SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__X__ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993
_____ Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to __________
Commission File Number: 0-16444
SHORELINE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2758932
(State of incorporation) (I.R.S. Employer Identification No.)
823 Riverview Drive
Benton Harbor, Michigan 49022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 927-2251
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the filing.
Aggregate Market Value as of February 28, 1994: $102,523,262
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock outstanding at February 28, 1994: 3,307,202 shares
Documents Incorporated By Reference
Portions of the registrant's proxy statement for its May 5, 1994, annual
meeting of shareholders are incorporated by reference in Part III.
-2-
PART I
Item 1. Business
GENERAL
Shoreline Financial Corporation ("Shoreline" or the "Corporation") is
a bank holding company. Shoreline was formed on April 23, 1987, for the
purpose of affecting the affiliation of Inter-City Bank ("Inter-City") of
Benton Harbor, Michigan, and Citizens Trust and Savings Bank ("Citizens")
of South Haven, Michigan. On December 31, 1993, these banks represented
Shoreline's only operating subsidiaries. Shoreline had assets at December
31, 1993, totaling $620.6 million, deposits of $557.4 million and
shareholders' equity of $52.6 million.
Shoreline's business is concentrated exclusively in the commercial
banking industry segment. Shoreline's subsidiary banks offer individuals,
businesses, institutions and government agencies a full range of commercial
banking services including time, savings and demand deposits; commercial,
consumer and real estate financing; bank credit cards; safe deposit
services; automated transaction machine services and trust services. The
business of Citizens is mildly seasonal due to the recreational and
agricultural components of the local economy. No material part of the
business of Shoreline and its subsidiaries is dependent upon a single
customer or very few customers, the loss of which would have a materially
adverse effect on Shoreline.
The principal markets for Shoreline's financial services are presently
the Michigan communities in which Inter-City and Citizens are located, and
the areas immediately surrounding these communities. Shoreline and its
subsidiaries serve these markets through 23 offices located in and around
these communities. Shoreline and its subsidiaries have no material foreign
assets or income.
During 1993, Shoreline expanded its branch network with the
acquisition of four branches from Standard Federal Bank located in Berrien
Springs, Three Oaks, Edwardsburg and Hartford. This acquisition was
completed in July 1993.
On May 5, 1993, Shoreline announced its intention to affect a merger
between its two subsidiary banks, Inter-City and Citizens. The resulting
single bank will be named Shoreline Bank. It is believed that the merger of
the two banks will allow Shoreline to further realize operational
efficiencies and provide more consistent and improved service to the market
areas that Shoreline currently services. Completion of the transaction is
subject to regulatory approval and is anticipated to be consummated during
the second quarter of 1994.
On December 7, 1993, the Corporation announced an agreement with Great
Lakes Bancorp, Ann Arbor, Michigan, under which Shoreline will purchase and
-3-
assume from Great Lakes Bancorp certain assets and liabilities associated
with its branch located in South Haven, Michigan. This branch has deposits
totaling approximately $13 million. Completion of the transaction, which
will be accounted for as a purchase, is subject to regulatory approval and
a number of other conditions, and is anticipated to be consummated during
the second quarter of 1994.
The principal source of revenue for Shoreline and its subsidiaries is
interest and fees on loans. On a consolidated basis, interest and fees on
loans accounted for 70.7 percent of Shoreline's total revenues in 1993,
69.2 percent in 1992 and 71.2 percent in 1991. Interest on investment
securities accounted for 17.8 percent of Shoreline's total revenues in
1993, 21.4 percent in 1992 and 20.3 percent in 1991.
COMPETITION
The business of banking is highly competitive. Banks face significant
competition from other commercial banks and, in some product lines, saving
and loan associations, credit unions, finance companies, insurance
companies and investment and brokerage firms. The principal forms of
competition for financial services are price and the convenience and
quality of services rendered to customers.
SUPERVISION AND REGULATION
A state or national bank may generally open a branch office anywhere
in the State of Michigan without regard to its proximity to that bank's
home office. Regulatory approval is required, but approval is based
primarily upon the adequacy of the bank's capital and the prospects for
success of the branch. Michigan banks or bank holding companies may
acquire or be acquired by banks or bank holding companies located in any
state that passes a banking statute granting reciprocal privileges.
Banks and bank holding companies are extensively regulated. Inter-
City and Citizens are chartered under state law and are supervised,
examined and regulated by both the Financial Institutions Bureau of the
Michigan Department of Commerce and the Federal Deposit Insurance
Corporation. Shoreline is regulated by the Federal Reserve System. The
business activities of Inter-City Bank and Citizens are significantly
limited in a number of respects by federal and state laws governing banks.
Deposits of both banks are insured by the Federal Deposit Insurance
Corporation to the extent provided by law.
Prior approval of the Federal Reserve Board, and in some cases various
other government agencies, will be required for Shoreline to acquire
control of any additional banks or other operating subsidiaries. The
business activities of Shoreline and its subsidiaries will be limited to
banking and other activities which are determined by the Federal Reserve
Board to be closely related to banking.
-4-
Banks are subject to a number of federal and state laws and
regulations which have a significant impact upon their business. These
include among others: state usury laws, state laws relating to
fiduciaries, the Truth in Lending Act, the Truth in Savings Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Community
Reinvestment Act, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, the FDIC Improvement Act of 1991, electronic funds
transfer laws, redlining laws, antitrust laws and privacy laws.
The instruments of monetary policy of authorities, such as the Federal
Reserve System, may be used to influence the growth and distribution of
bank loans, investments and deposits, and may also affect interest rates on
loans and deposits. These policies may have a significant effect on the
operating results of banks.
Shoreline and its subsidiaries employ approximately 320 persons.
A detailed discussion and statistical presentation of certain financial
aspects of Shoreline's business is contained in Items 6 and 7.
Item 2. Properties
Shoreline maintains its offices and conducts its business operations
from the principal banking office of Inter-City in Benton Harbor, Michigan.
The holding company neither owns nor has any present plan to acquire any
real property.
Inter-City's principal office is located at 823 Riverview Drive,
Benton Harbor, Michigan. The Riverview Drive premises encompass
approximately 21,000 square feet on three floors, all of which are occupied
by Inter-City and Shoreline. Inter-City owns the premises occupied by each
of its 15 branch offices. During 1994, Inter-City will construct an 8,000-
square-foot addition to its Pleasant Street location, St. Joseph, Michigan,
to house the consolidated mortgage, consumer loan, collections and trust
departments upon the merger of Inter-City and Citizens. The cost of this
project is estimated to be $1.2 million.
Citizens' principal office is located at 433 Phoenix Street, South
Haven, Michigan. The principal office occupies approximately 36,000 square
feet, all of which is occupied by Citizens' banking operations and
Shoreline's EDP operations. In addition to its principal office, Citizens
owns each of its seven branch offices.
Item 3. Legal Proceedings
Shoreline's subsidiaries are parties, as plaintiff or as defendant, to
a number of legal proceedings, none of which is considered material and,
all of which arise in the normal course of operations.
-5-
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the three months ended December 31, 1993.
-6-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Shoreline common stock is traded in the over-the-counter market and
quoted on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) under the trading symbol SLFC. Prices are based
on reports published for representative quotations in the over-the-counter
market supplied by the National Association of Securities Dealers, Inc. In
all periods, the prices shown reflect interdealer prices and do not include
retail markups, markdowns or commissions, and may not necessarily represent
actual transactions. There may have been transactions or quotations at
higher or lower prices of which management is not aware. Market prices have
been adjusted to give retroactive effect to the three-for-two stock split
paid in April of 1992 and the 5 percent stock dividend paid in April of
1993. A proposed three-for-two stock split payable on May 31, 1994 to
shareholders of record on May 16, 1994 has been declared, subject to
shareholder approval of an increase in authorized capital. The prices
shown have not been adjusted for this future stock split. As of February
28, 1994, there were approximately 1,260 shareholders of record owning
common stock of Shoreline.
<TABLE>
Market Price of Common Stock (bid price)
<CAPTION>
1993 1992
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
March 31 $28.25 $21.43 $17.46 $15.24
June 30 28.00 26.25 20.95 16.19
September 30 30.00 27.00 23.33 20.00
December 31 29.50 28.00 23.33 20.95
</TABLE>
The following table summarizes the quarterly cash dividends paid to
common shareholders during the last two years, adjusted for the 5 percent
stock dividend paid in April of 1993 and the three-for two stock split
paid in April of 1992:
<TABLE>
<CAPTION>
Quarter 1993 1992
<S> <C> <C>
1st $.20 $.17
2nd .21 .19
3rd .21 .19
4th .21 .19
Total $.83 $.74
</TABLE>
-7-
Shoreline's principal source of funds to pay cash dividends is the
earnings of its subsidiary banks. State and federal laws and regulations
limit the amount of dividends that banks can pay. Cash dividends are
dependent upon the earnings, capital needs, regulatory constraints and
other factors affecting each of the banks. Based on projected earnings,
management expects Shoreline to declare and pay regular quarterly dividends
on its common shares in 1994.
Item 6. Selected Financial Data.
