<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
_____________________________________________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
_____________________________________________________________
For Quarter Ended Commission File No. 0-16444
September 30, 1994
SHORELINE FINANCIAL CORPORATION
_______________________________________________________
(Exact name of registrant as specified in its charter)
Michigan 38-2758932
_______________________________ __________________
(State or Other jurisdiction of IRS Employer
incorporation or organization) Identification No.
823 Riverview Drive
Benton Harbor, Michigan 49022 49022
______________________________________ __________________
(address of principal executive office Zip Code
Registrant's telephone number, including area code: (616)927-
2251
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
_________ _________
As of September 30, 1994 there were 4,980,436 issued and
outstanding shares of the registrant's Common Stock.
<PAGE>
SHORELINE FINANCIAL CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet,
September 30, 1994 and December 31, 1993. . . . . 1
Condensed Consolidated Statement of Income,
Three Months and Nine Months Ended
September 30, 1994 and 1993. . . . . . . . . . . .2
Condensed Consolidated Statement of Cash Flows,
Nine Months Ended
September 30, 1994 and 1993. . . . . . . . . . . .3
Notes to Condensed Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . .7-12
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . .13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . .14
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<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $31,996,475 $27,428,786
Federal funds sold 17,425,000 33,600,000
Total cash and cash equivalents 49,421,475 61,028,786
Investment securities held to maturity
(Approximate market values of $40,902,000
and $122,771,000 at September 30, 1994 and
December 31, 1993 respectively) 40,963,103 118,450,871
Investment securities available for sale
(Approximate market value of $13,195,000
at December 31, 1993) 89,425,929 12,499,969
Loans:
Commercial 199,022,052 194,083,141
Consumer 60,189,953 58,820,606
Real Estate 174,971,708 160,789,531
Total Loans 434,183,713 413,693,278
Less allowance for loan losses 5,938,389 5,586,090
Net loans 428,245,324 408,107,188
Premises and equipment-net 10,056,572 8,924,619
Other assets 11,957,353 11,608,340
Total Assets $630,069,756 $620,619,773
<CAPTION>
</TABLE>
<TABLE>
Liabilities and Shareholders' Equity
<S> <C> <C>
Liabilities
Deposits:
Non-interest-bearing $65,234,302 $66,991,766
Interest-bearing 498,438,835 490,416,878
Total deposits 563,673,137 557,408,644
Securities sold under agreements to repurchase 3,261,370 2,410,920
Other liabilities 2,467,828 3,193,090
Long-term debt 5,000,000 5,000,000
Total Liabilities 574,402,335 568,012,654
Shareholders' equity
Preferred stock, no par value;
1,000,000 shares authorized;
no shares outstanding
Common stock, par value $0:
10,000,000 shares authorized;
4,980,436 and 3,300,645 shares issued
at September 30, 1994 and December 31, 1993,
respectively -0- 3,300,645
Additional paid-in capital 45,449,340 41,684,562
Unrealized holding gains for available-
for-sale securities (279,302) -0-
Retained earnings 10,497,383 7,621,912
Total Shareholders' Equity 55,667,421 52,607,119
Total Liabilities and Shareholders' Equity $630,069,756 $620,619,773
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 1
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<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $9,184,241 $8,255,175 $26,079,704 $23,500,261
Interest on investment securities:
Taxable 1,322,034 1,335,302 3,635,597 3,938,890
Tax-exempt 700,994 705,861 2,120,304 2,234,610
Interest on federal funds sold 157,939 141,193 357,020 335,401
Total interest income 11,365,208 10,437,531 32,192,625 30,009,162
INTEREST EXPENSE
Interest on deposits 4,667,053 4,459,713 13,278,130 12,780,870
Interest on other borrowing 88,347 26,063 246,229 38,122
Total interest expense 4,755,400 4,485,776 13,524,359 12,818,992
NET INTEREST INCOME 6,609,808 5,951,755 18,668,266 17,190,170
Provision for loan losses 200,007 345,000 550,000 1,095,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,409,801 5,606,755 18,118,266 16,095,170
OTHER INCOME
Service charges on deposit accounts 494,125 471,148 1,396,303 1,281,561
Trust income 330,583 284,457 979,839 876,955
