A fraud at Sterling Financial Corp's equipment subsidiary has tarnished the Lancaster financial services holding company.

Sterling, the parent of Bank of Lancaster County, said Thursday it would take an after-tax charge of $145 to $165 million against 2006 earnings of $36.45 million because of what it called a "sophisticated loan scandal" at one of its subsidiaries.

The charge includes the value of the bad loans, lost interest, and a write-down of the subsidiary's value, a bank spokesman said.

On April 19, Sterling learned of the "irregularities" at Equipment Finance LLC, which specializes in financing logging equipment and brought in 41 percent of Sterling's profits in 2006.

On Thursday, Sterling released new details of what is apparently one of the largest bank frauds ever in Lancaster County.

Officers and employees of Equipment Finance, based on West Airport Road off Lititz Pike, "schemed to conceal credit delinquencies, falsify financing contracts and related documents, and subvert Sterling's established internal controls," the company said in a press release.

"The scheme was able to avoid detection until recently due to the depth and breadth of the collusion. In other words, employees at different seniority levels and functional areas were apparently involved," the company continued.

A bank spokesman said customer accounts had not been affected.

Five Equipment Finance employees have been terminated, including the chief operating officer and executive vice president, according to Sterling. Brad Scovall, Sterling's chief revenue officer, said Thursday the company did not plan any additional firings.

Sterling has hired an outside agency for advice on its options for covering the loss, which include raising capital, selling assets or businesses and "entering into a business combination with a strategic partner."

Sterling also announced that it is temporarily stopping dividend payments and planned to consolidate four of its bank subsidiaries.

If Sterling's bank consolidation plan is approved by the Office of the Comptroller of the Currency, Bank of Hanover and Trust Co., Pennsylvania State Bank, Bay First Bank and Bank of Lancaster County, N.A., will become divisions of BLC Bank, N.A. All branches will continue to operate under their current names, with the same personnel.

Established in 1945, Equipment Finance was acquired by Sterling in 2002 for $30.5 million in stock and cash. In its 2006 annual review filed April 2, the company said Equipment Finance is "one of Sterling's true performance success stories" that originated more than $115 million in new contracts with assets increasing to more than $300 million in 2006.

Sterling is a financial services holding company with $3.3 billion in assets.

Sterling's shares plunged more than 38 percent in early morning trading on the Nasdaq exchange, opening at $10, after closing Thursday at $16.16.

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