<TABLE>
FINANCIAL HIGHLIGHTS
(In thousands except financial ratios and per share data)
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
AT YEAR END: (1)
Total assets $620,620 $533,004 $507,129 $475,691 $438,010
Net loans 408,107 350,174 340,043 312,617 288,914
Total deposits 557,409 480,458 458,913 431,295 395,312
Long-term debt 5,000 0 0 0 0
Shareholders' equity 52,607 48,194 44,360 40,861 37,923
FOR THE YEAR: (1)
Total interest income $ 40,424 $ 41,681 $ 43,770 $ 42,614 $ 41,229
Net interest income 23,066 22,130 19,980 18,458 18,036
Provision for loan losses 1,380 1,380 1,270 1,185 1,105
Net income 6,538 5,932 5,335 4,707 4,916
FINANCIAL RATIOS:
Return on average shareholders'
equity 12.85% 12.77% 12.55% 11.95% 13.54%
Return on average assets 1.15% 1.13% 1.09% 1.05% 1.16%
Average equity capital to
average assets 8.94% 8.87% 8.72% 8.75% 8.55%
Dividend payout ratio 41.72% 40.83% 39.78% 40.77% 35.47%
PER SHARE DATA:
Earnings per share(2) $ 2.00 $ 1.82 $ 1.65 $ 1.46 $ 1.52
Cash dividends declared per share(2) .83 .74 .65 .59 .54
Book value per share(3) 15.94 14.74 13.63 12.64 11.76
<FN>
(1) See Note 1 to the Consolidated Financial Statements in Item 8 for basis of reporting consolidated
financial information.
(2) Based on average annual shares outstanding adjusted to reflect stock splits and stock
dividends. See Note 1 to the Consolidated Financial Statements in Item 8.
(3) Based on shares outstanding at period end adjusted to reflect stock splits and stock dividends.
See Note 1 to the Consolidated Financial Statements in Item 8.
</TABLE>
-8-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion provides additional information about the
Corporation's financial condition and results of operations. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing in Item 8.
SUMMARY OF EARNINGS
Shoreline Financial Corporation's net income for 1993 was $6,537,522,
an increase of $605,933 or 10.2 percent, over the $5,931,589 earned in
1992. Nineteen ninety-two's results represented an 11.2 percent increase
over 1991's net income of $5,334,669.
EARNINGS PER SHARE
Earnings per share, computed on the weighted average number of common
shares outstanding, was $2.00 in 1993. This is an increase of 9.9 percent
over the $1.82 earned in 1992. Earnings per share of $1.65 was recorded in
1991. These results on a per share basis have been adjusted to reflect
stock splits and stock dividends paid, but not the proposed three-for-two
stock split payable May 31, 1994.
RETURN ON AVERAGE COMMON EQUITY
Return on average common equity was 12.85 percent in 1993. This
positively compares to the return on average common equity recorded in 1992
of 12.77 percent and 12.55 percent earned in 1991. The return on average
common equity is a measure used to determine how profitably the
shareholders' invested capital is employed.
RETURN ON AVERAGE ASSETS
In 1993, Shoreline Financial's return on average assets was 1.15
percent. This compares to 1992's return on average assets of 1.13 percent
and 1991's return on average assets of 1.09 percent. The return on average
assets is a measure commonly used to compare the profitability of financial
institutions.
BOOK VALUE PER SHARE
Book value per share increased 8.1 percent to $15.94 at December 31,
1993. This compares to book value per share of $14.74 and $13.63 at
December 31, 1992 and 1991, respectively. Book value per share has been
restated to give recognition to stock splits and stock dividends paid, but
not including the proposed three-for-two stock split payable May 31, 1994.
-9-
ACQUISITIONS
In July of 1993, Shoreline Financial Corporation acquired the Berrien
Springs, Three Oaks, Edwardsburg and Hartford branches of Standard Federal
Bank. Shoreline assumed deposit liabilities of approximately $56.6 million
and received approximately $42.0 million in residential loan products, $0.8
million in premises and equipment and cash of $11.4 million.
On December 7, 1993, Shoreline announced an agreement with Great Lakes
Bancorp, Ann Arbor, Michigan, under which Shoreline will purchase and
assume certain assets and liabilities associated with its branch located in
South Haven. This branch has deposits totaling approximately $13 million.
Completion of the transaction, which will be accounted for as a purchase,
is subject to regulatory approval and a number of other conditions, and is
anticipated to be consummated during the second quarter of 1994.
SUMMARY OF OPERATING RESULTS
The following is a summary of the major components of the
Corporation's operating results for the last three years.
<TABLE>
<CAPTION>
Years ended December 31
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Net interest income $ 23,066 $ 22,130 $19,980
Add: Taxable equivalent adjustment(1) 1,719 1,835 1,637
Taxable equivalent net interest income 24,785 23,965 21,617
Provision for loan losses (1,380) (1,380) (1,270)
Other income 4,754 3,968 3,188
Other expenses (17,987) (17,496) (15,411)
Income taxes, including
taxable equivalent adjustment(1) (3,634) (3,125) (2,789)
Net Income $ 6,538 $ 5,932 $ 5,335
<FN>
(1) Tax equivalent adjustment based upon federal tax rate of 34 percent.
</TABLE>
-10-
Nineteen ninety-three's net income of $6,538,000 represents the third
consecutive year of record earnings for the Corporation. A combination of
factors helped to produce this increased level of net income. Tax
equivalent net interest income increased $820,000 or 3.4 percent, to
$24,785,000 in 1993. Other income produced a strong increase of $786,000 or
19.8 percent over 1992's results, while the Corporation was able to hold
the growth in other expense to a relatively modest level of only 2.8
percent. Due to a significant reduction in the level of net charge-offs
experienced in 1993, the Corporation was able to maintain 1993's provision
for loan losses at $1,380,000, the same level as 1992.
NET INTEREST INCOME
Net interest income, the difference between interest and fees earned
on earning assets and the interest expense related to deposits and other
borrowed funds, is the major component of earnings for financial
institutions. Net interest income on a fully taxable equivalent basis
accounted for 83.9 percent of Shoreline's total income in 1993, 85.8
percent in 1992 and 87.1 percent in 1991. There are a number of factors
(which management may or may not be able to affect) which influence net
interest income, including changes in the volume and mix of interest-
earning assets and interest-bearing liabilities, market interest rates,
monetary and fiscal policies and customer preference.
The following table presents interest income from average earning
assets, expressed in dollars and yields on a fully taxable equivalent
basis, and interest expense on average interest-bearing liabilities
expressed in dollars and rates.
-11-
<TABLE>
Average Consolidated Balance Sheets/Interest Rates
<CAPTION>
(In thousands) 1993 1992 1991
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
Interest-earning deposits $ 0 $ 0 N/A $ 0 $ 0 N/A $ 0 $ 0 N/A
Federal funds sold 15,799 468 2.96% 9,164 305 3.33% 14,203 812 5.72%
Investment securities:
Taxable 86,375 5,119 5.93% 82,832 6,707 8.10% 76,649 6,807 8.88%
Tax-exempt(2) 41,004 4,408 10.75% 42,899 4,634 10.80% 36,536 4,104 11.23%
Loans - net of unearned income(1)(2) 385,138 32,148 8.35% 351,168 31,870 9.08% 324,911 33,684 10.37%
Total interest-earning assets 528,316 42,143 7.98% 486,063 43,516 8.95% 452,299 45,407 10.04%
Non-earning Assets
Cash and due from banks 28,075 25,746 23,140
Premises and equipment - net 8,439 7,742 7,429
Other non-earning assets 9,623 8,378 8,540
Allowance for loan losses (5,182) (4,210) (3,629)
Total assets $569,271 $523,719 $487,779
Interest-bearing Liabilities
Demand deposits $ 59,255 1,169 1.97% $ 54,822 1,691 3.08% $48,454 2,134 4.40%
Savings deposits 153,033 4,262 2.79% 122,174 4,152 3.40% 109,776 5,282 4.81%
Time deposits 239,789 11,809 4.92% 241,560 13,680 5.66% 231,656 16,372 7.07%
Short-term borrowed funds 1,943 42 2.16% 45 2 4.44%
Long-term debt 1,548 76 4.91% 877 28 3.19% 389,931 23,790 6.10%
Total interest-bearing liabilities 455,568 17,358 3.81% 419,433 19,551 4.66%
Non-interest-bearing Liabilities
Demand deposits 59,987 54,501 51,660
Other liabilities 2,848 3,322 3,674
Shareholders' equity 50,868 46,463 42,514
Total liabilities and shareholders'
equity $ 569,271 $523,719 $487,779
Net Interest Income $ 24,785 $23,965 $21,617
Net Interest Income as a Percentage
of Interest-earning Assets 4.69% 4.93% 4.78%
<FN>
(1) Nonaccrual loans are included in the daily average loans outstanding for purposes of this
calculation.
See Note 1 to the Consolidated Financial Statements in Item 8 regarding recognition of loan fee
income.
(2) Yields are computed on a fully tax-equivalent basis using a federal income tax rate of 34
percent in all years presented.
</TABLE>
-12-
NET INTEREST INCOME (Continued)
Net interest income on a fully taxable equivalent basis totaled
$24,785,000 in 1993. This represents an increase of $820,000 or 3.4 percent
over the previous year. This increase in net interest income is primarily
attributable to the growth in the volume of interest-earning assets net of
interest-bearing liabilities. Shoreline's earning assets averaged $528.3
million in 1993, an increase of $42.3 million or 8.7 percent. Growth in
average total loans accounted for approximately $34 million of this
increase. This growth in total loans was assisted by the addition of
approximately $42 million of residential loan products in July of 1993
acquired as a part of the Standard Federal Bank branch acquisition.
