<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
June 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 June 30, 1994 there were 4,974,072 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,
June 30, 1994 and December 31, 1993. . . . . . . .1
Condensed Consolidated Statement of Income,
Three Months and Six Months Ended
June 30, 1994 and 1993. . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Cash Flows,
Three Months and Six Months Ended
June 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 . . . . . . . . . . . . . . 13-14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Assets
cash and due from banks $27,875,343 $27,428,786
Federal funds sold 5,700,000 33,600,000
Total cash and cash equivalents 33,575,343 61,028,786
Investment securities held to maturity
(Approximate market values of $38,382,000
and $122,771,000 at June 30, 1994 and
December 31, 1993 respectively) 37,885,584 118,450,871
Investment securities available for sale
(Approximate market value of $13,195,000
at December 31, 1993) 96,380,260 12,499,969
Loans:
Commercial 201,488,090 194,083,141
Consumer 60,027,398 58,820,606
Real Estate 168,350,726 160,789,531
Total Loans 429,866,214 413,693,278
Less allowance for loan losses 5,438,731 5,586,090
Net loans 424,427,483 408,107,188
Premises and equipment-net 9,995,172 8,924,619
Other assets 11,129,672 11,608,340
Total Assets $613,393,514 $620,619,773
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest-bearing $59,552,809 $66,991,766
Interest-bearing 488,356,521 490,416,878
Total deposits 547,909,330 557,408,644
Securities sold under agreements to repurchase 2,855,561 2,410,920
Other liabilities 2,524,849 3,193,090
Long-term debt 5,000,000 5,000,000
Total Liabilities 558,289,740 568,012,654
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;
4,974,072 and 3,300,645 shares issued
at June 30, 1994 and December 31, 1993,
respectively 0 3,300,645
Additional paid-in capital 45,332,968 41,684,562
Unrealized holding gains for available-
for-sale securities 392,383 0
Retained earnings 9,378,423 7,621,912
Total Shareholders' Equity 55,103,774 52,607,119
Total Liabilities and Shareholders' Equity $613,393,514 $620,619,773
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
Page 1
</TABLE>
<PAGE>
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $8,772,278 $7,646,381 $16,895,463 $15,245,086
Interest on investment securities:
Taxable 1,220,054 1,235,884 2,313,563 2,603,588
Tax-exempt 726,118 741,911 1,419,310 1,528,749
Interest on federal funds sold 80,606 107,410 199,081 194,208
Total interest income 10,799,056 9,731,586 20,827,417 19,571,631
INTEREST EXPENSE
Interest on deposits 4,371,590 4,112,891 8,611,077 8,321,157
Interest on other borrowing 83,665 5,720 157,882 12,059
Total interest expense 4,455,255 4,118,611 8,768,959 8,333,216
NET INTEREST INCOME 6,343,801 5,612,975 12,058,458 11,238,415
Provision for loan losses 174,993 375,000 349,993 750,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,168,808 5,237,975 11,708,465 10,488,415
OTHER INCOME
Service charges on deposit accounts 482,805 431,951 902,178 810,413
Trust income 305,454 300,043 649,256 592,498
Securities gains (1,064) 104,687 95,908 144,105
Other 227,711 365,858 581,498 638,269
Total other income 1,014,906 1,202,539 2,228,840 2,185,285
OTHER EXPENSES
Salaries and employee benefits 2,502,464 2,235,365 4,912,529 4,409,914
Occupancy expense 297,112 288,613 601,423 587,293
Equipment expense 396,975 315,465 797,470 616,753
Other 1,723,029 1,568,959 3,297,907 3,036,432
Total other expense 4,919,580 4,408,402 9,609,329 8,650,392
INCOME BEFORE INCOME TAXES 2,264,134 2,032,112 4,327,976 4,023,308
Federal income tax expense 522,000 445,000 977,000 841,000
NET INCOME $1,742,134 $1,587,112 $3,350,976 $3,182,308
EARNINGS PER SHARE $0.35 $0.32 $0.67 $0.65
<FN>
The accompanying notes are an integral part of these consolidated financial statements. Page 2
</TABLE>
<PAGE>
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net Income $3,350,976 $3,182,308
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 646,964 551,961
Provision for loan losses 349,993 750,000
Net amortization and accretion on investment securities 430,209 518,001
Net amortization and accretion on securities
available-for-sale 643,934
Amortization of goodwill and related core
deposit intangible 131,164 55,940
Gains on sales of investment securities 0 (146,105)
Gains on sales of securities available-for-sale (95,898)
(Gains)Losses on disposal of premises and equipment 5,910 (1,181)
Increase in income taxes receivable (251,436) (979,000)
Increase(Decrease) in deferred loan fees 42,593 4,673
(Increase)Decrease in interest receivable (273,663) (45,649)
Increase(Decrease) in interest payable 38,295 (124,293)
(Increase)Decrease in other assets (1,106) 1,192,119
Increase(Decrease) in other liabilities (34,964) (176,606)
Total adjustments 1,631,995 1,599,860
Net cash from operating activities 4,982,971 4,782,168
Cash flows from investing activities:
