STERLING FINANCIAL CORP /PA/ - 10-Q Quarterly Report

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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission file number 0-16276

STERLING FINANCIAL CORPORATION

(Exact name of registrant as specified in it charter)


Pennsylvania		23-2449551
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

101 North Pointe Boulevard
Lancaster, Pennsylvania		17601-4133
(Address of principal executive offices)		(Zip Code)

(717) 581-6030

(Registrant’s telephone number including area code)

Not Applicable

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical data.

Common Stock, $5.00 Par Value - 16,928,690 shares outstanding as of April 30, 2003.

TABLE OF CONTENTS


Part I — Financial Information
		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Changes in Stockholders’ Equity
		Consolidated Statements of Cash Flows
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk
	Item 4 – Internal Control Evaluation
Part II – OTHER INFORMATION
	Item 1 – Legal Proceedings
	Item 2 – Changes in Securities and Use of Proceeds
	Item 3 – Defaults Upon Senior Securities
	Item 4 – Submission of Matters to a Vote of Security Holders
	Item 5 – Other Information
	Item 6 – Exhibits and Reports on Form 8-K
Signatures
CERTIFICATION
CERTIFICATION
SUBSIDIARIES OF THE REGISTRANT
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

STERLING FINANCIAL CORPORATION AND SUBSIDIARIES

Index


			Page

PART I – FINANCIAL INFORMATION
	Item 1 -	Financial Statements (Unaudited)
		Consolidated Balance Sheets
		As of March 31, 2003 and December 31, 2002		3
		Consolidated Statements of Income
		For the Three Months ended March 31, 2003 and 2002		4
		Consolidated Statements of Changes in Stockholders’
		Equity for the Three Months ended March 31, 2003 and 2002		5
		Consolidated Statements of Cash Flows
		For the Three Months ended March 31, 2003 and 2002		6
		Notes to Consolidated Financial Statements		7
	Item 2 -	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations		11
	Item 3 -	Quantitative and Qualitative Disclosure about Market Risk		21
	Item 4 -	Internal Control Evaluation		23
PART II – OTHER INFORMATION
	Item 1 -	Legal Proceedings		24
	Item 2 -	Changes in Securities and Use of Proceeds		24
	Item 3 -	Defaults Upon Senior Securities		24
	Item 4 -	Submission of Matters to a Vote of Securities Holders		24
	Item 5 -	Other Information		24
	Item 6 -	Exhibits and Reports on Form 8-K		24
Signature Page				25
Certification				26
Certification				27

Part I – Financial Information

STERLING FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)


			March 31,			December 31,
(Dollars in thousands)			2003			2002

Assets:
Cash and due from banks			$	68,305		$	82,208
Federal funds sold				43,861			25,131

	Cash and cash equivalents			112,166			107,339
Interest-bearing deposits in banks				4,455			3,412
Short-term investments				903			11,200
Mortgage loans held for sale				19,280			16,784
Securities held-to-maturity (fair value 2003 - $39,157; 2002 - $38,368)				37,510			36,596
Securities available-for-sale				529,160			551,696
Loans, net of allowance for loan losses (2003 - $13,287; 2002 $12,953)				1,304,589			1,283,075
Assets held for operating leases, net				61,835			63,291
Premises and equipment, net				35,748			35,212
Other real estate owned				2,760			207
Goodwill				18,338			18,360
Accrued interest receivable				11,702			11,770
Other assets				22,439			17,367

Total Assets			$	2,160,885		$	2,156,309

Liabilities:
Deposits:
	Noninterest-bearing		$	208,939		$	208,119
	Interest-bearing			1,506,091			1,494,183

		Total deposits		1,715,030			1,702,302

Short-term borrowings				36,209			41,620
Long-term debt				148,365			155,478
Company obligated mandatorily redeemable preferred securities of subsidiary trust				20,000			20,000
Accrued interest payable				7,213			7,981
Other liabilities				34,369			32,095

Total Liabilities				1,961,186			1,959,476

Stockholders’ equity
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued and outstanding				—			—
Common stock – $5.00 par value, 70,000,000 shares authorized; issued 2003 - 16,928,690 shares; 2002 -16,923,069 shares				84,643			84,615
Capital surplus				34,780			34,949
Retained earnings				67,271			63,521
Accumulated other comprehensive income				13,670			14,299
Common stock in treasury, at cost (2003 - 30,000 shares; 2002 - 22,500 shares)				(665	)		(551	)

Total Stockholders’ Equity				199,699			196,833

Total Liabilities and Stockholders’ Equity			$	2,160,885		$	2,156,309

The accompanying notes are an integral part of these consolidated financial statements.