Net interest margin is calculated by dividing fully taxable equivalent
net interest income by average interest-earning assets. Shoreline's net
interest margin was 4.69 percent in 1993 compared to 4.93 percent in 1992
and 4.78 percent in 1991. The significant interest rate declines during
1991 and 1992 enabled Shoreline to reduce its cost of funds to a greater
extent than its yields on earning assets during 1992. However, during the
relatively unchanging interest rate environment experienced during 1993
(i.e. no change in the prime or discount rate during the year), rate
reductions on interest-earning assets exceeded the reductions achieved in
cost of funds. Specifically, Shoreline's yield on its mortgage-backed
securities portfolio declined in excess of 200 basis points from the
previous year. The high level of mortgage loan refinancing activity that
occurred during 1993 resulted in increased prepayments on these securities,
thereby having not only the effect of decreasing the existing effective
yield on these securities but producing a greater amount of dollars to be
reinvested at the reduced current rates. Similarly, 1993's refinancing
activity also had a negative impact on Shoreline's mortgage loan portfolio
yield. The purchase of $42 million of mortgage loans from Standard Federal
Bank at current market rates also played a significant role in the reduced
yield in this portfolio.
Assuming a continued stable interest rate environment, management
recognizes that, in 1994, conditions are present which would result in
continued rate reductions on interest-earning assets in excess of rate
reductions on interest-bearing liabilities. This could result in a further
reduction in Shoreline's net interest margin.
In 1992, net interest income increased $2,348,000 to $23,965,000 on a
fully taxable equivalent basis. Approximately $2.1 million of this increase
resulted from the $33.8 million, or 7.5 percent growth in average interest-
earning assets which more than offset the impact of the $29.5 million
increase in average interest-bearing liabilities. The net interest margin
of 4.93 percent in 1992 represented a 15 basis point increase over 1991's
net interest margin. The relative stabilization of interest rates during
1992 (i.e., a 100 basis-point reduction in the prime rate in 1992 compared
to a 300 basis-point reduction in 1991) along with the Corporation's
ability to further reduce rates paid on deposit accounts helped to increase
-13-
the Corporation's net interest margin. Specifically, the Corporation
experienced strong growth in lower costing savings and interest-bearing
demand accounts while also significantly reducing the rates paid on these
accounts, demonstrating a relative insensitivity to rate changes by the
customer due to reduced rates offered by competing institutions. This
reduction in deposit rates was accomplished while yields on rate sensitive
assets reduced more moderately. Compared to 1991, average balances in
savings accounts and interest-bearing demand accounts increased 11.3
percent and 13.1 percent, respectively, while the rates paid on these
accounts decreased 141 and 132 basis points, respectively. In comparison,
average time deposits increased only 4.3 percent while experiencing a
similar 141 basis-point reduction in the rates paid in 1992.
The following table sets forth the changes in fully taxable equivalent
interest income and in interest expense as they relate to changes in volume
and changes in rate. The change due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Increase (Decrease)
(Fully taxable equivalent basis, in thousands) Due to Volume Due to Rate Net Due to Volume Due to Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 200 $ (37) $ 163 $ (233) $ (274) $ (507)
Investment securities:
Taxable 276 (1,864) (1,588) 525 (625) (100)
Tax-exempt (204) (22) (226) 692 (162) 530
Loans-net of unearned income 2,948 (2,670) 278 2,587 (4,401) (1,814)
Change in interest income 3,220 (4,593) (1,373) 3,571 (5,462) (1,891)
Interest-bearing liabilities:
Demand deposits 128 (650) (522) 255 (698) (443)
Savings deposits 938 (828) 110 547 (1,677) (1,130)
Time deposits (100) (1,771) (1,871) 678 (3,370) (2,692)
Short-term borrowings 25 (11) 14 27 (1) 26
Long-term debt 76 N/A 76 - - -
Change in interest expense 1,067 (3,260) (2,193) 1,507 (5,746) (4,239)
Change in net interest income $ 2,153 $ (1,333) $ 820 $ 2,064 $ 284 $ 2,348
</TABLE>
-14-
LOANS
Shoreline Financial Corporation maintains a diversified loan portfolio
of commercial, real estate and consumer loans provided to customers
primarily in the Michigan communities in which Shoreline banks are located.
Exposure to any single borrower, as well as industry concentration, is
continually monitored by management. Shoreline banks have no foreign loans.
The following table presents the amount of loans outstanding at the
indicated dates according to the type of loan:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 166,745 $ 161,787 $ 161,996 $ 136,141 $ 130,301
Residential real estate 160,790 117,722 114,546 110,541 89,870
Real estate construction(1) 27,337 25,618 20,424 19,164 16,651
Consumer 58,821 49,613 46,911 50,260 55,213
Total loans $ 413,693 $ 354,740 $ 343,877 $ 316,106 $ 292,035
<FN>
(1) Various types of construction loans are included in commercial loans in
the consolidated financial statements. These loans have been classified
as real estate construction above.
</TABLE>
The following table shows for commercial, financial, and agricultural
and real estate construction loans the maturities and sensitivities to
changes in interest rates at December 31, 1993.
<TABLE>
<CAPTION>
Due in One Due in One Due After
(In thousands) Year or Less to Five Years Five Years
<S> <C> <C> <C>
Commercial, financial, and agricultural $ 34,931 $ 93,703 $ 38,111
Real estate construction 11,329 14,097 1,911
Total $ 46,260 $ 107,800 $ 40,022
Loans due after one year:
with fixed rates $ 38,354 $ 4,309
with floating rates $ 69,446 $ 35,713
</TABLE>
-15-
PROVISION FOR LOAN LOSSES
The provision for loan losses is the amount added to the allowance for
loan losses to absorb possible losses that are currently anticipated. The
amount of the loan loss provision is based on loan loss experience and such
other factors which, in management's judgment, deserve current recognition
in maintaining an adequate allowance for loan losses. These factors
include, but are not limited to, a review of current economic conditions as
they relate to loan collectibility and reviews of specific loans to
evaluate their collectibility.
The following table summarizes loan balances at the end of each period
and daily averages, changes in the allowance for loan losses arising from
loans charged off and recoveries on loans previously charged off by loan
category and additions to the allowance which have been charged to expense.
<TABLE>
<CAPTION>
December 31,
(Dollars In thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end of period $ 413,693 $ 354,740 $ 343,877 $ 316,106 $ 292,035
Daily average amount of loans outstanding for the period $ 385,138 $ 351,168 $ 324,911 $ 302,483 $ 280,427
Balance of allowance for loan losses at beginning of period $ 4,566 $ 3,834 $ 3,489 $ 3,121 $ 2,916
Loans charged off:
Commercial, financial and agricultural 186 437 279 194 188
Residential real estate 84 2 8 0 11
Real estate construction 0 0 0 0 0
Consumer 332 392 808 773 879
Total loans charged off 602 831 1,095 967 1,078
Recoveries of loans previously charged off:
Commercial, financial and agricultural 107 55 63 59 71
Residential real estate 1 0 0 0 0
Real estate construction 0 0 0 0 0
Consumer 134 128 107 91 107
Total loan recoveries 242 183 170 150 178
Net loans charged off 360 648 925 817 900
Additions to allowance charged to operating expense 1,380 1,380 1,270 1,185 1,105
Allowance at end of period $ 5,586 $ 4,566 $ 3,834 $ 3,489 $ 3,121
Ratio of net charge-offs during the
period to average loans outstanding 0.09% 0.18% 0.28% 0.27% 0.32%
</TABLE>
As a percent of total loans outstanding, the allowance for loan losses
was 1.35 percent as of December 31, 1993. This represents an increase of 6
basis points over the 1.29 percent at December 31, 1992, and 24 basis
points over the 1.11 percent at December 31, 1991. Due to the significantly
favorable net charge-off results in 1993, the Corporation was able to
increase this ratio despite total loan growth of 16.6 percent and
maintaining 1993's amount of provision for loan losses at 1992's level of
$1,380,000. Total net charge-offs amounted to $360,000 in 1993, a reduction
-16-
of $288,000 from the previous year. This net charge-off level produces a
ratio of net charge-offs to average loans outstanding of .09 percent. This
compares to ratios of .18 percent and .28 percent in 1992 and 1991,
respectively. Reduced charge-offs in the commercial and consumer loan areas
along with improved recovery efforts helped to produce these results.
The Corporation performs a periodic detailed written analysis of the
adequacy of the allowance for loan losses. While management's analysis may
allocate portions of the allowance to specific problem loan situations, the
entire allowance is available for any loan charge-offs that occur.
Management has allocated the allowance for possible loan losses within the
following categories at the dates indicated:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992 December 31, 1991 December 31, 1990 December 31, 1989
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in each in each in each in each in each
Category Category Category Category Category
to Total to Total to Total to Total to Total
(Dollars In thousands) Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $2,112 40.31% $2,003 45.52% $1,775 47.11% $1,688 43.07% $1,613 44.62%
Residential real estate 423 38.87 317 33.64 357 33.31 300 34.97 279 30.77
Real estate construction 106 6.61 75 7.22 51 5.94 46 6.06 0 5.70
Consumer 1,103 14.21 845 13.62 762 13.64 593 15.90 815 18.91
Unallocated 1,842 1,326 889 862 414
Total $5,586 100.00% $4,566 100.00% $3,834 100.00% $3,489 100.00% $3,121 100.00%
</TABLE>
NON-PERFORMING ASSETS AND PROBLEM LOANS
Non-performing assets include (1) loans accounted for on a non-accrual
basis; (2) accruing loans which are contractually past due 90 days or more
as to principal or interest payments; (3) loans which are "troubled debt
restructurings" and (4) other real estate owned. The primary functions of
loan portfolio management are assuring loan quality, maintaining portfolio
diversification and monitoring potential problem loans. Loan performance is
reviewed regularly by loan review personnel, loan officers and senior
management. When reasonable doubt exists concerning collectibility of
interest or principal, the loan is placed on a non-accrual basis. Any
interest accrued but not collected is reversed and charged against current
earnings. Interest income which would have been recorded in 1993 under
original terms on non-accrual loans outstanding at December 31, 1993, was
approximately $131,000. Interest income of approximately $112,000 was
recorded in 1993 on non-accrual loans outstanding at December 31, 1993.