Proceeds from sales of investment securities 0 4,807,662
Proceeds from sales of securities available-for-sale 6,315,023
Proceeds from maturities, calls, and principal
reductions of investment securities 11,203,747 23,804,546
Proceeds from maturities, calls, and principal
reductions of securities available-for-sale 11,352,288
Purchase of investment securities (7,005,418) (33,321,511)
Purchase of securities available-for-sale (25,564,369)
Net (increase)decrease in loans (16,852,533) (11,026,315)
Recoveries on loans charged-off 139,652 111,473
Premises and equipment expenditures (1,739,427) (774,540)
Proceeds from disposal of premises and equipment 16,000 25,203
Net cash from investing activities (22,135,037) (16,373,482)
Cash flows from financing activities:
Net increase(decrease) in deposits (9,499,314) 9,551,421
Net increase(decrease) in borrowed funds 444,641 382,665
Dividends paid (1,594,465) (1,359,847)
Proceeds from shares issued under dividend
reinvestment plan 253,976 0
Proceeds from shares issued under stock option plan 93,785 345,178
Net cash from financing activities (10,301,377) 8,919,417
Net change in cash and cash equivalents (27,453,443) (2,671,897)
Cash and cash equivalents at beginning of year 61,028,786 44,169,395
Cash and cash equivalents at June 30 $33,575,343 $41,497,498
Cash paid during the year for:
Interest $8,830,489 $8,457,509
Income taxes $1,228,436 $1,090,000
<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
June 30, 1994 and December 31, 1993, and the results of its operation
for the six months ended June 30, 1994 and 1993, and its cash flows for
the six months then ended. The results of operations for the six
months ended June 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 second
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 six month period ended June 30, 1994, the proceeds from
sales of available-for-sale securities were $6,315,023, with gross
realized gains of $126,372 and gross realized losses of $30,474 from
those sales. For this period, the change in net unrealized holding
gains on available-for-sale securities was a decrease of $ 2.01
million. There were no sales or transfers of securities classified as
held-to-maturity.
Page 4
<PAGE>
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 $242,198 and $262,103
at June 30, 1994 and December 31, 1993 respectively. Core deposit
intangibles totaled $2,482,305 and $2,593,564 at June 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
June 30, 1994 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 4,968,688
in the second quarter of 1994, and 4,911,322 in the second quarter of
1993. The average number of shares was 4,961,781 in the six months
ended June 30, 1994, and 4,908,702 in the six months ended June 30,
1993.
<PAGE>
SHORELINE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition:
On June 30, 1994, Shoreline's deposits totaled $547.9 million,
which represents an increase of $7.7 million from March 31, 1994. Total
deposits amounted to $557.4 million at December 31, 1993. Shoreline has
experienced continued success with its premium savings account the
"Capital Club". Total balances in this product increased $16.9 million
from March 31, 1994 to June 30, 1994. This more than helped to offset
declines of $2.8 million, $4.1 million and $3.3 million in non-interest
bearing demand, money market and NOW account balances, respectively.
Time deposit balances increased $2.0 million from March 31, 1994, the
first increase over the past four quarters. With the change in market
conditions during the second quarter of 1994, management believes that
many investors are beginning to find bank certificates a more
attractive alternative. In addition, Shoreline began to market
certificate of deposit products more aggressively during the second
quarter of 1994. Delays in the regulatory approval process of
Shoreline's proposed branch acquisitions (discussed below), combined
with increased loan demand, prompted management to become more
aggressive in this area.
Total loans amounted to $429.9 million at June 30, 1994, which
represents an increase of $10.7 million from March 31, 1994. For the
six months ended June 30, 1994, total loans have increased $16.2
million or 3.9%. Growth in the mortgage loan area provided $7.3 million
of the increase in total loans from March 31, 1994. An increase in
originations of loans deemed appropriate to hold in portfolio accounted
for this increase. At June 30, 1994, there were no loans classified as
held for sale.
Total investment securities amounted to $134.3 million at June 30,
1994, a decrease of $5.0 million from March 31, 1994. A decline in US
Government Agency securities of $4.2 million resulted primarily from
principal reductions on mortgage-backed securities. Federal funds sold
totaled $5.7 million at June 30, 1994, which compares to the March 31,
1994 total of $4.2 million. At December 31, 1993, the Corporation held
an unusually high amount of dollars in Federal funds sold, which was
liquidated during the first quarter of 1994.