Securities gains 9,261 224,142 105,169 368,247
Other 414,634 477,615 996,132 1,115,884
Total other income 1,248,603 1,457,362 3,477,443 3,642,647
OTHER EXPENSES
Salaries and employee benefits 2,609,732 2,354,850 7,522,261 6,764,764
Occupancy expense 302,345 315,176 903,768 902,469
Equipment expense 402,109 343,236 1,199,579 959,989
Other 1,800,407 1,632,306 5,098,314 4,668,738
Total other expense 5,114,593 4,645,568 14,723,922 13,295,960
INCOME BEFORE INCOME TAXES 2,543,811 2,418,549 6,871,787 6,441,857
Federal income tax expense 629,000 605,000 1,606,000 1,446,000
NET INCOME $1,914,811 $1,813,549 $5,265,787 $4,995,857
EARNINGS PER SHARE $0.39 $0.37 $1.06 $1.02
<FN>
The accompanying notes are an integral part of these consolidated financial statements. Page 2
</TABLE>
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<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net Income $5,265,787 $4,995,857
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 978,276 844,100
Provision for loan losses 550,000 1,095,000
Net amortization and accretion on investment securities 524,409 971,044
Net amortization and accretion on securities
available-for-sale 826,502
Amortization of goodwill and related core
deposit intangible 196,750 117,652
Gains on sales of investment securities (12,360) (368,247)
Gains on sales of securities available-for-sale (92,809)
(Gains)Losses on disposal of premises and equipment 5,757 2,055
Increase in income taxes receivable (357,313) (294,000)
Increase(Decrease) in deferred loan fees 53,258 (3,056)
(Increase)Decrease in interest receivable (474,045) (455,268)
Increase(Decrease) in interest payable 90,487 (89,998)
(Increase)Decrease in other assets (347,972) (2,824,606)
Increase(Decrease) in other liabilities (38,299) 50,524
Total adjustments 1,902,641 (954,800)
Net cash from operating activities 7,168,428 4,041,057
Cash flows from investing activities:
Proceeds from sales of investment securities 9,748,893
Proceeds from sales of securities available-for-sale 11,432,672
Proceeds from maturities, calls, and principal
reductions of investment securities 14,560,586 36,728,813
Proceeds from maturities, calls, and principal
reductions of securities available-for-sale 15,709,377
Purchase of investment securities (13,256,340) (60,061,895)
Purchase of securities available-for-sale (29,553,414)
Net (increase)decrease in loans (21,300,567) (59,859,030)
Recoveries on loans charged-off 559,173 188,967
Premises and equipment expenditures (2,131,986) (1,956,329)
Proceeds from disposal of premises and equipment 16,000 21,966
Net cash from investing activities (23,964,499) (75,188,615)
Cash flows from financing activities:
Net increase(decrease) in deposits 6,264,493 60,384,057
Net increase(decrease) in borrowed funds 850,450 6,657,293
Dividends paid (2,390,316) (2,050,974)
Proceeds from shares issued under dividend
reinvestment plan 370,348 290,758
Proceeds from shares issued under stock option plan 93,785 182,118
Net cash from financing activities 5,188,760 65,463,252
Net change in cash and cash equivalents (11,607,311) (5,684,306)
Cash and cash equivalents at beginning of year 61,028,786 44,169,395
Cash and cash equivalents at September 30 $49,421,475 $38,485,089
Cash paid during the year for:
Interest $13,433,872 $12,908,990
Income taxes $1,927,817 $1,740,000
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
Page 3
</TABLE>
<PAGE>
SHORELINE FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with instructions for Form 10-Q and,
therefore, do not include all disclosures required by generally
accepted accounting principles for complete presentation of financial
statements. In the opinion of management, the condensed consolidated
financial statements contain all adjustments necessary to present
fairly the financial condition of Shoreline Financial Corporation as of
September 30, 1994 and December 31, 1993, and the results of its
operation for the nine months ended September 30, 1994 and 1993, and
its cash flows for the nine months then ended. The results of
operations for the nine months ended September 30, 1994 are not
necessarily indicative of the result to be expected for the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Shoreline Financial Corporation and its wholly owned subsidiary,
Shoreline Bank. All material intercompany accounts and transactions
have been eliminated in consolidation.
