PNC Financial Services Group Inc. announced today that it will buy Lancaster-based Sterling Financial Corp., which is fighting its way out of an expensive financing fraud case.

Sterling is the parent company of Bank of Lancaster County.

The deal is expected to be valued at $565 million in stock and cash, or approximately $19 per share.

On today's news of the pending acquisition, Sterling Financial's stock shot up 70 percent to $17.89 on the NASDAQ Exchange.

Sterling Financial has 67 branches throughout Pennsylvania, Maryland and Delaware. With 33 banks in Lancaster County, it is the second largest banking firm in the county.

"The assumption right now is that a significant number of Sterling employees will be kept on," said Mike Lambert, vice president and director of communications for Sterling Financial. "And we don't think there will be any closing of banks. This sale is filling in a piece of territory that PNC doesn't cover well."

But Bank of Lancaster County, a mainstay in Lancaster County since 1863, will no longer exist. All the bank branches will carry the PNC name.

PNC, which has about 1,000 bank branches in eight states and the District of Columbia, has county branches at 1966 Fruitville Pike, 1687 Oregon Pike, 801 Estelle Drive and the Giant store at 1008 Lititz Pike.

The sale is expected to take place in the first quarter of 2008 and operational integration should be completed by the third quarter of 2008, according to Lambert.The deal has been approved by both boards of directors.

The sale became necessary after Sterling Financial became embroiled in a financial fraud case through one of its subsidiaries, Equipment Finance, a Lancaster County company.

The company, which financed equipment for the construction and logging business, was accused of collusion and fraud, covering up loan delinquencies by using faked documents.

Five Equipment Finance employees, including the chief operating officer, resigned.

The fraud case will end up costing Sterling Financial between $145 and $165 million, according to Lambert.

A number of financial analysts previously said that a sale would be the best way for Sterling to get out of its huge debt.

Lambert says one of the main reasons the PNC offer was so attractive was that it would restore much of the value for shareholders.

"The price will be $19 per share," Lambert says. "Before the news came out (about the fraud case) in April, shares of Sterling were trading at $20 to $21. This goes a long way to restoring shareholder value."

On Wednesday, the stock closed at $10.55 a share. Late this morning it had risen to $17.89.

Lambert says Sterling also liked the commitment Pittsburgh-based PNC has to employee and customer relations.

"We are pretty comfortable with PNC. They are very customer focused," Lambert says, noting that the bank has won awards for customer service.

"We were interested in the way the two companies would fit together and the way employees and customers were handled in the new company," he says.

In a statement announcing the acquisition, PNC President Joseph Guyaux said: "Sterling's strong deposit share and outstanding retail banking model make it an ideal fit for PNC. This acquisition provides a meaningful entry into several of the fastest growing Pennsylvania counties and joins our Pennsylvania markets of Harrisburg and Philadelphia to our new Greater Baltimore region."

The statement also noted that PNC believes the fraud case was confined to Equipment Finance.

The company has more than $126 billion in assets and $77.4 billion in deposits. It is one of the largest diversified financial services organizations in the country.

In addition to the Bank of Lancaster County, Sterling Financial includes Bank of Hanover, Bay First Bank, PennSterling Bank, Bank of Lebanon County, Pennsylvania State Bank and Delaware Sterling Bank & Trust Company.

It also operates fleet and equipment leasing unit Town & Country Leasing. It also offers trust, investment and brokerage services through Sterling Financial Trust Company, Church Capital Management LLC and Bainbridge Securities.

CONTACT US: jholahan@LNPnews.com