992 trends. However, during the second half of
1993, local economic conditions showed improvement. Subsequently, trends in
loan delinquency and non-performing loans showed signs of improvement in 1994
over 1993 and 1992 which is reflected by the positive ratios in Table 10.
The provision for loan losses charged to operating expense reflects the
amount deemed appropriate by management to produce an adequate reserve to meet
the present and inherent risk deemed present in the loan portfolio.
Management performs a quarterly assessment of the loan portfolio to determine
the appropriate level of allowance. The factors considered in this evaluation
include, but are not limited to, estimated loan losses identified through a
loan review process, general economic conditions, deterioration in pledged
collateral, past loan experience and trends in delinquencies and non-accruals.
Management uses available information to determine the appropriate level of
the allowance for possible loan losses. However, the allowance may be
affected in the future based upon changes in the economic conditions and other
factors.
Management has not targeted any specific coverage ratio of nonperforming
loans by the allowance for loan losses and the coverage ratio may fluctuate
based on loans placed into or removed from nonperforming status.
Table 11 - Allocation of Allowance for Loan Losses
December 31,
1994 1993
(Dollars in Thousands)
Commercial, financial and agricultural..........$ 4,219 $ 5,286
Real estate - mortgage.......................... 39 28
Consumer........................................ 677 727
Leases.......................................... 612 576
Unallocated..................................... 2,093 563
------- -------
Total...........................................$ 7,640 $ 7,180
======= =======
The allocation of allowance for loan losses in 1994 reflects
changes in methodology over 1993 regarding historic loss factors through
continued migration analysis of classified loans. The allocation of
allowance in 1993, using 1994 methodology, would reflect an unallocated reserve
balance of $2,528,000 at year end 1993.
Deposits
Table 12 - Average Deposit Balances and Rates Paid
The average amounts of deposits and rates paid for the years indicated,
are summarized below:
1994 1993 1992
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
Demand deposits...............$ 64,446 --- $ 57,869 --- $ 50,601 ---
Interest-bearing demand
deposits..................... 229,693 2.34% 211,406 2.59% 184,959 3.36%
Savings deposits.............. 58,864 2.25% 45,302 2.70% 34,927 3.43%
Time deposits................. 158,994 4.33% 163,497 4.33% 175,590 5.37%
------- ----- ------- ----- ------- -----
$511,997 2.65% $478,074 2.88% $446,077 3.77%
======= ===== ======= ===== ======= =====
Table 13 - Deposit Maturity
The maturities of time deposits of $100,000 or more are
summarized below:
December 31,
1994 1993
Three months or less..........................$ 6,075 $ 5,980
Over three thru six months.................... 2,889 2,837
Over six thru twelve months................... 6,375 4,248
Over twelve months............................ 5,334 1,094
------- -------
Total.........................................$ 20,673 $ 14,159
======= =======
Capital
Stockholders' equity increased over $7.8 million or 15.8% in 1994 to
$57,285,000. Total stockholders' equity at December 31, 1993 in the amount of
$49,467,000 represents an increase of $6,673,000 or 15.6% over the $42,794,000
reported at December 31, 1992. Net earnings retained after the payment of
dividends as well as capital acquired through stock issued pursuant to a
dividend reinvestment and stock purchase plan and employee stock plan
generated this growth in stockholders' equity. In addition, stockholders'
equity increased $420,000 in 1994 due to net unrealized gains on investment
securities available-for-sale, net of taxes, resulting from the
implementation of SFAS 115 on January 1, 1994. Dividends declared amounted to
$3,386,000, $2,985,000 and $2,575,000 for 1994, 1993 and 1992
respectively. In 1989, federal regulatory authorities approved risk-based
capital guidelines applicable to banks and bank holding companies in an effort
to make regulatory capital more responsive to the risk exposure related to
various categories of assets and off-balance sheet items. These guidelines
require that banking organizations meet a minimum risk-based capital, define 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 total capital are called Tier 1 and Tier 2
capital. In the case of the Bank, 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. 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. However, national banks will
continue to deduct unrealized losses on equity securities in their
computation of Tier 1 capital.
Therefore, national banks will continue to report the net
unrealized holding gains and losses on available-for-sale securities in the
reports of condition and income submitted to federal regulators as required
by SFAS 115 and the financial reports prepared in accordance with generally
accepted accounting principles, but will exclude these amounts from
calculations of Tier 1 capital. In addition, national banks should use the
amortized cost of available-for-sale debt securities (as opposed to fair
value) to determine the average total assets as well as the risk-weighted
assets used in the calculations of the leverage and risk-based capital ratios.
The ratios below and in Table 14 reflect the above definition of common
stockholders' equity which includes common stock, capital surplus and retained
earnings, less net unrealized holding losses on available-for-sale equity
securities with readily determinable fair values. The Bank's ratios at
December 31, 1994, 1993 and 1992 were above the final risk-based capital
standards that require Tier 1 capital of at least 4% and total risk-based
capital of 8% of risk-weighted assets. The Tier 1 capital ratio at
December 31, 1994 was 11.05% and the total risk-based capital ratio was
12.30%, which exceeds the minimum capital guidelines. Tier 1 capital ratio
was 10.67% and the total risk-based capital
ratio was 11.92% at December 31, 1993 while Tier 1 capital ratio was 10.04%
and the total risk-based capital ratio was 11.29% at December 31, 1992.
The Bank is in the process of constructing a new headquarters building
which will include a branch banking office and headquarters for the
Corporation. The three-story building will contain approximately 53,000
square feet with approximately 10,000 square feet of this total
available to be leased to other tenants. Land cost for the construction site
was $1,570,000. The projected cost for the building is approximately
$5,720,000 with an additional projected cost of $1,520,000 for equipment.
The capital expenditures relating to this building are expected to be
financed out of existing capital resources. The Bank does not expect to incur
any indebtedness relating to this new facility. The reduction in
earning assets and the expenses relating to the new facilities will be offset
somewhat to the extent there will be an elimination of expenses relating to the
present headquarters building that is presently leased by the Bank.
Management does not expect this to have a material impact on future reported
results of operations, even though this will result in the application of a
material amount of capital.
Table 14 - Capital and Performance Ratios
The following are selected ratios for the years ended
December 31:
1994 1993 1992
Return on average assets...................... 1.38% 1.41% 1.34%
Return on average equity...................... 15.47% 16.90% 16.99%
Dividend payout ratio......................... 40.91% 38.26% 37.64%
Average total equity to average assets........ 8.89% 8.31% 7.89%
Total equity to assets at year end............ 8.99% 8.41% 7.86%
Primary capital ratio......................... 10.07% 9.52% 8.77%
Tier 1 risk-based capital ratio............... 11.05% 10.67% 10.04%
Total risk-based capital ratio................ 12.30% 11.92% 11.29%
Liquidity and Interest Rate Sensitivity
Liquidity is the ability to meet the requirements of
customers for loans and deposit withdrawals in the most economical manner.
Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost. Liquidity from asset categories is
provided through cash, noninterest-bearing and interest-bearing deposits
with banks, federal funds sold and marketable investment securities maturing
within one year. Securities maturing within one year amounted to $24,840,000 at
December 31, 1994 compared to $22,701,000 at December 31, 1993.
Interest-bearing deposits with banks totaled $24,000 at December 31, 1994
compared to $40,000 at December 31, 1993. There were no federal funds sold
at December 31, 1994 compared to $12,350,000 at December 31, 1993.
The loan portfolio also provides an additional source of
liquidity due to the Bank's participating in the secondary mortgage market.
Sales of residential mortgages into the secondary market were
approximately $24 million in 1994 and $72 million in 1993, which allowed the
Bank to meet the needs of customers for new mortgage financing. Rising
interest rates in 1994 resulted
in fewer mortgage loan originations than was accomplished in the
low rate environment of 1993. The loan portfolio also provides
significant liquidity by repayment of loans by maturity or scheduled amortized
payments.
On the liability side, liquidity is available through customer deposits.
Federal funds purchased and other forms of short term borrowings are also
sources of liquidity.
Liquidity must constantly be monitored because future customer demands
for funds are uncertain. The amount of liquidity needed is determined by the
changes in levels of deposits and in the demand for loans.
Management believes that the sources of funds mentioned above provide the
liquidity to meet customer demands for funds.
Interest sensitivity is related to liquidity because each is
affected by maturing assets and sources of funds. Interest sensitivity,
however, is also concerned with the fact that certain types of assets and
liabilities may have interest rates that are subject to change prior to
maturity. Management endeavors to manage the exposure of the net interest
margin to interest- sensitive assets and liabilities so as to minimize the
impact of fluctuating interest rates on earnings.