Investments in Debt and Equity Securities
As of January 1, 1994, the Corporation changed its accounting for debt
(and equity) securities to adopt new accounting guidance, SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, securities are classified into held-to-maturity,
available-for-sale, and trading categories. Held-to-maturity
securities are those which the Corporation has the positive intent and
ability to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are those which the Corporation may
decide to sell if needed for liquidity, asset-liability management, or
other reasons. Available-for-sale securities are reported at fair
value, with unrealized gains or losses included as a separate component
of equity, net of tax. Trading securities are bought principally for
sale in the near term, and are reported at fair value with unrealized
gains or losses included in earnings. The Corporation did not hold any
securities considered for this category at any time during the third
quarter of 1994.
The effect of adopting this new accounting guidance was to increase
equity at January 1, 1994 by approximately $2.4 million.
Realized gains or losses are determined based on the amortized cost of
the specific security sold.
During the nine month period ended September 30, 1994, the proceeds
from sales of available-for-sale securities were $11,432,675, with
gross realized gains of $154,193 and gross realized losses of $61,384
from those sales. For this period, the change in net unrealized
holding gains on available-for-sale securities was a decrease of $ 2.8
million. There were no sales or transfers of securities classified as
held-to-maturity.
Page 4
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Intangible Assets
Goodwill represents the excess of the purchase price over the net value
of tangible assets acquired and related core deposit intangibles
identified in branch acquisitions. Goodwill is being amortized on a
straight-line basis for a period of 10 years. The related core deposit
intangibles are amortized on an accelerated basis over the estimated
life of the deposits acquired. Goodwill totaled $232,244 and $262,103
at September 30, 1994 and December 31, 1993 respectively. Core deposit
intangibles totaled $2,426,673 and $2,593,564 at September 30, 1994 and
December 31, 1993, respectively. These amounts are included in Other
Assets in the accompanying balance sheet.
Employee Benefits
The Corporation sponsors a postretirement health care plan that covers
both salaried and nonsalaried employees. Effective January 1, 1993,
the Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 106 which requires the accrual, during the
years that employees render the necessary service, of the expected cost
of providing those benefits to employees and their beneficiaries and
covered dependents. The Corporation's postretirement health care plan
provides that retired employees may remain on the Corporation's health
care plan with each retiree's out-of-pocket contribution to the
Corporation equal to their premium expense determined exclusively on
the loss experience of the retirees in the plan.
Income Taxes
Effective January 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Accordingly, income tax expense for the quarter ended
September 30, 1994 and 1993 is based upon the liability method.
Certain income tax and expense items are reported in different time
periods for tax purposes. Deferred or prepaid taxes are recorded in
the balance sheet for these temporary differences.
Earnings Per Share
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding and common equivalent
shares with a dilutive effect. On February 17, 1993, the Board of
Directors declared a five percent stock dividend payable April 1, 1993
to shareholders of record on March 16, 1993. On February 16, 1994, the
Board of Directors declared a three-for-two stock split, effective May
31, 1994 to shareholders of record on May 16, 1994. Common equivalent
shares are shares which may be issuable to employees upon exercise of
outstanding stock options. The average number of shares was 4,975,415
in the third quarter of 1994, and 4,916,853 in the third quarter of
1993. The average number of shares was 4,966,377 in the nine months
ended September 30, 1994, and 4,911,451 in the nine months ended
September 30, 1993.
Page 5
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NOTE 2 - Income Taxes
Components for the provision of federal income taxes are as follows:
September 30, 1994
Taxes currently payable $ 1,909,000
Deferred tax benefit (303,000)
Income tax expense $ 1,606,000
The deferred income taxes are due primarily to the temporary
differences related to depreciation, bad debt deductions and deferred
loan fees.
The difference between the provision for income taxes shown on the
statement of income and amounts computed by applying the statutory
federal income tax rate to income before tax expense is as follows:
September 30, 1994
Income tax calculated at statutory federal rate of 34% $ 2,336,500
Increase(decrease) due to tax effect of
Tax-exempt income (820,000)
Nondeductible expense and other 89,500
Income tax expense $ 1,606,000
The components of the net deferred tax asset recorded in the balance
sheet as of September 30, 1994 are as follows:
Total deferred tax liabilities $ (518,000)
Total deferred tax assets 2,323,000
Total valuation allowance -0-
Net deferred tax asset $ 1,805,000
Page 6
<PAGE>
SHORELINE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition:
On September 30, 1994, total deposits amounted to $563.7 million,
representing an increase of $15.8 million over total deposits on June
30, 1994. Total deposits averaged $554.8 million during the third
quarter of 1994 which compares with average deposits of $551.4 million
during the second quarter of 1994. While modest growth of $3.4 million
was realized during the third quarter, a slight change in the mix of
deposits from interest-bearing transaction accounts (NOW and Money
Market Accounts) to savings and time deposits was experienced.