At June 30, 1994, non-performing assets (loans on a non-accrual
status, contractually past due 90 days or more, "troubled debt
restructurings" and other real estate owned) totaled $3.6 million. This
represents .83 percent of Shoreline's total loan portfolio. At December
31, 1993 and March 31, 1994 this ratio was 1.31 percent and .81
percent, respectively. During the second quarter of 1994, the
Corporation experienced net charge-offs of approximately $409,000 which
brought the year-to-date total to $497,000 or .12 percent of average
total loans. Increased consumer loan charge-offs and a large commercial
loan charge-off accounted for the second quarter's activity.
Aggressive recovery efforts are in process related to these charged-off
Page 7
<PAGE>
credits. The increase in charge-offs combined with the growth in loans
during the second quarter caused the Corporation's allowance for loan
losses as a percent of total loans to decline slightly from 1.36
percent at March 31, 1994 to 1.27 percent at June 30, 1994.
Completed Transactions:
Effective 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 $25 million. Delays encountered in the
regulatory approval process have changed the anticipated closing of
these transactions from the third quarter of 1994 to the fourth quarter
of 1994.
Liquidity and Rate Sensitivity:
During the second quarter of 1994, Shoreline's loan to deposit
ratio was 77.4 percent. This compares with the first quarter's ratio of
76.0 percent. Federal funds sold, the Corporation's most liquid asset,
averaged $8.6 million or 1.4 percent of total average assets in the
second quarter. This ratio was 2.8 percent in the first quarter of
1994. As of June 30, 1994, Shoreline had commitments to make or
purchase loans, including the unused portion of lines of credit,
totalling $71.1 million.
As of June 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 $184,743 $250,844 $369,413
Investment securities 22,030 52,244 107,684
Federal funds sold 5,700 5,700 5,700
Total 212,473 308,788 482,797
Page 8
<PAGE>
Repriceable or Maturing Within:
0 to 3 0 to 12 0 to 5
(In thousands) Months Months Years
Interest-bearing liabilities
Time deposits 52,183 159,230 246,044
Money market accounts 63,940 63,940 63,940
Demand and savings 176,611 176,611 176,613
Other borrowings 2,856 2,856 7,856
Total 295,590 402,637 494,453
Asset/(Liability) Gap $(83,117) $(93,849) $(11,656)
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 the second quarter of 1994. Shoreline's net
interest margin was 4.68 percent in the second quarter of 1994 as
compared to the 4.33 percent realized in the first quarter of 1994. The
increase in overall interest rates experienced during the second
quarter helped to produce this corresponding improvement in the net
interest margin.
Capital Resources:
Total shareholders' equity amounted to $55.1 million at June 30,
1994. As a result of rising interest rates, the Corporation experienced
a decline in the Net Unrealized Gains on Available-For-Sale Securities
portion of its equity of approximately $847,000 during the second
quarter. This component of equity totaled $392,000 at June 30, 1994. A
summary of the Corporation's capital position follows:
June 30, 1994 December 31, 1993
Without With
unrealized unrealized
holding holding
gains gains
Equity to assets 8.92% 8.98% 8.50%
Leverage ratio 8.51% 8.58% 8.05%
Risk-based capital:
Tier 1 Capital 13.08% 13.18% 12.90%
Total Capital 14.33% 14.43% 14.15%
Page 9
<PAGE>
Shareholders approved at its annual meeting on May 5, 1994 an
increase to authorized no par capital stock from 5,000,000 to
10,000,000 shares. This approval allowed for the payment of a three-
for-two stock split on May 31, 1994. Subsequently, on June 15, 1994,
the Corporation paid a cash dividend of $.16 per share.