The Bank's asset/liability committee manages interest rate risk by
various means including "GAP" management of its asset and liability
portfolios.
The Bank has various investments structured to change investment yield
with current market conditions. Assets subject to repricing include federal
funds sold (repricing daily), loans tied to "Treasury Bill" indexes (repricing
monthly) and loans tied to "prime" or other indexes subject to immediate
change. In addition to assets currently available for repricing there are
future scheduled principal repayments on loans, loans available for repricing
at future dates and maturities of investments. These investment repayments
will have to be reinvested at current market yields.
The Bank's funding liabilities (customer deposits and borrowed funds)
repricing characteristics have become more complex, since many deposit
products that historically were fixed rate deposit products have become
deposit products subject to changing interest rates (NOW accounts and savings
accounts). Time certificates of deposit and borrowed money are subject to
interest rate change at maturity.
Interest rate sensitivity relates to changes in the interest rates earned
on bank investments (earning assets) when they reprice to current market rate
conditions as well as the interest paid on customer deposits (funding) when
they reprice to current market rates. The net result of interest rate
repricings will impact the Bank's future net interest margins (either in a
positive or negative manner) based on the amount of unmatched funding, the
amount of rate change, and the direction of rate change. The net volume of
assets and liabilities subject to rate change is measured in "gaps" where
volumes of assets do not equal liabilities within certain repricing time
periods. These gaps are illustrated in Table 15. Also included in Table 15
is a summary of the cumulative gap, as viewed by regulatory authorities, which
presents all interest bearing savings and NOW deposit balances as being
subject to immediate and full repricing.
Management considers factors in addition to volume of liability funding
(deposits) subject to rate change to more accurately reflect future impact to
the net interest margin. All interest rates do not move in full and equal
amounts for loans and deposits. Deposit rates historically lag loans in rate
movement, and rate movement occurs to a smaller degree for deposits than
loans. Modeling is used to forecast projected impact to the net interest
margin as a result of rate movements, either increasing or decreasing. For
example, prime base rate has changed 19 times since 1988 (movement from a high
of 11.5% to a low of 6.0% - a range of 5.5%). During this period, NOW account
deposit rates have also experienced rate changes (movement from a high of
4.85% to a low of 1.77% - a range of 3.08%). Historic pricing correlations
have been calculated for all interest-bearing products for rate change
repricing impact as - immediate, three month and six month time periods. As
illustrated in Table 15, management's view of interest rate sensitivity
reflects a calculated interpretation of net interest margin exposure to rate
changes. Pricing correlations are constantly refined by management. There is
no guarantee that past history will accurately reflect future changes.
Interest repricing of assets and liabilities is measured over future time
periods (interest rate sensitivity gaps). While all time gaps are measured,
management's primary focus is the cumulative gap through six months, as this
gap directly impacts net interest income in the short time horizon and is most
difficult to make reactive adjustment to actual interest rate movements.
Excluded from the interest rate sensitivity gaps are "matched" funded
fixed rate leases and associated fixed rate debt totaling $19.2 million.
Table 15 - Interest Rate Sensitivity Gaps
(Dollars in Thousands)
Interest Earning 0-30 31-90 91-180 181-365 Over
Assets (I.E.A.) Days Days Days Days 1 year
Fed Funds sold..............$ 0 $ 0 $ 0 $ 0 $ 0
Investment securities....... 2,200 5,385 6,070 11,465 145,091
Loans....................... 119,217 10,061 17,066 29,898 216,406
-------- -------- ------- ------- -------
Total.......................$ 121,417 $ 15,446 $ 23,136 $ 41,363 $ 361,497
Cumulative..................$ 121,417 $ 136,863 $ 159,999 $ 201,362 $ 562,859
Interest Bearing
Liabilities (I.B.L.)
C/D's $100,000 and over.....$ 1,420 $ 2,388 $ 3,181 $ 4,708 $ 5,501
Certificates of Deposit...... 10,315 15,225 18,432 27,266 83,529
Interest Deposits............ 65,733 36,467 14,959 0 174,419
Short-term borrowings........ 8,914 0 0 0 0
-------- -------- ------- -------- --------
Total.......................$ 86,382 $ 54,080 $ 36,572 $ 31,974 $ 263,449
Cumulative..................$ 86,382 $ 140,462 $ 177,034 $ 209,008 $ 472,457
Period GAP (Dollars)........$ 35,035 $ (38,634)$ (13,436)$ 9,389 $ 98,048
I.E.A./I.B.L.%.............. 141% 29% 63% 129% 137%
Cumulative GAP (Dollars)....$ 35,035 $ (3,599)$ (17,035)$ (7,646)$ 90,402
Cumulative I.E.A./I.B.L.%... 141% 97% 90% 96% 119%
Regulatory Presentation
Assets (cumulative).........$ 121,417 $ 136,863 $ 159,999 $ 201,362 $ 562,859
Funding (cumulative)........$ 312,227 $ 329,840 $ 351,453 $ 383,426 $ 472,457
-------- -------- -------- -------- --------
Cumulative GAP
(Dollars)....$(190,810)$(192,977)$(191,454)$(182,064)$ 90,402
Cumulative I.E.A./I.B.L.%... 39% 41% 46% 53% 119%
New Financial Accounting Standards
The Financial Accounting Standard Board ("FASB") issued its Statement of
Financial Accounting Standards ("SFAS") No. 118, an amendment of FASB SFAS No.
114, which addresses the accounting by creditors for impairment of a loan by
specifying how allowances for credit losses related to certain loans should be
determined. A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. This statement
shall be effective for financial statements for fiscal years beginning after
December 15, 1994. The impact that adoption of FASB Statement No. 118 will
have on the financial statements is currently under review, but is not
expected to have a material effect on the financial statements of the
Corporation.
FASB SFAS No. 116 establishes standards of financial accounting and
reporting for contributions received and contributions made.
This Statement shall be effective for financial statements issued for fiscal
years beginning after December 15, 1994 and interim periods within those fiscal
years. The Corporation has determined that the application of this standard
will not have a material effect on earnings.
Item 8 - Financial Statements and Supplementary Data
(a) The following audited consolidated financial statements
and related documents are set forth in this Annual Report on Form 10-K on the
following pages:
Page
Report of Independent Auditors 26
Consolidated Balance Sheets 27
Consolidated Statements of Income 28
Consolidated Statements of Changes in Stockholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 31
(b) The following supplementary data is set forth in this
Annual Report on Form 10-K on the following pages:
Summary of Quarterly Financial Data (Unaudited)
Trout, Ebersole & Groff
Certified Public Accountants
1705 Oregon Pike
Lancaster, Pennsylvania 17601
(717)569-2900
FAX (717) 569-0141
Independent Auditors' Report
Board of Directors and Shareholders
Sterling Financial Corporation and Subsidiaries
Lancaster, Pennsylvania
We have audited the accompanying consolidated balance sheets
of Sterling Financial Corporation and Subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sterling Financial Corporation and Subsidiaries at December 31, 1994 and 1993
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 2, the Corporation changed its method of accounting
for investments to adopt the provisions of the Financial Accounting Standards
Board's SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" at January 1, 1994.