-17-
Total non-performing assets at December 31, 1993, were $5.4 million.
This represents 1.31% of the total loan portfolio outstanding on the same
date. This is the lowest percentage level of non-performing assets attained
by the Corporation in the five-year history shown below. The increase in
accruing loans past due 90 days or more from 1992 to 1993 was primarily
attributable to two large mortgage loan customers. Other real estate owned
totaled $1,026,000 at December 31, 1993, which represents an increase of
$386,000 from December 31, 1992. Sales on approximately $632,000 of this
balance were pending as of December 31, 1993.
Non-performing assets at December 31, 1992, totaled $5.3 million,
representing 1.49 percent of the total loan portfolio which favorably
compares to prior year ratios of 1.73 percent and 2.09 percent at December
31, 1991 and 1990, respectively. The sale of the largest piece of other
real estate owned during the fourth quarter of 1992 helped to significantly
reduce the other real estate owned position.
The following is a summary of the non-performing assets as of December 31:
<TABLE>
<CAPTION>
(Dollars In thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 1,962 $ 2,934 $ 2,591 $ 3,275 $ 708
Accruing loans past due 90 days or more 2,233 1,497 1,749 2,347 4,274
Restructured loans 211 222 442 0 0
Other real estate owned 1,026 640 1,162 976 540
Total non-performing assets $ 5,432 $ 5,293 $ 5,944 $ 6,598 $5,522
As a percentage of total loans:
Non-accrual loans .47% .83% .75% 1.04% .24%
Accruing loans past due 90 days or
more .54 .42 .51 .74 1.46
Restructured loans .05 .06 .13 .00 .00
Other real estate owned .25 .18 .34 .31 .19
Total non-performing assets 1.31% 1.49% 1.73% 2.09% 1.89%
</TABLE>
Management believes that loans classified for regulatory purposes as
loss, doubtful, substandard, or special mention that are not included in
the table above do not represent or result from trends or uncertainties
which will have a material impact on future operating results, liquidity or
capital resources, or represent material credits, about which management is
aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.
At December 31, 1993, the Corporation had approximately $2,369,000 in
commercial loans and $378,000 in residential real estate loans for which
payments are presently current, but the borrowers are currently
experiencing severe financial difficulties. These loans, along with any
other loans classified for regulatory purposes, are subject to constant
-18-
management attention and their classification is reviewed on a monthly
basis. At December 31, 1993, Shoreline had no foreign loans, no significant
concentration of loans within one industry and, other than $1,026,000 held
as other real estate, no other interest-earning assets which would be
required to be disclosed if such assets were loans.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan". SFAS No. 114 requires that allowances
for loan losses on impaired loans be determined using the present value of
estimated future cash flows on the loan, discounted at the loan's effective
interest rate. A loan is considered to be impaired when it is probable
that all principal and interest amounts will not be collected according to
the contract. SFAS No. 114 is required to be adopted for fiscal years
beginning after December 15, 1994. Management believes the effect of
adoption of this new standard in 1995 will not have a material impact on
the Corporation's consolidated financial statements.
OTHER INCOME
Total other income amounted to $4,754,000 in 1993, an increase of
$786,000, or 19.8 percent, over 1992. Excluding securities gains, the
increase was $814,000 or 22.8 percent. The increase in 1992 over 1991,
excluding securities gains, was $518,000 or 17.0 percent.
Service charge income on deposit accounts represents the largest
contributor to other income. This area produced an increase of $241,000 or
16.2 percent in 1993. The increased service charge income in 1993 was
attributable to growth in deposits as well as a significant increase in
overdraft fees. Service charge income on deposits totaled $1,490,000 in
1992, which represented an increase of 12.9 percent over 1991.
Income from trust activities amounted to $1,181,000 in 1993. This
compares with the $1,123,000 earned in 1992 or a 5.2 percent increase.
Growth in trust assets through new customer relationships and/or increased
market value of trust assets managed helped to produce this increase.
Nineteen ninety-two's increase over 1991 of 14.0 percent also resulted from
new customer relationships and increased market value of trust assets
managed and was also positively impacted by revised fee schedules and a
change in the frequency of fee collection.
Other income totaled $1,471,000 in 1993, an increase of $516,000 or
54.0 percent over 1992. In 1992, other income totaled $955,000 which
represented a $209,000 or 28.0 percent increase over 1991. Increased fee
income generated from Shoreline's credit card program produced the most
significant gain in this area. In 1993, income from credit card fees and
merchant discounts totaled $518,000 which represents an increase of
$199,000 or 62.4 percent increase over the $319,000 earned in 1992. Gains
-19-
on the sale of mortgage loans totaled $295,000 in 1993, an increase of
$155,000 over 1992. Safe deposit box income increased 14.8 percent over
1992 and totaled $147,000 in 1993.
Securities gains amounted to $370,000 in 1993, a decrease of $29,000
from the $399,000 recorded in 1992. The majority of these gains were from
sales of tax-exempt securities as the Corporation disposed of some of its
lower- yielding investments in this area. The 1992 gains resulted from
sales of securities due to liquidity considerations, along with market
conditions.
The following table summarizes the major categories of other income
for the last three years:
<TABLE>
<CAPTION>
Year ended December 31 (In thousands) 1993 1992 1991
<S> <C> <C> <C>
Service charges on deposit accounts $1,731 $1,490 $1,320
Trust income 1,181 1,123 985
Securities gains 370 399 136
Credit card fees and discounts 518 319 272
Gain on sale of mortgage loans 295 140 14
Safe deposit box income 147 128 133
Other customer service fees 127 105 109
Credit life insurance premiums 98 114 89
Gain on sale of other real estate owned 81 28 22
Other 206 122 108
TOTAL OTHER INCOME $4,754 $3,968 $3,188
</TABLE>
OTHER EXPENSES
Total other expenses amounted to $17,987,000 in 1993. This represents
a modest increase of $491,000 or 2.8 percent over 1992's total other
expense of $17,496,000. Nineteen ninety-two's increase over 1991 was
$2,085,000 or 13.5 percent. Shoreline's ratio of total other expense to
total average assets for 1993 was 3.16 percent. This compares to 1992's
ratio of 3.34 percent and 1991's ratio of 3.16 percent.
Salaries increased 5.9 percent or $383,000 in 1993. The addition of
approximately 21 full-time equivalents associated with the Standard Federal
Bank branch acquisition caused this increase to be slightly higher than
normal. Employee benefits decreased $26,000 in 1993 or 1.2 percent from
1992. This compares to 1992's increase of $559,000 or 33.5 percent, as
approximately $325,000 of additional expense was realized in accordance
with SFAS No. 106 related to deferred compensation agreements for certain
officers. As of January 1, 1993, Shoreline adopted the remaining provisions
of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions". The adoption of the remaining provisions of this
-20-
pronouncement had an immaterial effect on the Corporation's consolidated
financial statements. The cost of group medical insurance included in
employee benefits continues to escalate. In 1993, the Corporation
experienced a 16.0 percent or $82,000 increase in this area which compares
to 1992's increase of 19.8 percent or $85,000.
In November 1992, the FASB issued SFAS No. 112 "Employers Accounting
For Postemployment Benefits." SFAS No. 112 focuses principally on post
employment benefits currently expensed on a cash basis, to require
recognition on the accrual basis of the expected cost of providing those
benefits to an employee and the employee's beneficiaries and covered
dependents during the years that the employee renders the necessary
services. Such benefits include salary continuation, supplemental
unemployment benefits, severance benefits, job training and counseling and
continuation of health care benefits. SFAS No. 112 is effective for fiscal
years beginning after December 15, 1993 and adoption is required on a
prospective basis . The Corporation plans to adopt SFAS No. 112, as
required, on January 1, 1994. The effect of adopting the new standard will
not be material to the Corporation's consolidated financial statements.
Occupancy expense totaled $1,245,000 in 1993, an 8.4 percent increase
over 1992's expense. The addition of the four branch locations associated
with the Standard Federal branch acquisition was the primary contributor to
this increase. Nineteen ninety-two's increase was 3.7 percent. Equipment
and data processing expense decreased $190,000 or 12.4 percent from the
prior year. Nineteen ninety-two's expense was unusually high due primarily
to the expense associated with the Corporation's mainframe computer
hardware and software conversion. The efficiencies associated with this new
computer system combined with 1992's high level of expense helped to
produce this positive comparison.
Professional fees expense totaled $586,000 in 1993, an $81,000 or 16.1
percent increase over 1992. This high level of increase resulted primarily
from professional services associated with the branch acquisitions in July
of 1993. In addition, fees associated with facilitating senior management's
strategic planning process, additional legal and collection expense related
to the lending function combined with services associated with a non-
interest income study added to 1993's expense. Nineteen ninety-two's
expense of $505,000 also represented a significant increase of 24.4 percent
over the previous year due primarily to costs of consulting services
associated with the mainframe conversion. As Shoreline continues to pursue
further acquisition opportunities and seeks to enhance its management
talent through the use of professional expertise, it is anticipated that
this area of expense will continue to be a significant item for the
Corporation.