Results of Operations:
Net income for the three months ended June 30, 1994 was $1,742,134,
an increase of 9.8 percent over the same period in 1993. Year-to-date,
net income is $3,350,976, which compares to net income through June 30,
1993 of $3,182,308 or an increase of 5.3 percent. Increased net
interest income has significantly contributed to the increased earnings
over the prior year. For the six months ended June 30, 1994, net
interest income is $820,043 or 7.3 percent greater than at June 30,
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:
THREE MONTHS ENDED JUNE 30
(Dollars in Thousands)
1994 1993
Interest income (taxable equivalent) $ 11,173 $ 10,168
Interest expense 4,455 4,119
Net interest income $ 6,718 $ 6,049
Average Volume:
Interest-earning assets $574,194 $497,920
Interest-bearing liabilities 497,747 425,615
Net differential $ 76,447 $ 72,305
Average Yields/Rates
Yield on earning assets 7.78% 8.17%
Rate paid on liabilities 3.58% 3.87%
Interest spread 4.20% 4.30%
Net interest margin 4.68% 4.82%
The change in net interest income (in thousands) is attributable to the
following:
Net
Volume Rate Inc/(Dec)
Interest-earning assets $ 1,506 $ (501) $ 1,005
Interest-bearing liabilities 659 (323) 336
Net interest $ 847 $ (178) $ 669
Page 10
<PAGE>
SIX MONTHS ENDED JUNE 30
(Dollars in Thousands)
1994 1993
Interest income (taxable equivalent) $ 21,589 $ 20,383
Interest expense 8,769 8,333
Net interest income $ 12,820 $ 12,050
Average Volume:
Interest-earning assets $568,510 $493,849
Interest-bearing liabilities 487,020 422,491
Net differential $ 81,490 $ 71,358
Average Yield/Rates:
Yield on earning assets 7.59% 8.25%
Rate paid on liabilities 3.58% 3.94%
Interest spread 4.01% 4.31%
Net interest margin 4.51% 4.88%
The change in net interest income (in thousands) is attributable to the
following:
Net
Volume Rate Inc/(Dec)
Interest-earning assets $ 2,920 $(1,714) $ 1,206
Interest-bearing liabilities 1,224 ( 788) 436
Net interest $ 1,696 $( 926) $ 770
The provision for loan losses for the quarter ended June 30, 1994
totaled $174,993 which compares to the prior year's provision for the
second quarter of $375,000. On a year-to-date basis, 1994's provision
for loan losses stands at $349,993, a reduction of $400,007 over the
same time period in 1993. The provision for loan losses is based upon
loan loss experience and such other factors which, in management's
judgment, deserve current recognition in maintaining an adequate
allowance for loan losses.
Total other income for quarter ending June 30, 1994 amounted to
$1,014,906, a decrease of $187,633 or 15.6% from the prior year's
quarter. A net loss of $(1,064) on investment securities transactions
during the second quarter of 1994, compared to net gains of $104,687
in the prior year's quarter, accounted for the majority of this
decrease. In addition, other operating income declined approximately
$138,000 in comparison to the prior year. A net loss on the sale of
Page 11
<PAGE>
mortgage loans to the secondary market during the quarter of $(48,190)
compared to gain of $94,896 in the previous year created this decline.
Service charge fees on deposit accounts totaled $482,805 in the quarter
ended June 30, 1994, an increase of $50,854 or 11.8 percent over the
prior year's quarter. Increased deposits from the 1993 branch
acquisitions helped to produce this increase.
For the six months ended June 30, 1994, total other income
amounted to $2,228,840, an increase of $43,555 or 2.0 percent over the
prior year. The primary contributors to this increase included service
charge income on deposits ($91,765 or 11.3 percent greater than the
prior year) and trust income ($56,758 or 9.6 percent greater than
1993). These increases were offset by a decline in the gain on
investment securities transactions of $48,197 from the prior year and a
decline in the level of gains on the sale of mortgage loans of
$139,941. The rise in interest rates that occurred during the first
half of 1994 decreased the level of profitability on the sale of these
assets.
Total other expense amounted to $4,919,580 during the second
quarter of 1994, an increase of $511,178 or 11.6 percent over the same
period in 1993. Increased occupancy, equipment and other expenses
related to the consolidation of Shoreline's two subsidiary banks during
the second quarter, as well as expenses associated with assets acquired
in the 1993 branch acquisitions, helped to cause this increase.
However, the Corporation was still able to gain some efficiencies over
the prior year as the percentage of total other expense to average
assets declined from 3.30 percent in the second quarter of 1993 to 3.19
percent in the second quarter of 1994.
For the six months ended June 30, 1994, total other expense
amounted to $9,609,329. This represents an increase of $958,937 or 11.1
percent over the prior year. As noted for the quarter, increased
expenses associated with the 1993 branch acquisitions as well
consolidation expenses accounted for the majority of this increase.
As a percentage of average assets, Shoreline has made improvement over
the prior year. For the six months ended June 30, 1994, this ratio was
3.17 percent as compared to 3.28 percent through June 30, 1993.
In summary, Shoreline's net income for the second quarter of 1994
produced a return on average shareholders' equity of 12.78 percent and
a return on average assets of 1.13 percent. This compares to the prior
year's ratios of 12.77 percent and 1.19 percent. On a year-to-date
basis, Shoreline's return on average shareholders' equity stands at
12.52 percent and its return on average assets is 1.10 percent. 1993's
ratios were 13.00 percent and 1.21 percent, respectively.
Page 12
<PAGE>
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
(a) Board of Director Election
(b) Board Approval of Amendment of Incorporation
Item 5. Other Materially Important Events
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 1(a): Amendment of Articles of
Incorporation
(b) No reports on Form 8-K have been filed during
the quarter.