Trout, Ebersole & Groff
Trout, Ebersole & Groff
Certified Public Accountants
January 19, 1995
Lancaster, Pennsylvania
Consolidated Balance Sheets
Sterling Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
As of December 31,
1994 1993
<S> <C> <C>
Assets (Dollars in Thousands)
Cash and due from banks.........................................$ 32,374 $ 36,190
Interest-bearing deposits in other banks........................ 24 40
Federal funds sold.............................................. none 12,350
Mortgage loans held for sale.................................... 524 3,431
Investment Securities: (Note 4)
Securities held-to-maturity
(market value - $156,047 - 1994 and $151,444 - 1993)......... 161,160 146,465
Securities available-for-sale.................................. 9,051 none
Loans (Note 5).................................................. 393,657 360,730
Less: Unearned income......................................... (1,008) (1,365)
Allowance for loan losses (Note 6)...................... (7,640) (7,180)
------- -------
Loans, net...................................................... 385,009 352,185
------- -------
Premises and equipment (Note 7)................................. 11,977 7,424
Other real estate owned......................................... 759 251
Accrued interest receivable and prepaid expenses................ 8,954 8,816
Other assets (Note 8)........................................... 23,563 20,731
------- -------
Total Assets....................................................$633,395 $587,883
======= =======
Liabilities
Deposits:
Noninterest-bearing...........................................$ 73,459 $ 68,197
Interest-bearing (Note 9)..................................... 463,543 437,483
------- -------
Total Deposits.................................................. 537,002 505,680
------- -------
Federal funds purchased (Note 10)............................... 6,000 none
Interest-bearing demand notes issued to
U.S. Treasury (Note 10)....................................... 2,914 3,000
Other liabilities for borrowed money (Note 10).................. 19,173 19,410
Mortgages payable and capitalized lease liability .............. none 11
Accrued interest payable and accrued expenses................... 5,737 5,414
Other liabilities............................................... 5,284 4,901
------- -------
Total Liabilities............................................... 576,110 538,416
Stockholders' Equity ------- -------
Common Stock -(par value:$5.00)
No. shares authorized: 1994 and 1993 - 10,000,000
No. shares issued: 1994 - 5,874,417; 1993 - 2,882,920
No. shares outstanding: 1994 - 5,868,610; 1993 - 2,882,920.... 29,372 14,414
Capital surplus................................................. 8,544 20,830
Retained earnings............................................... 19,114 14,223
Net unrealized gain on securities available-for-sale,
net of taxes.................................................. 420 none
Less: Treasury Stock (5,807 shares in 1994 and none in 1993)-
at cost....................................................... (165) none
------- -------
Total Stockholders' Equity...................................... 57,285 49,467
------- -------
Total Liabilities and Stockholders' Equity......................$633,395 $587,883
======= =======
See accompanying notes to financial statements
Consolidated Statements of Income
Sterling Financial Corporation and Subsidiaries
</TABLE>
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993 1992
<S> (Dollars in thousands, except per share data)
Interest Income <C> <C> <C>
Interest and fees on loans.......................$ 32,356 $ 31,167 $ 31,349
Interest on deposits in other banks.............. 2 27 89
Interest on federal funds sold................... 264 191 220
Interest and dividends on investment securities:
Taxable........................................ 6,636 6,242 6,428
Tax-exempt..................................... 2,496 2,270 2,007
Dividends on stock............................. 177 195 191
-------- -------- --------
Total Interest Income............................ 41,931 40,092 40,284
-------- -------- --------
Interest Expense
Interest on time certificates of deposit of
$100,000 or more............................... 613 488 642
Interest on all other deposits................... 12,970 13,303 16,187
Interest on demand notes issued to the
U.S. Treasury.................................. 77 62 77
Interest on federal funds purchased.............. 10 none none
Interest on other borrowed money................. 1,255 1,183 893
Interest on mortgage indebtedness and obligations
under capitalized leases....................... 1 6 19
-------- -------- --------
Total Interest Expense........................... 14,926 15,042 17,818
-------- -------- --------
Net Interest Income.............................. 27,005 25,050 22,466
Provision for loan losses (Note 6)............... 1,081 2,430 2,296
-------- -------- --------
Net Interest Income after Provision for
Loan Losses.................................... 25,924 22,620 20,170
-------- -------- --------
Other Operating Income
Income from fiduciary activities................. 742 639 596
Service charges on deposit accounts.............. 1,798 1,891 1,881
Other service charges, commissions and fees...... 1,539 1,577 1,370
Mortgage banking................................. 635 2,435 1,501
Other operating income (Note 8).................. 2,329 2,429 2,551
Investment securities gains or (losses).......... none 8 27
-------- -------- --------
Total Other Operating Income..................... 7,043 8,979 7,926
-------- -------- --------
Other Operating Expenses
Salaries and employee benefits (Note 11)......... 12,264 11,566 10,354
Net occupancy expense............................ 1,477 1,355 1,219
Furniture and equipment expense (including
depreciation of $779 in 1994, $753 in 1993
and $714 in 1992)............................... 1,379 1,253 1,177
FDIC insurance assessment........................ 1,128 1,052 984
Other operating expenses......................... 5,805 5,822 5,188
-------- -------- --------
Total Other Operating Expenses................... 22,053 21,048 18,922
-------- -------- --------
Income Before Income Taxes....................... 10,914 10,551 9,174
Applicable income taxes (Note 12)................ 2,637 2,749 2,331
-------- -------- --------
Net Income.......................................$ 8,277 $ 7,802 $ 6,843
======== ======== ========
Earnings per common share:
Net Income.....................................$ 1.42 $ 1.36 $ 1.21
Cash dividends declared per common share.........$ .58 $ .54 $ .48
Average shares outstanding.......................5,837,103 5,728,400 5,635,302
See accompanying notes to financial statements
</TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Sterling Financial Corporation and Subsidiaries
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Gain on
Available-
Shares for-Sale
Common Common Capital Retained Securities, Treasury
Stock Stock Surplus Earnings Net of Taxes Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992...... 1,775,641 $ 8,878 $ 17,702 $ 11,157 $ 0 $ 0 $ 37,737
Net income.................... 6,843 6,843
Common stock issued
Dividend Reinvestment Plan... 18,934 95 660 755
Employee Stock Plan.......... 7,433 37 229 266
Three-for-two stock split and
cash paid in lieu of
fractional shares............ 900,619 4,503 (4,503) (11) (11)
Cash dividends declared -
Common stock................. (2,575) (2,575)
Purchase of Treasury Stock
(19,007 shares).............. (643) (643)
Issuance of Treasury Stock for
Dividend Reinvestment Plan
(11,221 shares).............. 12 410 422
--------- ------- ------- ------- -------- ------- -------
Balance, December 31, 1992.... 2,702,627 13,513 14,100 15,414 0 (233) 42,794
Net income.................... 7,802 7,802
Common stock issued
Dividend Reinvestment Plan... 34,951 174 1,159 1,333
Employee Stock Plan.......... 8,760 44 252 296
Stock Dividend issued -
Common stock - 5% including
cash paid in lieu of
fractional shares........... 136,582 683 5,293 (6,008) (32)
Cash dividends declared -
Common stock................. (2,985) (2,985)
Purchase of Treasury Stock
(7,270 shares)............... (267) (267)
Issuance of Treasury Stock for
Dividend Reinvestment Plan
(15,056 shares).............. 26 500 526
---------- ------- ------- ------- -------- ------- -------
Balance, December 31, 1993.... 2,882,920 14,414 20,830 14,223 0 0 49,467
Net income.................... 8,277 8,277
Common stock issued
Dividend Reinvestment Plan... 55,255 277 2,005 2,282
Employee Stock Plan.......... 8,830 44 319 363
Two-for-one stock split....... 2,927,412 14,637 (14,637)
Cash dividends declared -
Common stock................. (3,386) (3,386)
Purchase of Treasury Stock
(14,471 shares).............. (379) (379)
Issuance of Treasury Stock for
Dividend Reinvestment Plan
(8,664 shares)............... 27 214 241
Net unrealized gain on
available-for-sale securities,
net of taxes................ 420 420
--------- -------- -------- -------- -------- ------- --------
Balance, December 31, 1994....5,874,417 $ 29,372 $ 8,544 $ 19,114 $ 420 $ (165)$ 57,285
========= ======== ======== ======== ======== ======= ========
See accompanying notes to financial statements
</TABLE>
Consolidated Statements of Cash Flows
Sterling Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income...........................................$ 8,277 $ 7,802 $ 6,843
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation...................................... 1,014 983 941
Accretion & amortization of investment securities. 661 550 441
Provision for possible loan losses................ 1,081 2,430 2,296
Provision for deferred income taxes............... 307 (299) (705)
(Gain) loss on sale of property and equipment..... (2) none 5
(Gain) loss on maturities/sales of
investment securities............................ none (8) (27)
(Gain) on sale of mortgage loans.................. (279) (2,139) (1,299)
Proceeds from sales of mortgage loans............. 24,284 74,136 54,458
Originations of mortgage loans held for sale...... (21,098) (75,428) (53,159)
Change in operating assets and liabilities:
(Increase) in accrued interest receivable
and prepaid expenses............................ (138) (705) (734)
(Increase) in other assets....................... (3,341) (1,235) (1,139)
Increase (decrease) in accrued interest payable
and accrued expenses........................... 324 227 (564)
Increase (decrease) in other liabilities........ (140) (98) 1,271
--------- --------- ---------
Net cash provided by/(used in) operating activities.. 10,950 6,216 8,628
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits
in other banks..................................... 45,226 3,678 4,214
Purchase of interest-bearing deposits in other banks. (45,209) (2,818) (900)
Proceeds from maturities of investment securities.... 32,538 36,367 34,764
Purchase of investment securities.................... (56,310) (54,871) (54,890)
Federal funds sold, net.............................. 12,350 (9,150) 11,250
Net loans and leases made to customers............... (33,904) (11,486) (32,094)
Purchases of premises and equipment.................. (5,810) (827) (1,577)
Proceeds from sale of premises and equipment......... 245 12 34
--------- --------- ---------
Net cash provided by/(used in) investing activities.. (50,874) (39,095) (39,199)
Cash Flows from Financing Activities
Net increase in demand deposits, NOW and
savings accounts................................... 7,013 43,978 54,138
Net increase (decrease) in time deposits............. 24,309 (11,482) (15,477)
Net (decrease) in interest-bearing demand notes
issued to the U.S. Treasury........................ (86) none none
Proceeds from borrowings............................. 13,850 14,016 12,800
Repayments of borrowings............................. (14,088) (9,329) (7,300)
Federal funds purchased, net......................... 6,000 none none
Repayments of mortgages payable and capitalized
lease liability.................................... (11) (207) (50)
Proceeds from issuance of common stock............... 2,645 1,629 1,021
Cash dividends paid.................................. (3,386) (2,985) (2,575)
Cash paid in lieu of fractional shares............... none (32) (11)
Acquisition of treasury stock........................ (379) (267) (643)
Proceeds from issuance of treasury stock............. 241 526 422
--------- --------- ---------
Net cash provided by/(used in) financing activities.. 36,108 35,847 42,325
--------- --------- ---------
Increase (decrease) in cash and due from banks....... (3,816) 2,968 11,754
Cash and due from banks:
Beginning............................................ 36,190 33,222 21,468
--------- --------- ---------
Ending...............................................$ 32,374 $ 36,190 $ 33,222
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on borrowed money..$ 14,728 $ 15,383 $ 18,549
Income taxes....................................... 2,160 3,110 2,675
Supplemental Schedule of Noncash Investing and
Financing Activities
Other real estate acquired in settlement of loans....$ 638 $ 121 $ 810
See accompanying notes to financial statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sterling Financial Corporation and Subsidiaries
Note 1 - Formation of Sterling Financial Corporation
As a result of a plan of reorganization, The First National Bank of
Lancaster County, now by name change, Bank of Lancaster County, N.A. (Bank),
became the wholly owned subsidiary of Sterling Financial Corporation (Parent
Company), a new bank holding company, at the close of business June 30, 1987.