FDIC insurance expense totaled $1,139,000 in 1993, an increase of 9.3
percent related strictly to the growth in deposits. Shoreline's assessment
from the FDIC is at its most favored level of $.23 per $100 of deposits
requiring insurance coverage.
-21-
Control over other expense, as reflected in the statements of income,
was exhibited in 1993 with only a $67,000 or 1.6 percent increase over
1992. Increases in the credit card expense area associated with the
increased revenue discussed above, along with increased advertising expense
associated with the branch acquisitions were areas of particular note with
significant increases in 1993. Nineteen ninety-two's increase of 14.6
percent resulted primarily from $200,000 of expense related to the
deductible portions of two claims submitted under the bankers blanket bond
insurance coverage, increased expense related to the mainframe computer
conversion and increased other real estate owned expenses. Due to the
merger of Inter-City Bank and Citizens Trust & Savings Bank and subsequent
name change to Shoreline Bank, in 1994 management anticipates an increase
in advertising, marketing and other related expense areas.
The following table summarizes the major categories of other expenses
for the last three years:
<TABLE>
<CAPTION>
Year ended December 31 (In thousands) 1993 1992 1991
<S> <C> <C> <C>
Salaries $ 6,915 $ 6,532 $ 6,235
Employee benefits 2,203 2,229 1,670
Occupancy 1,245 1,149 1,108
Equipment 1,023 1,085 780
Data processing 316 445 357
Professional fees 586 505 406
FDIC deposit insurance 1,139 1,042 901
Other insurance 186 204 199
Supplies 453 464 403
Advertising 345 242 232
Marketing and public relations 250 249 172
Postage 359 316 282
Telephone 265 252 221
Michigan Single Business Tax and
other taxes 469 434 416
Charitable contributions 204 162 144
Credit card expense 412 296 260
Amortization of goodwill and core
deposit intangibles 186 121 131
Branch acquisition expense 130 130 139
Other 1,301 1,639 1,355
Total other expense $17,987 $17,496 $15,411
</TABLE>
FEDERAL INCOME TAXES
Shoreline's federal income tax expense was $1,915,500 in 1993,
$1,290,000 in 1992 and $1,152,000 in 1991. The Corporation adopted SFAS
-22-
No. 109, "Accounting for Income Taxes," as of January 1, 1993, with no
material impact on its consolidated financial statements. SFAS No. 109
requires an asset and liability approach for accounting for income taxes
with the objective of establishing deferred tax assets and liabilities for
the temporary differences between carrying amounts and the tax bases of the
Corporation's assets and liabilities at enacted tax rates. As of December
31, 1993, the Corporation's consolidated total deferred tax assets were
$2.0 million and consolidated total deferred tax liabilities were $0.4
million, resulting in a consolidated net deferred tax asset of $1.6
million. Management has no concerns regarding the realization of the net
deferred tax asset, after considering the historical and anticipated future
levels of pretax earnings.
The statutory federal tax rate was 34 percent in 1993, 1992 and 1991.
The Corporation's effective tax rate was 22.7 percent in 1993, 17.9 percent
in 1992 and 17.8 percent in 1991. The lower effective tax rates are
largely the result of tax-exempt income earned on state and municipal
bonds. During 1993, the relative level of tax-exempt income to income
before income taxes decreased significantly from 42.0 percent to 34.1
percent, resulting in an increased effective tax rate.
CAPITAL RESOURCES
On December 31, 1993, total equity capital of Shoreline was $52.6
million. This represents an increase of 9.2 percent or $4.4 million over
total equity capital on December 31, 1992. The ratio of total shareholders'
equity to total assets was 8.5 percent at December 31, 1993, and 9.0
percent on December 31, 1992. The decline in this ratio was attributable to
the branch acquisition in July of 1993 in which approximately $57 million
of assets were purchased.
Under the risk-based capital standards adopted for banks and bank
holding companies, minimum capital levels are based on the perceived risk
in various asset categories and certain off-balance sheet items such as
standby letters of credit. Common shareholders' equity and certain classes
of preferred stock less intangible assets are considered Tier 1 capital.
Tier 2 or "total" capital consists of Tier 1 capital plus the allowance for
loan losses (limited to 1.25 percent of risk-based assets) and other forms
of capital. In addition, a minimum leverage capital ratio has been
established by banking regulators. This ratio is comprised of Tier 1
capital divided by total assets after subtracting intangible assets.
-23-
The following table summarizes the regulatory capital ratios on
December 31, 1993:
<TABLE>
<CAPTION>
Minimum Well-Capitalized Shoreline
<S> <C> <C> <C>
Tier 1 leverage ratio 3.00% 5.00% 8.05%
Tier 1 risked-based capital 4.00% 6.00% 12.90%
Total risked-based capital 8.00% 10.00% 14.15%
</TABLE>
Shoreline's capital ratios are above the regulatory minimums and its
subsidiary banks meet the criteria to be categorized as "well-capitalized."
Maintaining capital at the "well-capitalized" level is one condition for
assessing the federal deposit insurance premium at the lowest available
rate.
As of December 31, 1993, management is not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented would have, or are reasonably likely to have, a material effect
on the Corporation's liquidity, capital resources or operations.
INTEREST RATE SENSITIVITY, LIQUIDITY AND IMPACT OF INFLATION
Asset/liability management focuses on managing the Corporation's net
interest margin by controlling the differences between interest-earning
assets and interest-bearing liabilities. The following table summarizes the
interest rate repricing gaps for selected maturity periods as of December
31, 1993:
<TABLE>
<CAPTION>
Repriceable or Maturing Within:
(In thousands) 0-90 Days 91-365 Days 1 to 5 Years Over 5 Years Total
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 174,972 $ 61,305 $ 136,264 $ 41,152 $ 413,693
Investment securities and securities held for sale 10,813 42,624 51,809 25,705 130,951
Federal funds sold 33,600 0 0 0 33,600
Total interest-earning assets 219,385 103,929 188,073 66,857 578,244
Interest-bearing liabilities:
Time deposits 60,491 107,749 83,666 2,101 254,007
Money market accounts 68,777 68,777
Demand and savings accounts 167,633 167,633
Securities sold under agreements to repurchase 2,411 2,411
Long-term debt 5,000 5,000
Total interest-bearing liabilities 299,312 107,749 88,666 2,101 497,828
Asset (Liability) gap $ (79,927) $ (3,820) $ 99,407 $ 64,756 $ 80,416
Cumulative asset (liability) gap $ (79,927) $(83,747) $ 15,660 $ 80,416
</TABLE>
-24-
Although demand and savings accounts, for which rates paid are not
readjusted on a pre-established contract cycle and are subject to immediate
withdrawal, are presented as repricing in the 0-90 day period, management
believes that these types of accounts are not as sensitive to changes in
interest rate in the short term as this presentation would indicate. The
positive gap position in the 1-5 year period was reflective of the
Corporation's experience in 1993. As discussed in the net interest income
section of Management's Discussion and Analysis, the period of relatively
low, unchanging interest rates that has been experienced over the past year
and a half has negatively impacted Shoreline's net interest margin as the
repricing of rates on interest-earning assets outpaced rate reductions on
interest-bearing liabilities. It is anticipated this phenomenon may
continue in 1994.
Liquidity management is closely related to asset/liability management.
Liquidity is generally defined as the ability to meet cash flow
requirements. The Corporation manages liquidity at two levels, the parent
company and its subsidiaries. The parent company's primary source of funds
is dividends received from its two subsidiary banks, as well as payments
received for services provided by the parent to Shoreline banks. The
parent's liquidity position is managed to provide the cash necessary to pay
dividends to Shoreline's shareholders and to meet other operating
requirements.
The liquidity positions of the bank subsidiaries reflect their ability
to provide funds to satisfy customer credit needs, meet depositor
withdrawal requests and other operating requirements. For the banks,
sources of liquidity include federal funds sold, repayments and maturities
of loans and investment securities and sales of loans and investment
securities, as well as their ability to raise funds through the federal
funds market, deposit growth and borrowings from the Federal Home Loan Bank
of Indianapolis which totaled $5.0 million during 1993. During 1993,
federal funds sold represented 2.8 percent of Shoreline's total average
assets and as of December 31, 1993, was $33.6 million. The Corporation's
1993 loan to deposit ratio averaged 75.2 percent. In addition,
approximately 50 percent of Shoreline's investment securities and
securities held for sale are invested in mortgage-backed securities which
provide a continual stream of principal payment reductions. During 1993,
principal reductions, maturities and calls of investment securities and
securities held for sale totaled $51. 3 million compared to 1992's total of
$35 million. Another source of liquidity is net cash generated from
operating activities. This source has remained relatively stable over the
past three years, totaling $8.4 million, $10.3 million and $6.8 million in
1993, 1992 and 1991 respectively.
Large deposits that experience volatile rate changes are closely
monitored. These deposits consist primarily of time certificates in
denominations of $100,000 or more and totaled $38 million as of December
31, 1993. The time remaining until maturity of time certificates of deposit
$100,000 or more as of December 31, 1993 is as follows:
-25-
<TABLE>
<CAPTION>
Time until maturity (In thousands)
<S> <C>
Three months or less $ 15,477
Over three through six months 5,596
Over six through twelve months 4,245
Over 12 months 12,673
Total $ 37,991
</TABLE>
During 1993 and 1992, net cash from investing activities included
$11.8 million and $17.8 million, respectively, in proceeds from the sale of
investment securities and securities held for sale. Certain liquidity
considerations coupled with existing market conditions made it advantageous
to sell certain securities during 1993 and 1992 producing net gains of
approximately $370,000 and $399,000 respectively. During 1993, management
classified its tax-exempt securities portfolio as held for sale. As of
December 31, 1993, management re-evaluated this assessment and
substantially reduced the amount of tax-exempt securities classified as
held for sale. This re-evaluation occurred as a result of the
consideration of the required adoption, as of January 1, 1994, of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
along with consideration of new IRS regulations issued in December of 1993
relative to "mark-to-market" requirements for certain securities holders.