Shoreline's time deposit balances have increased slightly during the
second and third quarters of 1994, halting the trend of declines
experienced during the fourth quarter of 1993 and the first quarter of
1994.
Total loans amounted to $434.2 million on September 30, 1994. This
is an increase of $4.3 million and $20.5 million from June 30, 1994 and
December 31, 1993, respectively. The third quarter's growth in total
loans was seen primarily in the mortgage loan portfolio. Mortgage loans
totaled $174.9 million on September 30, 1994 which compares to $168.4
million on June 30, 1994. Mortgage loans averaged $171.4 million during
the third quarter of 1994. Increased originations of mortgage loans
deemed appropriate for portfolio accounted for this increase. On
September 30, 1994, total loans classified as held-for-sale amounted to
$6.6 million, an increase over previous quarters due primarily to the
pending sale of Shoreline's student loan portfolio of approximately
$4.3 million. This sale is anticipated to be consummated during the
fourth quarter of 1994. Average commercial loans experienced a slight
decline during the third quarter while consumer loan totals remained
relatively stable.
Total investment securities amounted to $130.4 million on
September 30, 1994. This represents a decline of $3.9 million from June
30, 1994, primarily the result of paydowns received on mortgage-backed
US Government Agency securities classified as available-for-sale. On
September 30, 1994, investment securities available-for-sale totaled
$89.4 million compared to the June 30, 1994 total of $96.4 million.
Federal funds sold totaled $17.5 million on September 30, 1994 and
averaged $14.1 million during the third quarter of 1994. This amount
represents 2.3% of average total assets during this quarter.
At September 30, 1994, non-performing assets (loans contractually
past due 90 days or more, on non-accrual status, "troubled debt
restructurings" and other real estate owned) totaled $3.1 million. This
represents .70% of total loans. This ratio was .83%, .81% and 1.31% at
June 30, 1994, March 31, 1994 and December 31, 1993, respectively.
During the third quarter of 1994, Shoreline experienced net recoveries
of charged-off loans in the amount of $299,651. The recovery of a large
commercial loan charged-off during the second quarter of 1994 produced
this result. On a year-to-date basis, net charge-offs amount to
$197,697, which represents approximately .05% of Shoreline's average
loan portfolio.
Page 7
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Completed Transactions:
On May 28, 1994, Shoreline Financial Corporation's subsidiary
banks, Inter-City Bank and Citizens Trust and Savings Bank consummated
its announced merger resulting in a single bank named Shoreline Bank.
This transaction did not impact the presentation of the consolidated
financial statements of Shoreline Financial Corporation.
Future Transactions:
The Corporation previously announced agreements to purchase the
South Haven, Michigan branch from Great Lakes Bancorp and the
Adamsville, Michigan branch from Old Kent Bank. Deposits of these two
branches total approximately $22 million. Delays encountered in the
regulatory approval process have changed the anticipated closing of
these transactions to the first quarter of 1995.
Liquidity and Rate Sensitivity:
During the third quarter of 1994, Shoreline's loan to deposit
ratio was 77.8%. This is a slight increase over the second quarter's
ratio of 77.4%. As noted above, federal funds sold represented 2.3% of
Shoreline's total assets during the third quarter of 1994. This
compares with the previous quarter's ratio of 1.4%. As of September 30,
1994, Shoreline had commitments to make or purchase loans, including
the unused portion of lines of credit, totalling $78.7 million.