Each outstanding share of the Bank's common stock (par value $10.00) was
converted into two shares of common stock (par value $5.00) of the Parent
Company. The authorized capital of the Parent Company is 10,000,000 shares of
common stock.
Note 2 - Summary of Significant Accounting Policies
The accounting and reporting policies of Sterling Financial Corporation
and its subsidiaries (the Corporation) conform to generally accepted
accounting principles and to general practices within the banking industry.
The following is a summary of the most significant policies.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Sterling Financial Corporation and its
wholly owned subsidiaries, Bank of Lancaster County, N.A. and its subsidiary
Town & Country, Inc., and Sterling Mortgage Services, Inc. (presently
inactive). All significant intercompany transactions have been eliminated in
the consolidation.
Investment Securities - Investment securities include both debt securities
and equity securities. Sterling adopted Statement of Financial Accounting
Standards Board Statement No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities" as of January 1, 1994. SFAS 115
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. These investments are to be classified in one of three categories
and accounted for as follows: 1) debt securities that a company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost; 2) debt and equity
securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and reported at
fair value with unrealized gains and losses included in earnings;
and 3) debt and equity securities not classified as either held-to-maturity
or trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' 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 $420,000 as of December 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 this
new accounting standard.
Investment securities in the held-to-maturity category are carried at
cost adjusted for amortization of premiums and accretion of discounts, both
computed on the constant yield method. It is management's intent to hold
investment account securities until maturity. However, the investment
portfolio does serve as an ultimate source of liquidity. In order to
acknowledge this function, Sterling has designated certain specific debt
securities as being available-for-sale. Premiums and discounts are recognized
in interest income computed on the constant yield method. All marketable
equity securities are classified as available-for-sale. Realized gains and
losses on securities are computed using the specific identification method and
are included in Other Operating Income in the Consolidated Statements of
Income.
Future purchases of securities will be evaluated on an individual basis
for classification among the three permissible categories based on
management's intent and the ability to hold each security to maturity, on the
relative sizes of the security categories in relation to future liquidity
needs, on current asset/liability management strategies and other criteria as
appropriate.
Premises and Equipment - Premises, furniture and equipment, leasehold
improvements, and capitalized leases are stated at cost, less accumulated
depreciation and amortization. For book purposes, depreciation is computed
primarily by using the straight-line method over the estimated useful life of
the asset. Charges for maintenance and repairs are expensed as incurred.
Gains and losses on dispositions are reflected in current operations.
Other Real Estate Owned - Other real estate owned is carried at the lower of
cost or an amount not in excess of estimated fair value.
Allowance for Loan Losses - The provision for loan losses charged to
operating expense reflects the amount deemed appropriate by management to
produce an adequate reserve to meet the present and foreseeable risk
characteristics of the loan portfolio. Management's judgement is based on the
evaluation of individual loans and their overall risk characteristics, past
loan loss experience, and other relevant factors. Loan losses are charged
directly against the allowance and recoveries on previously charged-off loans
are added to the allowance.
Interest Income - Interest on installment loans is recognized primarily on
the simple interest, actuarial and the rule of seventy-eights methods.
Interest on other loans is recognized based upon the principal amount
outstanding. The general policy has been to cease accruing interest on loans
when it is determined that a reasonable doubt exists as to the collectibility
of additional interest. Interest income on these loans is only recognized to
the extent payments are received.
Federal Income Taxes - Applicable income taxes are based on income as
reported in the consolidated financial statements. Deferred income taxes are
provided for those elements of income and expense which are recognized in
different periods for financial reporting and income tax purposes. Statement
of Financial Accounting Statements (SFAS) No. 109 - Accounting for Income
Taxes, which changes the method of accounting for income taxes was
retroactively applied in 1993 which resulted in a decrease of $310,000 in
retained earnings beginning January 1, 1991. Earnings after this date have
not been restated since the change was not considered material.
Trust Department Assets and Income - Trust assets held by the Bank in a
fiduciary or agency capacity for customers of the Trust Department are not
included in the financial statements since such items are not assets of the
Bank. Trust income has been recognized on the cash basis which is not
significantly different from amounts that would have been recognized on the
accrual basis.
Earnings per Share - Earnings per common share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
which were 5,837,103, 5,728,400 and 5,635,302 for 1994, 1993 and 1992
respectively, after giving retroactive effect to a three-for-two stock split
in the form of a 50% stock dividend paid in 1992, 5% stock dividend paid in
December 1993 and a two-for-one stock split in the form of a 100% stock
dividend paid in 1994.
Presentation of Cash Flows - For purposes of reporting cash flows, cash and
due from banks includes cash on hand and amounts due from banks (including
cash items in process of clearing).
Reclassifications - Certain income items for prior years have been
reclassified in order to conform with the current year presentation with no
effect to net income.
Employers' Accounting for Postemployment Benefits - The Financial Accounting
Standards Board (FASB) issued Standard No. 112 which establishes accounting
standards for employers who provide benefits to former or inactive employees
after employment but before retirement. This standard is effective for fiscal
years beginning after December 15, 1993. Sterling Financial Corporation has
determined that 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.
Accounting by Creditors for Impairment of a Loan - FASB 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 allowances for credit losses related to certain loans
should be determined. A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. This
Statement shall be effective for financial statements for fiscal years
beginning after December 15, 1994. The impact that adoption of SFAS
Statement No. 118 will have on
the financial statements is currently under review, but is not
expected to have a material effect on the financial statements of the
Corporation.
Accounting for Contributions Received and Contributions Made - FASB
Statement No. 116, establishes standards of financial accounting and
reporting for contributions received and contributions made.
This Statement shall be effective for financial statements issued for fiscal
years beginning after December 15, 1994 and interim periods within those fiscal
years. Sterling has determined that the application of this Statement
will not have a material effect on earnings.
Mortgage Loans Held for Sale - Mortgage loans held for sale are recorded at
the lessor of current secondary market value or the actual book
value of loans.
Note 3 - Restrictions on Cash and Due From Banks
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for the
year ended December 31, 1994 was approximately $8,063,000.
Balances maintained at the Federal Reserve Bank are included in cash and
due from banks.