Page 13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Shoreline Financial
Corporation was held on May 5, 1994. The purpose of the
meeting was to elect directors, to approve the Amendment to
the Articles of Incorporation to Increase the Number of
Authorized Shares of Common Stock, and to transact any other
business that may properly come before the meeting.
(a) The name of each director elected (along with the number
of votes cast for or against) and the name of each other
director whose term of office as a director continued after
the meeting follows:
---------Votes Cast-----------
For Against
Elected Directors
Louis A. Desenberg 2,733,763.664 62,753.336
Merlin Hanson 2,727,273.152 69,243.848
Ronald F. Kinney 2,730,630.318 65,886.682
Harry C. Vorys 2,738,271.176 58,245.824
Directors Who Continue to Serve
James E. LaBlanc James F. Murphy
Thomas T. Huff Robert L. Starks
L. Richard Marzke Dan L. Smith
Hyman Warshawsky Ronald L. Zile
(b) The number of votes cast for or against the Amendment to
the Articles of Incorporation to Increase the Number of
Authorized Shares of Common Stock are as follows:
---------Votes Cast-----------
For Against
2,786,107.153 2,322.2104
Page 14
<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
Date______________ ______________________________________
Dan L. Smith
Chairman, President and CEO
Date______________ ______________________________________
Wayne R. Koebel
Chief Financial Officer
Page 15
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SHORELINE FINANCIAL CORPORATION
(Composite as amended through May 5, 1994)
The following Restated Articles of Incorporation
supersede the original Articles of Incorporation as
amended and shall be the Articles of Incorporation
of the corporation.
ARTICLE I
The name of the corporation is
Shoreline Financial Corporation
ARTICLE II
The purpose of the corporation is to engage in any
one or more lawful acts or activities within the
purposes for which corporations may be organized under
the Michigan Business Corporation Act.
ARTICLE III
The total authorized capital stock of the
corporation is ten million (10,000,000) shares of
common stock, all of one class with equal voting
rights, and one million (1,000,000) shares of preferred
stock.
The following provisions are applicable to the
authorized stockof the corporation:
(a) PROVISIONS APPLICABLE TO COMMON STOCK:
(i) All shares of common stock shall be of
one class. Each holder of common stock shall be
entitled to one vote for each share held by him.
(ii) Subject to the preferential dividend
rights, if any, applicable to shares of preferred
stock and subject to applicable requirements, if
any, with respect to the setting aside of sums
for purchase, retirement or sinking funds for
preferred stock, the holders of common stock
shall be entitled to receive, to the extent
permitted by law, such dividends as may be
declared from time to time by the board of
directors.
<PAGE>
(iii) In the event of the voluntary or
involuntary liquidation, dissolution,
distribution of assets or winding up of the
corporation, after distribution in full of the
preferential amounts, if any, to be distributed
to the holders of shares of preferred stock,
holders of common stock shall be entitled to
receive all of the remaining assets of the
corporation of whatever kind available for
distribution to stockholders ratably in
proportion to the number of shares of common
stock held by them. The board of directors may
distribute in kind to the holders of common stock
such remaining assets of the corporation or may
sell, transfer or otherwise dispose of all or any
part of such remaining assets to any person and
may sell all or any part of the consideration so
received and distribute any balance thereof in
kind to holders of common stock. The merger or
consolidation of the corporation into or with any
other corporation, or the merger of any other
corporation into it, or any purchase or
redemption of shares of stock of the corporation
of any class, shall not be deemed to be a
dissolution, liquidation or winding up of the
corporation for the purposes of this paragraph.
(b) PROVISIONS APPLICABLE TO PREFERRED STOCK:
(i) Provisions to be Fixed by the Board
Directors:
The board of directors is expressly
authorized at any time, and from time to time, to
provide for the issuance of shares of preferred
stock in one or more series, each with such
voting powers, full or limited, or without voting
powers, and with such designations, preferences
and relative, participating, conversion, optional
or other rights, and such qualifications,
limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing
for the issue thereof adopted by the board of
directors, and as are not stated in these
Articles, or any amendments thereto, including
(but without limiting the generality of the
foregoing) the following:
-2-
<PAGE>
(1) The distinctive designation and
number of shares comprising such series,
which number may (except where otherwise
provided by the board of directors in
creating such series) be increased or
decreased (but not below the number of
shares then outstanding) from time to time
by action of the board of directors.
(2) The dividend rate or rates on the
shares of such series and the relation which
such dividends shall bear to the dividends
payable on any other class of capital stock
or on any other series of preferred stock,
the terms and conditions upon which and the
periods in respect of which dividends shall
be payable, whether and upon what conditions
such dividends shall be cumulative and, if
cumulative, the date or dates from which
dividends shall accumulate.