As of September 30, 1994, the cumulative funding gaps of interest-
earning assets and interest-bearing liabilities for selected maturity
periods are illustrated as follows:
Repriceable or Maturing Within:
0 to 3 0 to 12 0 to 5
(In thousands) Months Months Years
Interest-earning assets
Loans $183,194 $251,044 $343,397
Investment securities 13,655 38,803 113,471
Federal funds sold 17,425 17,425 17,425
Total 214,274 307,272 474,293
Repriceable or Maturing Within:
0 to 3 0 to 12 0 to 5
(In thousands) Months Months Years
Interest-bearing liabilities
Time deposits 56,980 160,741 248,586
Money market accounts 62,405 62,405 62,405
Demand and savings 186,459 186,459 186,459
Other borrowings 3,261 3,261 3,261
Total 309,105 412,866 500,711
Asset/(Liability) Gap $(94,831) $(105,594) $(26,418)
Page 8
<PAGE>
Interest-bearing demand and savings accounts subject to immediate
withdrawal are included in the 0-3 month category. While these accounts
may be withdrawn at the discretion of the customer and may be repriced
at the discretion of management, it is felt that these type of accounts
are not as sensitive to changes in interest rates in the short term.
Therefore, management believes the liability gaps shown in the 3 and 12
month categories above distort the more realistic gap position of the
Corporation. This belief is supported by the change in the
Corporation's net interest margin during 1994. During the fourth
quarter of 1993, Shoreline's net interest margin was 4.38%. The
following three quarters the Corporation's net interest margin was
4.33%, 4.68% and 4.83%. This general improvement in the net interest
margin followed the overall increase in rates during this same time
period, (i.e Shoreline's prime rate increased from 6.00% in the first
quarter 1994 to 7.75% in the third quarter of 1994) demonstrating a
sensitivity on the asset side of the balance sheet.
Capital Resources:
Shareholders' equity totaled $55.7 million on September 30, 1994.
Included in this total is $279,302 of net unrealized losses on
available-for-sale securities. On September 15, 1994, the Corporation
paid a cash dividend of $.16 per share. A summary of the Corporation's
capital position follows:
September 30, 1994 December 31, 1993
Without With
unrealized unrealized
holding holding
losses losses
Equity to assets 8.88% 8.84% 8.50%
Leverage ratio 8.49% 8.45% 8.05%
Risk-based capital:
Tier 1 Capital 13.31% 13.24% 12.90%
Total Capital 14.56% 14.49% 14.15%
Results of Operations:
Net income for the three months ended September 30, 1994 was
$1,914,811, an increase of 5.6 percent over the same period in 1993.
Year-to-date, net income stands at $5,265,787, which compares to net
income through September 30, 1993 of $4,995,857 or an increase of 5.4
percent. Increased net interest income continues to drive the increase
in net income. Through September 30th, net interest income is
$1,478,000 greater in 1994 than through the same time period in 1993.
The following tables will illustrate the effect that changes in rates
and volumes of earning assets and interest-bearing liabilities had on
net interest income:
Page 9
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
1994 1993
Interest income (taxable equivalent) $ 11,774 $ 10,856
Interest expense 4,755 4,486
Net interest income $ 7,019 $ 6,370
Average Volume:
Interest-earning assets $576,595 $550,784
Interest-bearing liabilities 500,212 473,687
Net differential $ 76,383 $ 77,097
Average Yields/Rates
Yield on earning assets 8.10% 7.88%
Rate paid on liabilities 3.77% 3.79%
Interest spread 4.33% 4.09%
Net interest margin 4.83% 4.59%
The change in net interest income (in thousands) is attributable to the
following:
Net
Volume Rate Inc/(Dec)
Interest-earning assets $ 575 $ 343 $ 918
Interest-bearing liabilities 290 ( 21) 269
Net interest $ 285 $ 364 $ 649
Page 10
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
1994 1993
Interest income (taxable equivalent) $ 33,322 $ 31,327
Interest expense 13,524 12,819
Net interest income $ 19,798 $ 18,508
Average Volume:
Interest-earning assets $573,382 $514,883
Interest-bearing liabilities 498,182 440,598
Net differential $ 75,200 $ 74,285
Average Yield/Rates:
Yield on earning assets 7.75% 8.08%
Rate paid on liabilities 3.62% 3.87%
Interest spread 4.11% 4.21%
Net interest margin 4.60% 4.76%
The change in net interest income (in thousands) is attributable to the
following:
Net
Volume Rate Inc/(Dec)
Interest-earning assets $ 3,342 $(1,347) $ 1,995
Interest-bearing liabilities 1,577 ( 872) 705
Net interest $ 1,765 $( 475) $ 1,290
The provision for loan losses for the quarter ended September 30,
1994 totaled $200,007 which compares to the prior year's provision for
the third quarter of $345,000. On a year-to-date basis, 1994's
provision for loan losses stands at $550,000, a reduction of $545,000
from the same time period in 1993. The provision for loan losses is
based upon loan loss experience and other factors which, in
management's judgment, deserve current recognition in maintaining an
adequate allowance for loan losses. 1994's decline in non-performing
assets coupled with continued favorable experience in net-charge offs
(described in Financial Condition section above) helped to support the
reduction in 1994's provision for loan losses. Despite this decline in
the provision, the allowance for loan losses as a percentage of total
loans has remained stable. At September 30, 1993, this ratio was 1.35%.