As of December 31, 1993, management identified $12.5 million of its
investment securities portfolio as held for sale. As of December 31, 1992,
investment securities held for sale totaled $8.6 million. During 1993, net
cash from investing activities also included $11.4 million of cash received
from Standard Federal Bank relative to the acquisition of four branches for
which the deposit liabilities assumed exceeded the assets acquired.
Additional space requirements prompted management to enter into an
agreement to construct an addition of approximately 8,000 square feet to
its St. Joseph, Michigan, Pleasant Street location. The Corporation
anticipates this project will be completed during the second quarter of
1994 and will cost an estimated $1.2 million.
Upon consummation of the pending agreement to purchase the South Haven
branch from Great Lakes Bancorp, (See Item 1), Shoreline will receive cash
for the excess of the deposit liabilities assumed over the assets
purchased. This amount is anticipated to be approximately $13 million and
the purchase is anticipated to be completed in the second quarter of 1994.
Reported earnings are affected by inflation, indirectly through
changing interest rates and directly by increased operation expenses.
However, in the opinion of management, the effects of general price level
inflation have not had a material effect on the information presented
herein.
-26-
INVESTMENTS
The book values of investment securities as of the dates indicated are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
U.S. Treasury and agencies $ 12,537 $ 12,557 $ 20,953
States and political subdivisions 32,184 45,296 39,302
Mortgage-backed securities:
U.S. Government agencies 57,996 44,386 42,327
Collateralized mortgage
obligations 8,108 6,962 9,276
Other securities 7,626 4,453 5,160
Total $ 118,451 $ 113,654 $ 117,018
</TABLE>
SECURITIES HELD FOR SALE
The book values of securities held for sale as of the dates indicated
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
U.S. Treasury and agencies $ 0 $ 1,000 $ 1,980
States and political subdivisions 6,354 1,321 0
Mortgage-backed securities:
U.S. Government agencies 6,146 6,290 4,700
Total $ 12,500 $ 8,611 $ 6,680
</TABLE>
The following table shows, by class of maturities as of December 31,
1993, the amounts and weighted average yields of investment securities:(1)
-27-
<TABLE>
<CAPTION>
MATURING
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
(Dollars In thousands) Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 3,000 4.97% $ 9,537 4.67% $ 0 N/A $ 0 N/A
States and political subdivisions(1) 3,135 11.21% 13,781 11.61% 7,735 10.84% 7,533 9.56%
Mortgage-backed securities:(2)
U.S. Government agencies 11,300 5.26% 33,776 6.61% 11,917 7.62% 1,003 5.16%
Collateralized mortgage obligations 1,674 6.51% 6,435 6.93% 0 N/A 0 N/A
Other securities 2,004 7.44% 3,012 7.08% 0 N/A 2,609 5.30%
Total $ 21,113 6.41% $ 66,541 7.42% $19,652 8.89% $11,145 8.17%
<FN>
(1) The effective yields are weighted for the scheduled maturity of each security and weighted
average yields are calculated on the basis of cost. Weighted interest rates have been computed on a
fully taxable equivalent basis. The rates shown on securities issued by states and political
subdivisions have been restated, assuming a 34 percent tax rate.
(2) Maturity based upon estimated weighted average life.
</TABLE>
The following table shows, by class of maturities as of December 31.
1993, the amounts and weighted average yields of securities held for
sale: (1)
<TABLE>
<CAPTION>
MATURING
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
(Dollars In thousands) Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
States and political subdivisions(1) $ 125 9.92% $ 1,798 10.02% $ 779 9.74% 3,652 9.45%
Mortgage-backed securities:(2)
U.S. Government agencies 3,620 5.24% 2,526 8.58% 0 N/A 0 N/A
Total $ 3,745 5.40% $ 4,324 9.18% $ 779 9.74% $3,652 9.45%
<FN>
(1) The effective yields are weighted for the scheduled maturity of each security and weighted
average yields are calculated on the basis of cost. Weighted interest rates have been computed
on a fully taxable equivalent basis. The rates shown on securities issued by states and
political subdivisions have been restated, assuming a 34 percent tax rate.
(2) Maturity based upon estimated weighted average life.
</TABLE>
The aggregate book value of the securities of no single issuer except
the U.S. Government and its agencies exceeds 10 percent of Shoreline
Financial Corporation's shareholders' equity.
-28-
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" effective for fiscal years
beginning after December 15, 1993. This statement requires that equity and
debt securities be classified in the following three categories with the
corresponding accounting treatment:
1. Held-to-maturity recorded at amortized cost.
2. Trading securities recorded at fair value, with unrealized gains
and losses included in earnings.
3. Available for sale recorded at fair value, with unrealized gains
and losses reported as a component of shareholders' equity, net of deferred
income taxes.
Management anticipates that when SFAS No. 115 is adopted on January
1, 1994, approximately $2.4 million will be reported as an addition to
shareholders' equity for those securities categorized as available for
sale.
SOURCES AND USES OF FUNDS TRENDS
During 1993, total deposits averaged $512.1 million, an increase of 8.2
percent or $39 million over 1992 s average. The acquisition of the four
branches in July of 1993 accounted for approximately $22 million of this
increase in average deposits. Nineteen ninety-two s increase in average
deposits was $31.5 million or 7.1 percent. Non-interest bearing demand
deposits averaged $60 million in 1993, a strong increase of 10.1 percent.
However, the continued low interest rate environment continued to hamper
the Corporation s ability to attract time deposit customers. Average time
deposits in 1993 decreased to $239.8 million from $241.6 million in 1992.
n an effort to counteract this trend, Shoreline introduced a premium rate
savings account product called the Capital Club Account, designed to
compete with money-market, mutual fund-type offerings. The success of this
product not only attracted new customers to Shoreline, but also affected
the transfer of many customers from the time deposit category. At December
31, 1993, Shoreline had $47.4 million in this product which helped to
increase the average balance in interest-bearing demand and savings accounts
from $177 million in 1992 to $212.3 million in 1993.
During 1993, the Corporation increased the average balance of
securities sold under agreements to repurchase to $1.9 million from the $0.9
million averaged in 1992. In addition, Shoreline obtained a $5 million
Federal Home Loan Bank advance in September of 1993. This advance is a
5-year, fixed-rate commitment with a prepayment option at each anniversary
date.
Average total loans increased 9.7 percent in 1993, from $351.2
million in 1992 to $385.1 million in 1993. The purchase of approximately $42
million of mortgage loan products associated with the Standard Federal Bank
branch acquisitions accounted for a significant portion of this increase
and helped to account for the 22.1 percent increase in Shoreline s average
mortgage loan portfolio. Shoreline continued to increase its involvement
-29-
in the sale of mortgage loans to the secondary market. During 1993, the
Corporation originated $18.9 million of loans for sale. As of December 31,
1993, Shoreline held $1.8 million of mortgage loans for sale to the
secondary market. Management anticipates continued sales of mortgage loans,
originated at rates and maturities deemed to be unacceptable for the loan
portfolio, to the secondary market in 1994. Activity in the consumer loan
portfolio increased during 1993. Average consumer loans increased 12.6
percent over 1992. Increased home equity line usage, along with increased
auto loan activity, helped to produce this increase. In contrast,
Shoreline experienced a reduction in commercial loan activity during 1993.
Average commercial loans increased a modest 1.3 percent over 1992 s average.
Nineteen ninety-two s increase in average total loans was $26.3 million or
8.1 percent and was produced primarily by growth in the commercial loan area
of $23.6 million.
Average federal funds increased to $15.8 million in 1993. Federal
funds represented 2.8 percent of total average assets in 1993. This compares
to 1992 s average of 1.7 percent. Shoreline strives to maintain federal
funds sold between one and three percent of total assets. The lack of
attractive investment alternatives caused this ratio to increase in 1993.
The average balance in taxable securities increased $3.5 million or 4.3
percent in 1993 which compares to 1992 s increase of $6.2 million or 8.1
percent. Investments in other securities (i.e., FHLB stock, taxable municipals
and collateralized mortgage obligations) produced 1993 s increase in taxable
securities. Average tax-exempt securities decreased $1.9 million during 1993
as maturities along with the sale of certain lower-yielding municipals
reduced the average balance in this area. As Shoreline is no longer in the
Alternative Minimum Tax zone, tax-exempt securities became a more attractive
investment alternative in 1992. Accordingly, during 1992 average tax-exempt
securities increase $6.4 million or 17.4 percent.