Note 4 - Investment Securities
As discussed in Note 2, the Corporation adopted SFAS 115
effective January 1, 1994. Prior to this time, the Corporation classified
securities as investment securities. Investment securities were carried at
amortized cost.
Securities pledged to secure government and other public deposits,
trust deposits, short-term borrowings, and other balances as required
or permitted by law were carried at $32,982,504 in 1994 and $28,295,144 in
1993.
The amortized cost and estimated market values of investment securities
held-to- maturity are as follows:
December 31, 1994
(Dollars in Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities..............$ 28,225 $ 10 $ 1,102 $ 27,133
Obligations of other U.S. Government
agencies and corporations........... 24,101 15 1,102 23,014
Obligations of states and political
subdivisions........................ 50,472 355 1,861 48,966
Mortgage-backed securities............ 5,122 48 52 5,118
Other bonds, notes and debentures..... 50,811 46 1,470 49,387
------- ------- ------- --------
Subtotal.............................. 158,731 474 5,587 153,618
Nonmarketable equity securities....... 2,429 none none 2,429
------- ------- ------- --------
Total.................................$161,160 $ 474 $ 5,587 $156,047
======= ======= ======= =======
December 31, 1993
(Dollars in Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities..............$ 23,996 $ 475 $ 46 $ 24,425
Obligations of other U.S. Government
agencies and corporations........... 22,880 422 17 23,285
Obligations of states and political
subdivisions........................ 43,491 1,825 47 45,269
Mortgage-backed securities............ 5,834 243 3 6,074
Other bonds, notes and debentures..... 47,959 1,066 56 48,969
------- ------- ------- -------
Subtotal.............................. 144,160 4,031 169 148,022
Federal Reserve, FHLB of Pittsburgh,
and corporate stock................. 2,305 1,117 none 3,422
------- ------- ------- -------
Total.................................$146,465 $ 5,148 $ 169 $151,444
======= ======= ======= =========
Included in nonmarketable equity securities is Federal Reserve stock,
Federal Home Loan Bank of Pittsburgh stock and Atlantic Central Bankers Bank
stock.
The amortized cost and estimated market values of held-to-maturity debt
securities at December 31, 1994, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
December 31, 1994
(Dollars in Thousands)
Estimated
Amortized Market
Cost Value
Due in one year or less................$ 22,874 $ 22,750
Due after one year through five years.. 92,104 88,908
Due after five years through ten years. 28,000 26,811
Due after ten years.................... 10,631 10,031
----------- -----------
153,609 148,500
Mortgage-backed securities............. 5,122 5,118
----------- -----------
$ 158,731 $ 153,618
=========== ===========
The amortized cost and estimated market values of available-for-sale
securities at December 31, 1994 are as follows:
December 31, 1994
(Dollars in Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities...........$ 1,472 $ none $ 15 $ 1,457
Mortgage-backed securities......... 1,344 none 88 1,256
Other bonds, notes and debentures.. 5,593 9 101 5,501
------ ----- ---- ------
Subtotal........................... 8,409 9 204 8,214
Equity securities and corporate
stock............................ 7 830 none 837
------ ----- ---- ------
Total..............................$ 8,416 $ 839 $ 204 $ 9,051
====== ====== ==== ======
The amortized cost and estimated market values of available-for-sale debt
securities at December 31, 1994 by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
December 31, 1994
(Dollars in Thousands)
Estimated
Amortized Market
Cost Value
Due in one year or less...................$ 1,833 $ 1,835
Due after one year through five years..... 5,232 5,123
-------- --------
7,065 6,958
Mortgage-backed securities................ 1,344 1,256
-------- --------
$ 8,409 $ 8,214
======== ========
There were no sales of investment securities during 1994, 1993 or 1992.
Note 5 - Loans
Loans outstanding at December 31, are as follows:
1994 1993
(Dollars in Thousands)
Commercial, financial and agricultural...............$208,918 $191,431
Real estate - construction........................... 8,542 10,265
Real estate - mortgage................................ 30,505 22,335
Consumer.............................................. 106,921 101,256
Lease financing receivables (net of unearned income).. 38,771 35,443
------- -------
Total loans, gross...................................$393,657 $360,730
======= =======
Loans on a non-accrual status amounted to $2,127,000 at December 31,
1994, compared to $2,960,000 at December 31, 1993. If interest income had
been recorded on all such loans for the years indicated, such interest income
would have increased by approximately $276,956 and $267,295 for 1994 and 1993
respectively.
Note 6 - Allowance for Loan Losses
Changes in the Allowance for Loan Losses were as follows:
1994 1993 1992
(Dollars in Thousands)
Balance at January 1.............................$ 7,180 $ 5,400 $ 4,400
Recoveries credited to allowance................. 141 240 316
Provisions for loan losses charged to income..... 1,081 2,430 2,296
------ ------ ------
Total............................................ 8,402 8,070 7,012
Losses charged to allowance...................... 762 890 1,612
------ ------ ------
Balance at December 31...........................$ 7,640 $ 7,180 $ 5,400
====== ====== ======
Ratio of Allowance to loans, net of
unearned income at end of year.................. 1.95% 2.00% 1.55%
Note 7 - Premises and Equipment
Premises and equipment at December 31, 1994 and 1993 is summarized as
follows:
1994 1993
(Dollars in Thousands)
Land........................................$ 2,432 $ 885
Buildings................................... 5,931 5,718
Buildings under capitalized lease........... 104 104
Leasehold improvements...................... 678 553
Equipment, furniture and fixtures........... 8,140 7,577
Construction in progress.................... 2,990 none
------- -------
20,275 14,837
Less: Accumulated depreciation.............. (8,298) (7,413)
------- -------
$ 11,977 $ 7,424
======= =======
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.
Depreciation expense amounted to $1,013,830 in 1994, $983,345 in 1993, and
$940,843 in 1992.
Note 8 - Other Assets
Included in other assets for 1994 and 1993 is $19,722,146 and $17,186,239
respectively which represents operating leases generated by Town & Country,
Inc. The income generated from the leases for 1994 and 1993 amounted to
$1,735,162 and $1,736,814 respectively and is reflected in other operating
income.
The following schedule provides an analysis of Town & Country's
investment in property on operating leases and property held for lease by
major classes as of December 31, 1994 and 1993:
1994 1993
(Dollars in Thousands)
Construction equipment...........$ 704 $ 1,049
Transportation equipment......... 7,277 7,235
Automobiles...................... 12,949 12,106
Manufacturing equipment.......... 5,399 4,376
Trucks........................... 12,245 8,075
Other............................ 548 362
---------- -----------
Total............................ 39,122 33,203
Less: Accumulated depreciation... (19,400) (16,017)
----------- -----------
$ 19,722 $ 17,186
=========== ===========
The following is a schedule by years of minimum future rentals on
noncancelable operating leases as of December 31, 1994:
Year ending December 31: (Thousands)
1995...............................$ 9,770
1996................................ 2,020
1997................................ 138
1998................................ 23
-------
Total minimum future rentals.......$ 11,951
=======
Note 9 - Time Certificates of Deposit
At December 31, 1994 and 1993, time certificates of deposit of $100,000
or more aggregated $19,672,584 and $13,159,166 respectively.
Note 10 - Short-Term Borrowings and Other Liabilities for Borrowed Money
The Bank maintains lines of credit with various correspondent banks to
use as sources of short-term funds. Federal funds purchased amounted to $6
million at December 31, 1994. There were no Federal funds purchased at
December 31, 1993. In addition, the Bank maintains a line of credit in the
amount of $137 million with the Federal Home Loan Bank of Pittsburgh. There
were no advances on this line at December 31, 1994 or 1993. Borrowings from
the Federal Reserve Bank and interest-bearing demand notes issued to U.S.
Treasury would also be considered short-term borrowings.
Interest-bearing demand notes issued to U.S. Treasury were $2,914,000 and
$3,000,000 for 1994 and 1993 respectively.
The average balance outstanding for any category of short-term borrowings
during the periods reported was less than 30 per cent of stockholders' equity
at the end of each period reported.
The following represents other liabilities for borrowed money at December
31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Notes payable-Town & Country, Inc.(Subsidiary of Bank)
borrowings from various lenders for leasing operations....$17,601,076 $17,838,595
Federal Home Loan Bank advances............................. 1,571,450 1,571,450
---------- ----------
Total.......................................................$19,172,526 $19,410,045
</TABLE>
Liabilities in connection with Town & Country, Inc. leasing operations are
payable to various lenders at various terms. The estimated current portion of
this debt is $7,286,845 at December 31, 1994. The borrowings from the Federal
Home Loan Bank of Pittsburgh consist of two advances in 1993.