(3) Whether the shares of such series
shall be redeemable, and, if redeemable,
whether redeemable for cash, property or
rights, including securities of any other
corporation, and whether redeemable at the
option of the holder or the corporation or
upon the happening of a specified event, the
limitations and restrictions with respect to
such redemption, the time or times when, the
price or prices or rate or rates at which,
the adjustments with which and the manner in
which such shares shall be redeemable,
including the manner of selecting shares of
such series for redemption if less than all
shares are to be redeemed.
(4) The rights to which the holders of
shares of such series shall be entitled,
and the preferences, if any, over any other
series (or of any other series over such
series), upon the voluntary or involuntary
liquidation, dissolution, which rights may
vary depending on whether such liquidation,
dissolution, distribution or winding up is
voluntary or involuntary, and, if volun-
tary, may vary at different dates.
(5) Whether the shares of such series
shall be subject to the operation of a
purchase, retirement or sinking fund and, if
so, whether and upon what conditions such
-3-
<PAGE>
fund shall be cumulative or noncumulative,
the extent to which and the manner in which
such fund shall be applied to the purchase
or redemption of the shares of such series
for retirement or to other corporation
purposes and the terms and provisions
relative to the operation thereof.
(6) Whether the shares of such series
shall be convertible into or exchangeable
for shares of any other class or of any
other series of any class of capital stock
of the corporation, and, if so convertible
or exchangeable, the price or prices or the
rate or rates of conversion or exchange and
the method, if any, of adjusting the same,
and any other terms and conditions of such
conversion or exchange.
(7) The voting powers, full and/or
limited, if any, of the shares of such
series, and whether and under what
conditions the shares of such series (alone
or together with the shares of one or more
other series having similar provisions)
shall be entitled to vote separately as a
single class, for the election of one or
more additional directors of the corporation
in case of dividend arrearages or other
specified events, or upon other matters.
(8) Whether the issuance of any
additional shares of such series, or of any
shares of any other series, shall be subject
to restrictions as to issuance, or as to the
powers, preferences or rights of any such
other series.
(9) Any other preferences, privileges
and powers and relative, participating,
optional or other special rights, and
qualifications, limitations or restrictions
of such series, as the board of directors
may deem advisable and as shall not be
inconsistent with the provisions of these
Articles.
(ii) Provisions Applicable to All Preferred
Stock:
(1) All preferred stock shall rank
equally and be identical in all respects
-4-
<PAGE>
except as to the matters permitted to be
fixed by the board of directors, and
all shares of any one series thereof shall
be identical in every particular except as
to the date, if any, from which dividends on
such shares shall accumulate.
(2) Shares of preferred stock redeemed,
converted, exchanged, purchased, retired or
surrendered to the corporation, or which have
been issued and reacquired in any manner,
may, upon compliance with any applicable
provisions of the Michigan Business
Corporationon Act be given the status of
authorized and unissued shares of preferred
stock and may be reissued by the board of
directors as part of the series of which they
were originally a part or may be reclassified
into and reissued as part of a new series or
as a part of any other series, all subject to
the protective conditions or restrictions of
any outstanding series of preferred stock.
ARTICLE IV
The address (which is the mailing address) of
the current regis office of the corporation is
823 Riverview Drive, Benton Harbor, Michigan 49022.
The name of the current resident agent at the
registered office is Mr. Dan L. Smith.
ARTICLE V
When a compromise or arrangement or a plan of
reorganization of this corporation is proposed between
this corporation and its creditors or any class of
them or between this corporation and its shareholders
or any class of them, a court of equity jurisdiction
within the state, on application of this corporation
or of a creditor or shareholder thereof, or on
application of a receiver appointed for the
corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class
of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a
majority in number representing three-fourths (3/4) in
value of the creditors or class of creditors, or of
the shareholders or class of shareholders to be
-5-
<PAGE>
affected by the proposed compromise or arrangement or
a reorganization, agree to a compromise or arrangement
or a reorganization of this corporation as a
consequence of the compromise or arrangement, the
compromise or arrangement and the reorganization, if
sanctioned by the court to which the application has
been made, shall be binding on all the creditors
or class of creditors, or on all the shareholders or
class of shareholders and also on this corporation.
ARTICLE VI
Members of the Board of Directors of the
corporation shall be selected, replaced, and removed
as follows:
(a) Number of Directors. The number of the
directors of the corporation shall be fixed from time
to time by resolution adopted by the affirmative vote
of at least two-thirds (2/3) of the entire Board of
Directors but shall not be less than three.
(b) Classification. The Board of Directors
shall be divided into three classes as nearly equal in
number as possible, with the term of office of one
class expiring each year. At each annual meeting of
the shareholders, the successors of the class
of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year
following the year of their election.