STERLING FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)


		Three Months Ended
		March 31,

(Dollars in thousands, except per share data)		2003		2002

Interest and dividend income
Loans, including fees		$	23,995	$	21,795
Debt securities
	Taxable		4,512		4,863
	Tax-exempt		2,440		2,249
Dividends			154		135
Federal funds sold			64		172
Deposits in other banks			12		11

	Total interest and dividend income		31,177		29,225

Interest expense
Deposits			8,044		9,972
Short-term borrowings			380		258
Long-term debt			2,169		1,848

	Total interest expense		10,593		12,078

Net interest income			20,584		17,147
Provision for loan losses			1,035		218

	Net interest income after provision for loan losses		19,549		16,929

Noninterest income
Income from fiduciary activities			1,139		1,091
Service charges on deposit accounts			1,374		1,323
Other service charges, commissions and fees			1,034		974
Mortgage banking income			965		765
Rental income on operating leases			6,420		6,342
Other			654		429
Securities gains			4		16

	Total noninterest income		11,590		10,940

Noninterest expenses
Salaries and employee benefits			9,319		8,837
Net occupancy			1,311		1,000
Furniture and equipment			1,518		1,338
Professional services			707		521
Depreciation on operating lease assets			5,285		5,095
Other			3,943		3,905

	Total noninterest expenses		22,083		20,696

Income before income taxes			9,056		7,173
Income tax expense			2,431		1,651

Net income		$	6,625	$	5,522

Per share information:
	Basic earnings per share	$	0.39	$	0.34
	Diluted earnings per share		0.39		0.34
	Dividends declared		0.17		0.16

The accompanying notes are an integral part of these consolidated financial statements.

STERLING FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity


															Accumulated
					Shares										Other
					Common		Common		Capital			Retained			Comprehensive			Treasury
(Dollars in thousands)					Stock		Stock		Surplus			Earnings			Income (Loss)			Stock			Total

Balance, December 31, 2001						12,546,663	$	62,733	$	17,849		$	66,823		$	5,433		$	(727	)	$	152,111
Comprehensive income:
		Net income											5,522									5,522
		Other comprehensive income:
			Change in net unrealized gain (loss) on securities AFS, net of reclassification adjustment and tax effects													(519	)					(519	)

				Total comprehensive income																		5,003

Common stock issued:
		Acquisition of Equipment Finance, Inc.				954,452		4,772		16,226												20,998
5-for-4 stock split effected in the form of a 25% common stock dividend						3,375,278		16,877					(16,877	)								—
Issuance of treasury stock
		Stock options (8,545 shares)								(25	)								142			117
Cash dividends declared													(2,694	)								(2,694	)

Balance, March 31, 2002						16,876,393	$	84,382	$	34,050		$	52,774		$	4,914		$	(585	)	$	175,535

Balance, December 31, 2002						16,923,069	$	84,615	$	34,949		$	63,521		$	14,299		$	(551	)	$	196,833
Comprehensive income:
		Net income											6,625									6,625
	Other comprehensive income:
			Change in net unrealized gain (loss) on securities AFS, net of reclassification adjustment and tax effects													(612	)					(612	)
			Change in unrealized loss on interest rate swap													(17	)					(17	)

				Total comprehensive income																		5,996

Common stock issued:
	Stock options					5,621		28		50												78
Issuance of treasury stock

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Table of Contents

Table of Contents

Table of Contents

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
		THE SECURITIES EXCHANGE ACT OF 1934