One in the amount of $621,450, bears interest monthly at the rate of 4.49%
per year and matures July 29, 1996. The second, in the amount of $950,000
bears interest at the rate of 5.39% per year and matures September 13, 2000.
Note 11 - Pension and Employee Stock Bonus Plan
The Bank of Lancaster County, N.A. and its subsidiary, Town & Country,
Inc. maintains a qualified non-contributory pension plan for their employees.
The Plan specifies fixed benefits to provide a monthly pension benefit at age
65 for life equal to one and one-half percent of each participant's final
average salary (highest five consecutive years' base compensation preceding
retirement) for each year of credited service. Salary in excess of $150,000
(effective for the year 1994) is disregarded in determining a participant's
retirement benefit pursuant to IRS regulations. All employees with one year
of service who work at least 1,000 hours per year and who are at least age 21
are eligible to participate. A participant becomes 100% vested upon
completion of five years of service.
Sterling Financial Corporation has adopted the provision of Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions",
for the year ended December 31, 1987. The net periodic pension cost for 1994,
1993 and 1992 was $547,753, $547,627 and $328,019 respectively.
Net periodic pension cost for 1994, 1993 and 1992 included the following:
1994 1993 1992
Service cost.......................$ 577,208 $ 559,665 $ 407,609
Interest cost...................... 427,817 404,381 315,831
Return on Plan assets.............. 5,897 (346,736) (465,122)
Net amortization and deferral...... (463,169) (42,683) 69,701
--------- --------- ---------
Net periodic pension cost..........$ 547,753 $ 574,627 $ 328,019
========= ========= =========
The following table sets forth the Plan's funded status at December 31, 1994,
1993 and 1992:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligations:
1994 1993 1992
<S> <C> <C> <C>
Accumulated benefit obligation, including vested
benefits of $3,705,229 for 1994, $3,684,272
for 1993 and $2,761,915 for 1992.................$ 3,744,542 $ 3,748,356 $ 2,858,390
========== ========== ==========
Projected benefit obligation for service rendered to
date.............................................$(6,890,204)$(6,466,414)$(5,630,730)
Plan assets at fair value......................... 6,087,071 5,472,414 4,511,618
---------- ---------- ----------
Projected plan assets in excess of or (less than)
benefit obligation...............................$ (803,133)$ (994,000)$(1,119,112)
Unrecognized net (gain) or loss from past experience
different from that assumed and effects of changes
in assumptions.................................... 1,374,729 1,404,004 1,410,150
Unrecognized net (asset) or obligation............. (345,454) (414,546) (483,638)
---------- ---------- ----------
Prepaid (accrued) pension cost included
in other assets (liabilities).....................$ 226,142 $ (4,542)$ (192,600)
========== ========== ==========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.5% and 6%, respectively, at December 31,
1994. The expected long-term rate of return on plan assets in 1994 was 9%.
The Board of Directors of the Bank adopted an employee stock plan
effective July 1, 1981. The assets of the Plan will be entirely invested in
Sterling Financial Corporation common stock. The Plan covers all Bank
employees who are age 18 and over, are employed for at least 1,000 hours per
year and have completed at least one year of service. The Plan has two parts:
*The Thrift Incentive portion of the Plan permits any eligible
participant to make voluntary contributions to the Plan ranging from 2% to 6%
of compensation. The Bank will contribute 25% of what the participant
contributes. This portion of the Plan is intended to encourage thrift and
investment in Sterling Financial Corporation stock, as well as supplement
their retirement. The Plan provides for employees to make their voluntary
contributions on a pre-federal income tax basis commencing January 1, 1995.
*The Performance Incentive portion of the Plan allows the Bank to make
annual contributions to the Plan based on certain overall Bank
performance objectives. These contributions will be allocated to the
participants based on compensation.
Bank contributions to the Plan vest in each participant's account at the
rate of 20% for each year of service. Normally, benefits may be
paid from the Plan on retirement, termination, disability or death.
Participants in the Plan may withdraw their own contribution earlier
under several restricted conditions of hardship with approval of the Plan
Committee. The Plan provides that each participant may vote the shares
in his or her account through the Plan Trustee at any shareholder meeting.
The Bank of Lancaster County Trust Department serves as Trustee for the Plan.
All dividends received on Sterling
Financial Corporation stock are reinvested in additional shares
of Sterling Financial Corporation stock.
The contribution to the Performance Incentive portion of the
Plan was $200,000, $200,000 and $165,000 for 1994, 1993 and 1992
respectively. The contribution to the Thrift Incentive portion of the Plan was
$51,305 in 1994, $41,766 in 1993 and $37,291 in 1992.
Effective January 1, 1993, Sterling adopted Statement of
Financial Accounting Standards No. 106 - Employers' 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 $1,026,457, 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 transition obligation in the amount of
$1,026,457 is being amortized on a straight-line basis over a 20 year period
which is the average remaining service period of active plan participants.
The cost for postretirement benefits other than pensions consisted of the
following components at December 31, 1994 and 1993:
1994 1993
Service cost..........................$ 92,665 $ 79,808
Interest cost.......................... 87,234 81,208
Amortization of unrecognized
transition obligation.............. 51,323 51,323
------- -------
Net periodic postretirement
benefit cost......................$231,222 $212,339
======= =======
Sterling's postretirement benefits other than pensions are currently not
funded. The status of the plans at December 31, 1994 and 1993 is as follows:
Actuarial valuation of accumulated postretirement benefit
obligation:
1994 1993
Retirees.................................$ 288,754 $ 314,495
Fully eligible active plan participants... 258,042 294,307
Other active plan participants............ 786,128 652,737
---------- ----------
$ 1,332,924 $ 1,261,539
Unrecognized transition obligation........ (923,811) (975,134)
Unrecognized net loss..................... (8,994) (94,345)
---------- ----------
Accrued postretirement benefit cost......$ 400,119 $ 192,060
========== ==========
Prior to January 1, 1993, Sterling recognized the cost of postretirement
benefits, which is primarily retiree health care, as an expense as premiums
were incurred. These costs approximated $17,886 and $13,888 for 1992 and
1991, respectively. The postretirement health care plan is contributory, with
retiree contributions based on years of service.
The assumed postretirement health care cost trend rate used in measuring
the accumulated postretirement benefit was 9% in 1994, decreasing by .5% per
year to an ultimate rate of 5.5% in 2001 and remains at that level thereafter.
The discount rate used to measure the accumulated postretirement benefit
obligation was 7.5% in 1994.
The health care cost trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1994 by
$310,106 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended December 31, 1994 by
$49,906.
Note 12 - Applicable Income Taxes
The effective income tax rates for financial reporting purposes are less
than the Federal statutory rate of 34% for 1994, 1993 and 1992 for reasons
shown as follows:
For the years ended December 31,
1994 1993 1992
(Dollars in Thousands)
Federal income tax expense at statutory rate...$ 3,711 $ 3,587 $ 3,119
Reduction resulting from:
Non-taxable interest income.................. (966) (895) (837)
Other, net................................... (149) 20 12
------- ------- -------
Applicable Federal income taxes................$ 2,596 $ 2,712 $ 2,294
State income taxes............................. 41 37 37
------- ------- -------
Applicable income taxes........................$ 2,637 $ 2,749 $ 2,331
======= ======= =======
Taxes currently payable........................$ 2,330 $ 3,048 $ 3,036
Deferred income taxes.......................... 307 (299) (705)
------- ------- -------
Applicable income taxes........................$ 2,637 $ 2,749 $ 2,331
======= ======= =======
The deferred income tax provision consists of the following
items:
Years ended December 31,
1994 1993 1992
(Dollars in Thousands)
Difference between loan loss provision
charged to operating expense and bad
debt deduction taken for income tax
purposes..................................$ (345) $ (687) $ (755)
Difference between the depreciation
methods used for financial statements
and for income tax purposes............... (80) (64) 199
Income on leases recognized by the
direct finance method for financial
statements but recognized by the
operating method for income tax purposes.. 895 526 333
Difference in gains and losses on
disposal of leased assets due to the
use of direct finance method for
financial statements and operating
method for income tax purposes............ (186) (215) (398)
Difference due to the amount of pension
expense deductible for financial
statement purposes and that which is
deductible for income tax purposes........ 98 64 47
Various deferral items..................... (75) 77 (131)
------- ------- -------
$ 307 $ (299) $ (705)
======= ======= =======
The Financial Accounting Standards Board has issued Statement No. 109,
Accounting for Income Taxes, which significantly changes the recognition and
measurement of deferred income tax assets and liabilities.