(c) Nominations of Director Candidates.
(i) Nominations of candidates for election
for directors of the corporation at any meeting of
shareholders called for election of directors (an
"Election Meeting") may be made by the Board of
Directors or by any stockholder entitled to vote at
such Election Meeting.
(ii) Nominations made by the Board of
Directors shall be made at a meeting of the Board of
Directors, or by written consent of the directors in
lieu of a meeting, not less than 20 days prior to the
date of the Election Meeting, and such nominations
shall be reflected in the minute books of the
corporation as of the date made.
-6-
<PAGE>
(iii) Any shareholder who intends to make
a nomination at the Election Meeting shall deliver,
not less than 120 days prior to the date of the
Election Meeting in the case of an annual meeting, and
not more than 7 days following the date of notice of
the meeting in the case of a special meeting, a notice
to the Secretary of the corporation setting forth
(1) the name, age, business address and residence
address of each nominee proposed in such notice;
(2) the principal occupation or employment of each
such nominee; (3) the number of shares of capital
stock of the corporation which are beneficially owned
by each such nominee; (4) a statement that each such
nominee is willing to be nominated; and (5) such other
information concerning each such nominee as would be
required under the rules of the Securities and
Exchange Commission in a proxy statement soliciting
proxies for the election of such nominees.
(iv) If the chairman of the Election Meeting
determines that a nomination was not made in
accordance with the foregoing procedures, such
nomination shall be void and, upon the chairman's
instruction, all votes cast in favor of a person so
nominated shall be disregarded.
(d) Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any series of
preferred stock then outstanding, any vacancy
occurring in the Board of Directors caused by
resignation, removal, death, disqualification, or
other incapacity, and any newly created directorships
resulting from an increase in the number of directors,
shall be filled by a majority vote of directors then
in office, whether or not a quorum. Each director
chosen to fill a vacancy or a newly created
directorship shall hold office until the next election
of directors by the shareholders. When the number of
directors is changed, any newly created or eliminated
directorships shall be so apportioned by the Board of
Directors among the classes as to make all classes as
nearly equal in number as possible. No decrease in
the number of directors constituting the Board of
Directors shall shorten the term of any incumbent
director.
(e) Removal. Any director may be removed from
office at any time, but only for cause, and only if
removal is approved as set forth below.
Except as may be provided otherwise by law,
cause for removal shall be construed to exist only if:
-7-
<PAGE>
(i) the director whose removal is proposed has been
convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject
to direct appeal; (ii) such director has been
adjudicated by a court of competent jurisdiction to be
liable for negligence or misconduct in the performance
of his duty to the corporation in a matter of
substantial importance to the corporation and such
adjudication is no longer subject to direct appeal;
(iii) such director has become mentally incompetent,
whether or not so adjudicated, which mental
incompetency directly affects his ability
as a director of the corporation; (iv) such director's
actions or failure to act are deemed by the Board of
Directors to be in derogation of the director's
duties; or (v) such director's removal is required or
recommended by the Board of Governors of the Federal
Reserve System or its delegate.
Whether cause for removal exists shall be
determined by the affirmative vote of two-thirds (2/3)
of the total number of directors. Any action to
remove a director pursuant to (i) or (ii) above shall
be taken within one year of such conviction or
adjudication. For purposes of this paragraph, the
total number of directors will not include the
director who is the subject of the removal
determination, nor will such director be entitled to
vote thereon.
ARTICLE VII
No director of the corporation shall be
personally liable to the corporation or its
shareholders for monetary damages for breach of the
director's fiduciary duty. However, this Article VII
shall not eliminate or limit the liability of a
director for any breach of duty, act or omission for
which the elimination or limitation of liability is
not permitted by the Michigan Business Corporation
Act, as amended from time to time. No amendment,
alteration, modification or repeal of this Article VII
shall have any effect on the liability of any director
of the corporation with respect to any act or omission
of such director occurring prior to such amendment,
alteration, modification or repeal.
-8-
<PAGE>
ARTICLE VIII
Directors of the corporation shall be indemnified
as of right to the fullest extent now or hereafter
permitted by law in connection with any actual or
threatened civil, criminal, administrative or
investigative action, suit or proceeding (whether
brought by or in the name of the corporation, a
subsidiary, or otherwise) arising out of their service
as a director or in any other capacity to the
corporation or a subsidiary, or to another
organization at the request of the corporation or a
subsidiary. Persons who are not directors of the
corporation may be similarly indemnified in respect of
such service to the extent authorized at any time by
the board of directors of the corporation. The
corporation may purchase and maintain insurance to
protect itself and any such director or other person
against any liability asserted against him and
incurred by him in respect of such service whether or
not the corporation would have the power to indemnify
him against such liability by law or under the
provisions of this paragraph. The provisions of this
Article VIII shall be applicable to actions, suits or
proceedings, whether arising from acts or omissions
occurring before or after the adoption hereof, and to
directors and other persons who have ceased to render
such service, and shall inure to the benefit of the
heirs and personal representatives of the directors,
and other persons referred to in this paragraph.