-30-
<TABLE>
The following table of average balances summarizes the trends in sources and uses of funds:
<CAPTION>
1993 1992
Increase (Decrease) Increase (Decrease)
(In thousands) Average Balance Amount Percent Average Balance Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Funding uses:
Loans-net of unearned income $ 385,138 $ 33,970 9.7% $ 351,168 $ 26,257 8.1%
Taxable investment securities 86,375 3,543 4.3% 82,832 6,183 8.1%
Tax-exempt investment securities 41,004 (1,895) (4.4%) 42,899 6,363 17.4%
Federal funds sold 15,799 6,635 72.4% 9,164 (5,039) (35.5%)
Total uses $ 528,316 $ 42,253 8.7% $ 486,063 $ 33,764 7.5%
Funding sources:
Non-interest-bearing demand deposits $ 59,987 $ 5,486 10.1% $ 54,501 $ 2,841 5.5%
Interest-bearing demand and
savings deposits 212,288 35,292 19.9% 176,996 18,766 11.9%
Time deposits 239,789 (1,771) (.7%) 241,560 9,904 4.3%
Securities sold under
agreements to repurchase 1,943 1,066 121.6% 877 832 1,948.9%
Long-term debt 1,548 1,548 N/A 0 0 N/A
Other 12,761 632 5.2% 12,129 1,421 13.3%
Total sources $ 528,316 $ 42,253 8.7% 486,063 $ 33,764 7.5%
</TABLE>
-31-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Shoreline Financial Corporation
Benton Harbor, Michigan
We have audited the accompanying consolidated balance sheets of
SHORELINE FINANCIAL CORPORATION as of December 31, 1993 and 1992 and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for the years ended December 31, 1993, 1992 and 1991. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
SHORELINE FINANCIAL CORPORATION as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for the years ended December
31, 1993, 1992 and 1991, in conformity with generally accepted accounting
principles.
CROWE, CHIZEK AND COMPANY
South Bend, Indiana
February 11, 1994,
except for Note 1 (stock splits and dividends) as to
which the date is February 16, 1994
-32-
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 1993 1992
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 27,428,786 $ 28,494,395
Federal funds sold 33,600,000 15,675,000
Total cash and cash equivalents 61,028,786 44,169,395
Investment securities
(estimated market values of
$122,771,000 and $118,262,000 at
December 31, 1993 and
December 31, 1992, respectively)
(Note 3) 118,450,871 113,654,019
Securities held for sale
(estimated market values of
$13,195,000 and $8,671,000 at
December 31, 1993 and
December 31, 1992, respectively)
(Note 4) 12,499,969 8,610,932
Loans: (Note 5)
Commercial 194,083,141 187,405,485
Consumer 58,820,606 49,612,672
Real estate 160,789,531 117,721,547
Total loans 413,693,278 354,739,704
Less allowance for loan losses (Note 6) 5,586,090 4,565,840
Net loans 408,107,188 350,173,864
Premises and equipment (Note 7) 8,924,619 7,900,764
Other assets 11,608,340 8,494,701
Total Assets $ 620,619,773 $ 533,003,675
</TABLE>
-33-
<TABLE>
CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
December 31 1993 1992
<S> <C> <C>
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest-bearing $ 66,991,766 $ 59,996,646
Interest-bearing (Note 8) 490,416,878 420,461,853
Total deposits 557,408,644 480,458,499
Securities sold under agreements to
repurchase 2,410,920 1,164,191
Other liabilities 3,193,090 3,187,136
Long-term debt (Note 9) 5,000,000 0
Total Liabilities 568,012,654 484,809,826
Commitments, off-balance-sheet risk
and contingencies (Note 12)
Shareholders' Equity
Preferred stock, no par value;
1,000,000 shares authorized;
no shares outstanding
Common stock, par value $1:
5,000,000 shares authorized;
3,300,645 and 3,114,362 shares
issued and outstanding at
December 31, 1993 and
December 31, 1992, respectively
(Note 1) 3,300,645 3,114,362
Additional paid-in capital 41,684,562 36,865,896
Retained earnings 7,621,912 8,213,591
Total Shareholders' Equity 52,607,119 48,193,849
Total Liabilities and Shareholders'
Equity $ 620,619,773 $ 533,003,675
</TABLE>
See accompanying notes to consolidated financial statements.
-34-
<TABLE>CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31 1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 31,928,435 $ 31,609,978 $33,442,283
Interest on investment
securities:
Taxable 5,118,720 6,707,278 6,807,246
Tax-exempt 2,908,548 3,058,150 2,708,956
Interest on federal funds sold 468,320 305,227 811,739
sold
Total interest income 40,424,023 41,680,633 43,770,224
INTEREST EXPENSE
Interest on deposits (Note 8) 17,239,464 19,523,356 23,787,621
Interest on short-term
borrowings 41,767 27,646 2,231
Interest on long-term debt 76,788 0 0
Total interest expense 17,358,019 19,551,002 23,789,852
NET INTEREST INCOME 23,066,004 22,129,631 19,980,372
Provision for loan losses 1,380,000 1,380,000 1,270,000
(Note 6)
NET INTEREST INCOME AFTER
PROVISION FOR
LOAN LOSSES 21,686,004 20,749,631 18,710,372
OTHER INCOME
Service charges on
deposit accounts 1,731,423 1,490,379 1,320,051
Trust income 1,180,927 1,123,084 985,478
Securities gains
(Notes 3, 4 and 10) 370,402 398,878 136,375
Other 1,470,794 955,395 745,789
Total other income 4,753,546 3,967,736 3,187,693
OTHER EXPENSES
Salaries and employee benefits
(Note 11) 9,117,703 8,761,247 7,905,274
Occupancy expense 1,245,279 1,148,928 1,108,059
Equipment expense 1,023,329 1,084,940 779,939
Data processing expense 316,497 444,894 356,758
Professional fees 586,486 504,995 405,924
Insurance expense 1,325,694 1,246,200 1,099,309
Other 4,371,540 4,304,574 3,756,133
Total other expenses 17,986,528 17,495,778 15,411,396
INCOME BEFORE INCOME TAXES 8,453,022 7,221,589 6,486,669
Federal income tax expense
(Note 10) 1,915,500 1,290,000 1,152,000
NET INCOME $ 6,537,522 $ 5,931,589 $ 5,334,669
EARNINGS PER SHARE (Note 1) $ 2.00 $ 1.82 $ 1.65
</TABLE>
See accompanying notes to consolidated financial statements.
-35-
<TABLE>CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
Three years ended
December 31, 1993
Balance at January 1, $1,866,649 $31,594,056 $7,400,061 $40,860,766
1991
Net income for year 5,334,669 5,334,669
Cash dividends
declared:
$0.65 per common
share (Note 1) (2,121,870) (2,121,870)
10% stock dividend 186,757 4,668,924 (4,869,219) (13,538)
Shares issued under
dividend
reinvestment plan 12,481 287,432 299,913
Balance at
December 31, 1991 2,065,887 36,550,412 5,743,641 44,359,940
Net income for year 5,931,589 5,931,589
Cash dividends declared:
$0.74 per common
share (Note 1) (2,422,068) (2,422,068)
3-for-2 stock split 1,034,223 0 (1,039,571) (5,348)
Shares issued under
dividend
reinvestment plan 14,252 315,484 329,736
Balance at
December 31, 1992 3,114,362 36,865,896 8,213,591 48,193,849
Net income for year 6,537,522 6,537,522
Cash dividends
declared:
$0.83 per common
share (Note 1) (2,727,181) (2,727,181)
5% stock dividend 155,260 4,230,835 (4,402,020) (15,925)
Shares issued under
dividend
reinvestment plan 14,683 396,653 411,336
Shares issued under
stock option plan 16,340 191,178 207,518
Balance at
December 31, 1993 $3,300,645 $41,684,562 $7,621,912 $52,607,119
See accompanying notes to consolidated financial statements.
</TABLE>
-36-
<TABLE>CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31 1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating
activities:
Net Income $ 6,537,522 $ 5,931,589 $ 5,334,669
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization 1,154,280 1,127,939 874,182
Provision for loan losses 1,380,000 1,380,000 1,270,000
Net amortization and accretion
on investment securities 1,374,006 426,205 174,106
Net amortization and accretion
on securities held for sale 139,551 16,441 0
Amortization of goodwill and
related core deposit intangibles 186,113 121,385 130,889
Gains on sales and calls of
investment securities (10,223) (113,300) (136,375)
Gains on sales and calls of
securities held for sale (360,179) (285,578) 0
Loans originated for sale (18,888,024) (7,236,600) 0
Proceeds from sales of loans 18,112,864 8,074,293 0
Gains on sales of loans (294,840) (139,693) 0
Losses on disposal of
premises and equipment 32,512 110,778 5,867
Increase in income taxes receivable (339,500) (543,000) (347,791)
Increase (Decrease) in deferred
loan fees (56,005) 65,815 231,066
(Increase) Decrease in interest
receivable (96,193) 590,025 230,589
Decrease in interest payable (158,313) (380,516) (710,147)
(Increase) Decrease in other assets (434,646) 644,416 (519,154)
Increase in other liabilities 164,267 510,713 231,667
Total adjustments 1,905,670 4,369,323 1,434,899
Net cash from operating activities 8,443,192 10,300,912 6,769,568
</TABLE>
-37-
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
Years ended December 31 1993 1992 1991
<S> <C> <C> <C>
Cash flows from investing
activities:
Net increase in loans (16,442,366) (12,457,716) (29,097,534)
Recoveries on loans
charged-off 241,830 182,820 170,295
Purchase of investment
securities (71,306,826) (51,414,927) (44,820,594)
Purchase of securities held
for sale (1,582,627) 0 0
Proceeds from sales of
investment securities 2,027,125 7,197,380 9,727,194
Proceeds from sales of
securities held for sale 9,733,983 10,606,988 0
Proceeds from maturities,
calls and principal reductions
of investment securities 43,129,539 34,100,023 16,553,295
Proceeds from maturities, calls
and principal reductions
of securities held for sale 8,169,762 899,843 0
Premises and equipment
expenditures (1,444,985) (2,076,080) (384,989)
Proceeds from disposal of
premises and equipment 17,138 54,205 27,916
Cash received for net
liabilities assumed in
acquisition of branches 11,369,958 0 0
Net cash from investing
activities (16,087,469) (12,907,464) (47,824,417)
</TABLE>
-38-
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
Years Ended December 31 1993 1992 1991
<S> <C> <C> <C>
Cash flows from financing
activities:
Net increase in deposits 20,381,191 21,545,884 27,617,458
Net increase in short-term
borrowings 1,246,729 364,191 800,000
Proceeds from long-term debt 5,000,000 0 0
Dividends paid (2,727,181) (2,422,068) (2,121,870)
Stock dividends and splits-
cash paid for fractional
shares (15,925) (5,348) (13,538)
Proceeds from shares issued
under dividend reinvestment
plan 411,336 329,736 299,913
Proceeds from shares issued
under stock option plan 207,518 0 0
Net cash from financing
activities 24,503,668 19,812,395 26,581,963
Net change in cash and
cash equivalents 16,859,391 17,205,843 (14,472,886)
Cash and cash equivalents
at beginning of year 44,169,395 26,963,552 41,436,438
Cash and cash equivalents
at end of year $61,028,786 $44,169,395 $26,963,552
Cash paid during the year
for:
Interest $17,516,332 $19,931,518 $24,499,999
Income taxes $ 2,255,000 $ 1,833,000 $ 1,499,791
</TABLE>
Supplementary information:
Supplemental Schedule of Non-Cash Investing Activities: During 1993, 1992
and 1991, $19,989,527, $13,168,469 and $6,680,154, respectively, was
reclassified from investment securities to securities held for sale,
on a net basis.