Statement 109 requires that deferred income taxes be recorded on an
asset/liability method and adjusted when new tax rates are enacted.
The Company adopted Statement No.
109 beginning with its year ending December 31, 1993. The Statement provides
that the effect of its adoption may be recorded entirely in the year of
adoption or retroactively by restating one or more prior years.
The statement was retroactively applied to 1990.
Note 13 - Operating Leases
The Bank leases certain banking facilities under operating leases which
expire on various dates to 2022. Renewal options are available on these
leases. Minimum future rental payments as of December 31, 1994 are as
follows:
Operating
Leases
(Dollars in Thousands)
1995.........................$ 450
1996......................... 444
1997......................... 398
1998......................... 343
1999......................... 287
Later years.................. 2,010
-------
Total minimum future rental
payments...................$ 3,932
=======
Total rent expense charged to operations amounted to
$413,996 in 1994, $373,332 in 1993 and $334,654 in 1992.
Note 14 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
Cash and Short-Term Investments - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities - For investment securities, fair value equals quoted
market price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans - For certain homogenous categories of loans, such as some
residential mortgages, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in
loan characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. Lease contracts as defined in FASB Statement No. 13,
Accounting for Leases, are not included in this disclosure statement.
Deposit Liabilities - The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposits is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Federal Funds Purchased - The carrying amount of federal funds purchased
approximates its fair value due to the overnight maturities of these financial
instruments.
U.S. Treasury Demand Notes - For U.S. Treasury demand notes, the carrying
amount is a reasonable estimate of fair value.
Other Borrowings - Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of
commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The estimated fair values of the Corporation's financial instruments are as
follows:
1994 1993
(Dollars in Thousands)
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Financial Assets:
Cash and short-term investments..$ 32,398 $ 32,398 $ 48,580 $ 48,580
Investment securities
held-to-maturity............... 161,160 156,047 146,465 151,444
Investment securities
available-for-sale............. 9,051 9,051 none none
Loans............................ 355,410 328,718
Less: Allowance for loan losses (7,028) (6,604)
-------- -------- -------- --------
Net loans........................$ 348,382 $ 340,898 $ 322,114 $ 326,468
Financial Liabilities:
Deposits.........................$ 537,002 $ 534,344 $ 505,680 $ 507,651
Federal funds purchased.......... 6,000 6,000 none none
U.S. Treasury demand notes....... 2,914 2,914 3,000 3,000
Other borrowings................. 19,173 18,731 19,421 19,404
Unrecognized financial instruments:*
Interest rate swaps:
In a net receivable position....$ none $ none $ none $ none
In a net payable position....... (none) (none) (none) (none)
Commitments to extend credit..... (86) (86) (76) (76)
Standby letters of credit........ (37) (37) (36) (36)
Financial guarantees written..... (none) (none) (none) (none)
* The amounts shown under "Carrying Amount" represent accruals or deferred
income (fees) arising from those unrecognized financial instruments.
Note 15 - Commitments and Contingent Liabilities
In the normal course of business, there are various commitments and
contingent liabilities which are not reflected in the financial statements.
These include lawsuits and commitments to extend credit, guarantees and
letters of credit. In the opinion of management, there are no material
commitments which represent unusual risks.
A summary of the more significant commitments as of December
31, 1994 and 1993 are as follows:
Financial instruments whose contract amounts
represent credit risk:
1994 1993
(Dollars in Thousands)
Standby letters of credit .................$ 5,520 $ 8,845
Commitments to extend credit...............$ 71,265 $ 60,479
Standby letters of credit are obligations to make payments under certain
conditions to meet contingencies related to customers' contractual agreements
and are subject to the same risk, credit review and approval process as loans.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require the payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Each customer's
creditworthiness is evaluated on a case-by-case basis. Excluded from these
amounts are commitments to extend credit in the form of retail credit cards,
check credit or related plans.
Sterling's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. Sterling uses the same credit policies in making
commitments and conditional obligations as it does for on- balance sheet
instruments.
Most of Sterling's business activity is with customers located within
Sterling's defined market area. Sterling grants commercial, residential and
consumer loans throughout the market area. The loan portfolio is well
diversified and Sterling does not have any significant concentrations of
credit risk.
In 1994, SFAS No. 119 - Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments was issued effective for financial
statements issued after December 15, 1994. The Corporation has not entered
into any derivatives defined as a future, forward, swap, option, caps, floors,
etc. However, the financial instruments listed above as standby letters of
credit and commitments to extend credit have characteristics similar to
derivatives. The following is a schedule that represents the estimated risk
of current interest rates versus committed rates. Due to the uncertainty of
when and how much a commitment to extend credit will be exercised, estimates
were used.
Fixed Rate Commitments
(Dollars in Thousands)
Carrying value at December 31, 1994..............$ 0
Commitment available not yet exercised...........$ 10,865
Commitment revalued at existing rates with
estimated activity.............................$ 10,823
Note 16 - Related Party Transactions
Certain directors and officers of Sterling Financial Corporation and its
subsidiaries, their immediate families and companies in which they are
principal owners (more than 10%), were indebted to the Bank during 1994 and
1993. All loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and, in the opinion of the management of the
Bank, do not involve more than a normal risk of collectibility or present
other unfavorable features. Total loans to these persons at December 31, 1994
and 1993 amounted to $5,497,545 and $6,418,156 respectively.
During 1994, $2,946,690 of new loans were made and repayments totaled
$3,867,301.
Note 17 - Dividend and Loan Restrictions
Dividends are paid by Sterling Financial Corporation from its assets
which are provided in part by dividends from Bank of Lancaster County, N.A.
However, certain restrictions exist regarding the ability of the Bank to
transfer funds to Sterling Financial Corporation in the form of dividends.
The approval of the Comptroller of the Currency shall be required if the total
of all dividends declared by the Bank in any calendar year shall exceed the
total of its net profits of that year combined with its retained net profits
of the preceding two years. Under these restrictions, the Bank can declare
dividends in 1995 without approval of the Comptroller of the Currency of
approximately $14,118,000 plus an additional amount equal to the Bank's net
profits for 1995 up to the date of any such dividend declaration.
Under current Federal Reserve regulations, the Bank is limited in the
amount it may loan to Sterling Financial Corporation. Loans to Sterling
Financial Corporation may not exceed 10% of the Bank's capital stock and
surplus.
Note 18 - Sterling Financial Corporation (Parent Company Only)
Financial Information
Condensed Balance Sheets
As of December 31,
1994 1993
Assets (Dollars in Thousands)
Cash.............................................$ 291 $ 390
Investment in subsidiaries at equity............. 57,546 49,699
Other assets..................................... 328 185
------- -------
Total Assets.......................................$ 58,165 $ 50,274
======= =======
Liabilities
Other liabilities................................$ 880 807
Stockholders' Equity
Common Stock.....................................$ 29,372 $ 14,414
Capital Surplus.................................. 8,544 20,830
Retained Earnings................................ 19,114 14,223
Net Unrealized Gain on securities
available-for-sale, net of taxes................ 420 none
Less: Treasury Stock at cost..................... (165) none
------- -------
Total Stockholders' Equity.........................$ 57,285 $ 49,467
------- -------
Total Liabilities and Stockholders' Equity.........$ 58,165 $ 50,274
======= =======
Condensed Statements of Income
Years Ended December 31,
1994 1993 1992
Income (Dollars in Thousands)
Dividends from subsidiaries.............$ 966 $ 1,262 $ 1,731
Other income............................ 1 1 1
------- ------- -------
Total Income.......................... 967 1,263 1,732
------- ------- -------
Expenses
Fees paid to subsidiary................. none 108 84
Other expense........................... 178 121 96
------- ------- -------
Total Expense......................... 178 229 180
------- ------- -------
Income before income taxes and equity
in undistributed net income
of subsidiaries......................... 789 1,034 1,552
Income taxes (credits).................... (60) (78) (61)
------- ------- -------
849 1,112 1,613
Equity in undistributed income of
subsidiaries............................ 7,428 6,690 5,230
------- ------- -------
Net Income................................$ 8,277 $ 7,802 $ 6,843
======= ======= =======
Statements of Cash Flows
Years Ended December 31,
1994 1993 1992
(Dollars in Thousands)
Cash flows from operating activities
Net income.......................................$ 8,277 $ 7,802 $ 6,843
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Undistributed (earnings) loss of subsidiaries... (7,428) (6,690) (5,230)
Changes in operating assets and liabilities:
(Increase) decrease in other assets.......... (142) 188 242
(Decrease) increase in other liabilities..... 73 91 52
------- ------- -------
Net cash provided by/(used in)
operating activities........................ 780 1,391 1,907
------- ------- -------
Cash flows from investing activities
Proceeds of interest-bearing deposits
in other banks................................. none 100 none
Purchase of interest-bearing deposits
in other banks................................. none none (100)
------- ------- -------
Net cash provided by/(used in) investing
activities.................................. none 100 (100)
------- ------- -------
Cash flows from financing activities
Proceeds from issuance of common stock.......... 2,645 1,629 1,021
Cash dividends paid............................. (3,386) (2,985) (2,575)
Cash dividends paid in lieu of
fractional shares.............................. none (32) (11)
Acquisition of treasury stock................... (379) (267) (643)
Proceeds from issuance of treasury stock........ 241 526 422
------- ------- -------
Net cash provided by/(used in) financing
activities................................... (879) (1,129) (1,786)
------- ------- -------
Increase (decrease) in cash................... (99) 362 21
Cash
Beginning...................................... 390 28 7
------- ------- -------
Ending........................................$ 291 $ 390 $ 28
======== ======= =======
Summary of Quarterly Financial Data (Unaudited)
Sterling Financial Corporation and Subsidiaries
The following is a summary of the quarterly results of operations for
the years ended December 31, 1994 and 1993. Net income per share of
common stock has been restated to retroactively reflect a two-for-one stock
split in the form of a 100% stock dividend paid in September 1994 and a 5%
stock dividend paid in December 1993.