ARTICLE IX
The Board of Directors shall not initiate,
approve, adopt, or recommend any offer of any party
other than the corporation to make a tender or exchange
offer for any equity security of the corporation, or to
engage in any Business Combination, as defined in
paragraph (b) below, unless and until it shall have first
evaluated the proposed offer and determined in its judgment
that the proposed offer would be in compliance with all
applicable laws. In evaluating a proposed offer to determine
whether it would be in compliance with law, the Board of
Directors shall consider all aspects of the proposed offer,
including the manner in which the offer is proposed to be
made, the documents proposed for the communication of the
offer, and the effects and consequences of the offer if
consummated, in light of the laws of the United States of
America and affected states and foreign countries. In
connection with this evaluation, the Board may seek
and rely upon the opinion of independent legal counsel,
-9-
<PAGE>
and may test the legality of the proposed offer in any
state, federal or foreign court or before any state,
federal or foreign administrative agency which may have
jurisdiction. If the Board of Directors determines in
its judgment that a proposed offer would be in compliance
with all applicable laws, the Board of Directors shall
then evaluate the proposed offer and determine whether
the proposed offer is in the best interests of the
corporation and its shareholders, and the Board of
Directors shall not initiate, approve, adopt or recommend
any such offer which in its judgment would not be in the
best interests of the corporation and its shareholders.
(a) Factors. In evaluating a proposed offer to
determine whether it would be in the best interests of
the corporation and its shareholders, the Board of
Directors shall consider all factors which it deems
relevant including:
(i) The fairness of the consideration to be
received by the corporation and its shareholders under
the proposed offer, taking into account the trading
price of the corporation's stock immediately prior to
the announcement of the proposed offer, the historical
trading prices of the corporation's stock, the price
that might be achieved in a negotiated sale of the
corporation as a whole, premiums over the trading
price of their securities which have been proposed or
offered to other companies in the past in connection
with similar offers, and the future prospects of the
corporation;
(ii) The possible social and economic
impact of the proposed offer and its consummation on
the corporation and its employees, customers and
suppliers;
(iii) The possible social and economic
impact of the proposed offer and its consummation on
the communities in which the corporation and its
subsidiaries operate or are located;
(iv) The business and financial
conditions and earning prospects of the offering
party, including, but not limited to, debt service and
other existing or likely financial obligations of the
offering party;
-10-
<PAGE>
(v) The competence, experience and
integrity of the offering party and its management;
and
(vi) The intentions of the offering party
regarding the use of the assets of the corporation to
finance the transaction.
(b) Definition of Business Combination. For
purposes ofthis Article, the term "Business
Combination" shall mean:
(i) Any merger or consolidation of the
corporation with or into another person or entity;
(ii) The sale, exchange, lease, mortgage,
pledge, transfer or other disposition (in a single
transaction or a series of related transactions) of
all or substantially all of the assets of the
corporation;
(iii) The adoption of any plan or
proposal for the liquidation or dissolution of the
corporation;
(iv) Any transactions or series of
related transactions having, directly or indirectly,
the same effect as any of the foregoing;
(v) Any agreement, contract or other
arrangement providing for any of the transactions
described in this definition of Business Combination.
ARTICLE X
The corporation reserves the right to amend,
alter, change or repeal any provision contained in
these Restated Articles of Incorporation, and to add
additional Articles hereto, in the manner now or
hereafter prescribed by statute and these Restated
Articles of Incorporation, and all rights conferred
upon shareholders herein are granted subject to this
reservation. Notwithstanding the preceding sentence,
no amendment to these Restated Articles of
Incorporation shall alter, modify, or repeal any or
all of the provisions of Article VI, VII, VIII, IX or
this Article X of these Restated Articles of
Incorporation, and the shareholders of the corporation
shall not have the right to alter, modify, or repeal
-11-
<PAGE>
any or all provisions of the bylaws of the
corporation, unless such amendment, alteration,
modification, or repeal is adopted by the affirmative
vote of the holders of not less than 80% of the
outstanding shares of stock entitled to be voted
thereon; provided, however, that this sentence shall
not apply to, and such 80% vote shall not be required
for, any amendment, alteration, modification, or
repeal which has first been approved by the
affirmative vote of two-thirds (2/3) of the entire
Board of Directors, which shall include the
affirmative vote of at least one director of each
class of the Board of Directors.
-12-