At September 30, 1994, the ratio was 1.37%.
Page 11
<PAGE>
Total other income for the third quarter of 1994 amounted to
$1,248,603, a decrease of $208,759 or 14.3% from the prior year's
quarter. Investment security transaction income accounted for the
majority of this variance. Net gains from investment security
transactions amounted to only $9,261 during the third quarter of 1994
which compares to $224,142 of gains realized during the third quarter
of 1993. Reduced gains on the sale of mortgage loans during the third
quarter in comparison to the prior year accounted for the negative
comparison of other operating income. Other operating income amounted
to $414,634 for the quarter ended September 30, 1994, a reduction of
$62,981 or 13.2% from the prior year.
On a year-to-date basis, total other operating income amounted to
$3,477,443, a reduction of $165,204 or 4.5% from the previous year.
In comparison to the prior year, reduced gains on the sale from
investment securities and reduced gains from the sale of mortgage loans
year offset the increased income realized in the deposit service charge
and trust income areas.
Total other expense amounted to $5,114,593 during the third
quarter of 1994, an increase of $469,025 or 10.1 percent over the same
period in 1993. Salaries and benefits totaled $2,609,732 in the third
quarter of 1994, compared to $2,354,850 in the third quarter of 1993,
an increase of $254,882 or 10.8%. Increased salary expense accounted
for only $22,871 of this increase with increased benefits accounting
for the remainder. Increased group insurance and pension expense
produced the increase in benefits. Occupancy and equipment expense
totaled $704,454 during the third quarter of 1994, an increase of
$46,042 or 7.0% over the previous year. Increased equipment
depreciation expense accounted for the majority of this increase. Other
expense totaled $1,800,407 for the three months ended September 30,
1994. This represents an increase of $168,101 or 10.3% over the three
months ended September 30, 1993. Increased advertising and supplies
expense related to the merger of Shoreline's affiliate banks accounted
for this increase. The increased level of expenses during the third
quarter of 1994 raised Shoreline's overhead to average assets ratio to
3.29% from 3.19% in the second quarter of 1994.
For the nine months ended September 30, 1994, total other expense
amounted to $14,723,922. This represents an increase of 10.7% over the
same period in 1993. Increased expenses associated with the 1993 branch
acquisitions as well as expenses related to the merger of Shoreline's
affiliate banks has produced this increase. However, as a percentage of
average assets, Shoreline's year-to-date overhead ratio has declined
slightly from 3.21% in 1993 to 3.19% in 1994.
In summary, Shoreline's net income for the third quarter of 1994
produced a return on average shareholders' equity of 13.65% and a
return on average assets of 1.22%. This compares to the prior year's
ratios of 14.11% and 1.21%. On a year-to-date basis, Shoreline's return
on average shareholders' equity stands at 12.86% and its return on
average assets is 1.14%. 1993's ratios were 13.29% and 1.20%.
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SHORELINE FINANCIAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Shoreline's subsidiaries are parties, as plaintiff
or defendant, to a number of legal proceedings, none
of which is considered material, and all of which
arise in the normal course of their operations.
Item 2. Changes in Rights of Company's Security Holders
Not Applicable
Item 3. Defaults by the Company on its Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Materially Important Events
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Not Applicable
(b) No reports on Form 8-K have been filed during
the quarter.
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<PAGE>
SHORELINE FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirement 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.
Shoreline Financial Corporation
_______________________________
Registrant
11/14/94 Dan L. Smith
Date______________ ______________________________________
Dan L. Smith
Chairman, President and CEO
11/14/94 Wayne R. Koebel
Date______________ ______________________________________
Wayne R. Koebel
EVP, Chief Financial Officer
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