(In thousands, except per share)
1994
Quarter Ended
March June September December
31 30 30 31
Interest income..................$ 9,810 $ 10,253 $ 10,646 $ 11,222
Interest expense................. 3,421 3,468 3,858 4,179
--------- ------- -------- --------
Net interest income.............. 6,389 6,785 6,788 7,043
Provision for loan losses........ 182 425 309 165
--------- ------- -------- --------
Net interest income after
provision for loan losses...... 6,207 6,360 6,479 6,878
Other income..................... 1,778 1,710 1,764 1,791
Other expenses................... 5,354 5,388 5,493 5,818
--------- -------- -------- --------
Income before income taxes....... 2,631 2,682 2,750 2,851
Applicable income taxes.......... 666 686 645 640
--------- -------- -------- --------
Net income.......................$ 1,965 $ 1,996 $ 2,105 $ 2,211
========= ======== ======== ========
Net income per share of
common stock...................$ .34 $ .34 $ .36 $ .38
1993
Quarter Ended
March June September December
31 30 30 31
Interest income..................$ 9,891 $ 10,009 $ 9,985 $ 10,207
Interest expense................. 3,870 3,775 3,761 3,636
--------- --------- --------- --------
Net interest income.............. 6,021 6,234 6,224 6,571
Provision for loan losses........ 820 748 469 393
--------- --------- --------- --------
Net interest income after
provision for loan losses...... 5,201 5,486 5,755 6,178
Other income..................... 2,129 2,187 2,384 2,279
Other expenses................... 4,904 5,160 5,383 5,601
--------- --------- --------- --------
Income before income taxes....... 2,426 2,513 2,756 2,856
Applicable income taxes.......... 615 642 744 748
--------- --------- --------- --------
Net income.......................$ 1,811 $ 1,871 $ 2,012 $ 2,108
========= ========= ========= ========
Net income per share of
common stock...................$ .32 $ .33 $ .35 $ .36
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Incorporated by reference is the information appearing under the heading
"Information about Nominees and Continuing Directors" on pages 5 and 6 of the
1995 Proxy Statement and under the heading "Officers and Executive Officers"
on page 7 of the 1995 Proxy Statement.
Item 11 - Executive Compensation
Incorporated by reference is the information under the heading
"Compensation of Directors" on page 11 of the 1995 Proxy Statement and under
the heading "Executive Compensation" on page 7 of the 1995 Proxy Statement.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
Incorporated by reference is the information appearing under the heading
"Voting of Shares of Principal Holders Thereof" on page 3 of the 1995 Proxy
Statement and under the heading "Information about Nominees and Continuing
Directors" on pages 5 and 6 of the 1995 Proxy Statement.
Item 13 - Certain Relationships and Related Transactions
Incorporated by reference is the information appearing under the heading
"Transactions with Directors and Executive Officers" on page 12
of the 1995 Proxy Statement and under "Notes to Consolidated Financial
Statements - Note 16 - Related Party Transactions" on page 34 of the
Form 10-K for the year ended December 31, 1994.
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports of Form 8-K
(a) The following documents are filed as part of this report:
1. The financial statements listed on the index set forth in Item 8 of
this Annual Report on Form 10-K are filed as part of this Annual
Report.
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, the data
are not significant or the required information is shown in the
financial statements or the notes thereto or elsewhere herein.
3. Exhibits
The following is a list of the Exhibits required by Item 601 of
Regulation S-K and are incorporated by reference herein or annexed to
this Annual Report.
3. Articles of Incorporation and Bylaws of Sterling Financial
Corporation incorporated by reference to Exhibit 3 of
Registration Statement on Form S-4 (No. 33-12635) filed with the
Securities and Exchange Commission on March 13,1987.
10. Material Contracts - 10 a. Employment Agreement of John E.
Stefan, Chairman of the Board, President and Chief Executive
Officer of Sterling Financial Corporation and Bank of Lancaster
County, N.A. - incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1987.
21. Subsidiaries of the Registrant
23. Consent of Auditors
27. Financial Data Schedule
(b) Reports on Form 8-K
There were no current reports on Form 8 - K filed during the quarter
ended December 31, 1994.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
STERLING FINANCIAL CORPORATION
By: John E. Stefan
John E. Stefan
Chairman of the Board,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signature Title Date
Chairman of the Board,
John E. Stefan President and Chief February 28, 1995
(John E. Stefan) Executive Officer; Director
Jere L. Obetz Senior Vice President/Treasurer, February 28, 1995
(Jere L. Obetz) Chief Financial Officer
Director February 28, 1995
(Richard H. Albright, Jr.)
John E. Burkholder Director February 28, 1995
(John E. Burkholder)
Robert H. Caldwell Director February 28, 1995
(Robert H. Caldwell)
Howard E. Groff, Jr. Director February 28, 1995
(Howard E. Groff, Jr.)
J. Robert Hess Director February 28, 1995
(J. Robert Hess)
Director February 28, 1995
(Calvin G. High)
J. Roger Moyer, Jr. Director February 28, 1995
(J. Roger Moyer, Jr.)
E. Glenn Nauman Director February 28, 1995
(E. Glenn Nauman)
Glenn R. Walz Director February 28, 1995
(Glenn R. Walz)
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are the subsidiaries of Sterling Financial Corporation:
Subsidiary State of Incorporation or Organization
Bank of Lancaster County, N.A. Pennsylvania
1 East Main Street (National Banking Association)
P.O. Box 0300
Strasburg, PA 17579
Town & Country, Inc. (Wholly owned Pennsylvania
Subsidiary of Bank of Lancaster
County, N.A.)
640 East Oregon Road
Lancaster, PA 17601
Sterling Mortgage Services, Inc. Pennsylvania
(Presently inactive)
525 Greenfield Road
P.O. Box 10608
Lancaster, PA 17605-0608
Exhibit 23
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in Registration
Statement No. 33-16049 on Form S-3 filed July 24, 1987 of our opinion dated
January 19, 1995, on the consolidated financial statements of Sterling Financial
Corporation for the year ended December 31, 1994 as set forth in this form 10-K.
Trout, Ebersole & Groff
Trout, Ebersole & Groff
Certified Public Accountants
Lancaster, Pennsylvania
February 28, 1995
Exhibit Index
Page
Exhibits Required Pursuant to (in accordance with
Item 601 of Regulation S-K sequential numbering system)
3. Articles of Incorporation and Bylaws of
Sterling Financial Corporation incorporated
by reference to Exhibit 3 of Registration
Statement on Form S-4 (No. 33-12635)
filed with the Securities and Exchange
Commission on March 31, 1987
10. Material Contracts - 10a. Employment Agreement of
John E. Stefan, President and Chief Executive Officer
of Sterling Financial Corporation
and Bank of Lancaster County, N.A. -
incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1987
21. List of Subsidiaries 49
23. Consent of Auditors 23
27. Financial Data Schedule
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