The branch acquisitions in 1993 resulted in an increase in loans of
$41,986,783, premises and equipment of $782,800, core deposit
intangibles of $2,429,413 and deposits of $56,568,954.
See accompanying notes to consolidated financial statements.
-39-
Notes To Consolidated Financial Statements
Note 1. Summary of Accounting Policies
The accounting and reporting policies and practices of Shoreline
Financial Corporation and its subsidiaries conform with generally accepted
accounting principles and prevailing practices within the banking industry.
The following summaries describe the significant accounting and reporting
policies which are employed in the preparation of the financial statements.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Shoreline Financial Corporation and its
wholly owned subsidiaries, Inter-City Bank and Citizens Trust and Savings
Bank (together referred to as "the Corporation"). All material inter-
company accounts and transactions have been eliminated in consolidation.
Investment Securities. Investment securities are those securities
which the Corporation has the ability to hold to maturity and the intent to
hold for the foreseeable future. These securities are stated at cost
adjusted for amortization of premium and accretion of discount, both
computed by methods approximating the interest method. Gains and losses on
the sale or disposal of investment securities are computed on the basis of
specific identification of the adjusted cost of each security.
Securities Held for Sale. Securities held for sale are those
securities which management does not intend to hold for the foreseeable
future. These securities are carried at the lower of amortized cost or
estimated market value in the aggregate. Net unrealized losses are
recognized in a valuation allowance by charges to income.
Loans Held for Sale. Mortgage loans originated and intended for sale
in the secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are recognized in a
valuation allowance by charges to income.
Allowance for Loan Losses. Because some loans may not be repaid in
full, an allowance for loan losses is recorded. Increases to the allowance
are recorded by a provision for loan losses charged to expense. Estimating
the risk of loss and the amount of loss on any loan is necessarily
subjective. Accordingly, the allowance is maintained by management at a
level considered adequate to cover possible losses that are currently
anticipated based on past loss experience, general economic conditions,
information about specific borrower situations including their financial
position and collateral values, and other factors and estimates which are
subject to change over time. While management may periodically allocate
portions of the allowance for specific problem loan situations, the whole
allowance is available for any loan charge-offs that occur. A problem loan
is charged-off by management as a loss when deemed uncollectible, although
collection efforts continue and future recoveries may occur.
-40-
Interest and Fees on Loans. Interest on loans is accrued over the
term of the loans based on principal amounts outstanding except, where
serious doubt exists as to the collectibility of a loan, in which case the
accrual of interest is discontinued. Loan origination and commitment fees
and related lending costs are deferred, and the net amount is amortized as
an adjustment of the related loan's yield using the level yield method over
its original term. The net amount of deferred income ($676,918 and $732,923
at December 31, 1993 and 1992, respectively) is reported in the
consolidated balance sheet as part of loans.
Premises and Equipment. Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
using a combination of straight-line and accelerated methods for book
purposes and accelerated methods for income tax purposes with useful lives
ranging primarily from 10 to 50 years for bank premises, and 5 to 20 years
for furniture and fixtures. Maintenance, repairs and minor alterations are
charged to current operations as expenditures occur, and major improvements
are capitalized.
Other Real Estate. Other real estate represents properties acquired
through a foreclosure proceeding, acceptance of a deed in lieu of
foreclosure, or loans which have been deemed to be in substance foreclosed.
Other real estate is initially recorded at fair value at the date of
acquisition. Any excess of the loan balance over fair value is charged
against the allowance for loan losses when the loan is transferred to other
real estate. After acquisition, a valuation allowance is recorded through a
charge to income for the amount of estimated selling costs. Valuations are
periodically performed by management, and valuation allowances are adjusted
through a charge to income for changes in fair value or estimated costs to
sell. Subsequent declines in value, and gains and losses on sales, are
recognized in current earnings. Other real estate owned amounted to
approximately $1,026,000 and $640,000 at December 31, 1993 and 1992,
respectively.
Intangible Assets. Intangible assets consist of goodwill
representing 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 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. As
of December 31, 1993, the remaining unamortized goodwill and core deposit
intangibles totaled $262,103 and $2,593,564, respectively.
Trust Income. Trust income is recognized as income when received.
The amounts recognized under this method are not significantly different
from amounts that would have been recognized on the accrual basis.
-41-
Employee Benefits. The Corporation maintains a noncontributory
pension plan covering all eligible employees. The Corporation accounts for
its pension costs under Statement of Financial Accounting Standards (SFAS)
No. 87. The Corporation's policy is to fund the plan based upon annual
actuarial computations and within Internal Revenue Service guidelines. The
Corporation also maintains a profit sharing plan and 401(k) salary
reduction plan for which contributions are made and expensed annually. In
addition, 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 SFAS No. 106, "Employers'
Accounting For Post Retirement Benefits Other Than Pensions." SFAS No. 106
requires the accrual, during the years that employees render the necessary
service, of the expected cost of providing postretirement health care
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. The impact of adopting the new standard was not
material.
Income Taxes. The Corporation files annual consolidated federal
income tax returns. For periods prior to January 1, 1993, income tax
expense was calculated using the deferred method (APB 11). Under APB 11,
the Corporation computed deferred taxes for the tax effects of timing
differences between financial reporting and tax return taxable income.
Effective January 1, 1993, the Corporation applied the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Accordingly, income tax expense for the year ended December
31, 1993 is based upon the asset and liability method. The asset and
liability method requires the Corporation to record income tax expense
based on the amount of taxes due on its consolidated tax return plus
deferred taxes computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets
and liabilities, using enacted tax rates. The effect of the adoption of
SFAS No. 109 was not material to the Corporation's consolidated financial
position or results of operations.
Earnings and Dividends 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. Common
equivalent shares are shares which may be issuable to employees upon
exercise of outstanding stock options. Earnings and dividends per share are
restated for all stock splits and dividends paid. After restatement, the
average number of shares used in this calculation was 3,276,137 in 1993,
3,261,290 in 1992, and 3,242,839 in 1991.
-42-
Stock Splits and Dividends. In 1993, the Corporation declared a 5
percent stock dividend. Stock dividends are accounted for by transferring
the fair market value of the stock from retained earnings to common stock
and additional paid-in capital. In 1992, the Corporation declared a three-
for-two stock split in the form of a stock dividend. This stock split was
accounted for by transferring the par value of the stock from retained
earnings to common stock. The Corporation declared a 10 percent stock
dividend in 1991. Fractional shares were paid in cash for all stock splits
and dividends. 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 subject to shareholder approval of an increase in
authorized capital. Earnings and dividends per share have not been
restated for the three-for-two stock split to be effective May 31, 1994.
Statement of Cash Flows. For purposes of reporting cash flows, cash
and cash equivalents is defined to include the Corporation's cash on hand,
its demand deposits in other institutions, and its federal funds sold with
a maturity of 90 days or less. The Corporation reports net cash flows for
customer loan transactions, deposit transactions, short-term borrowings
with a maturity of 90 days or less and interest-bearing balances with other
financial institutions.
Concentrations of Credit Risk. The Corporation grants commercial,
real estate, and consumer loans to customers primarily in the Michigan
communities in which the banks are located and in areas immediately
surrounding these communities. The majority of loans are secured by
specific items of collateral, primarily residential properties and other
types of real estate, but are also secured by business assets and consumer
assets.
Financial Instruments with Off-Balance-Sheet Risk. The Corporation,
in the normal course of business, makes commitments to extend credit which
are not reflected in the financial statements. See Note 12 for a summary of
these commitments.
Business Segment. The Corporation is engaged in the business of
commercial and retail banking, which accounts for more than 90% of its
revenues, operating income and assets. There are no foreign loans.
-43-
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
A summary of the Corporation's subsidiary banks' legal cash reserve
requirements established by the Federal Reserve System as of December 31
follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Portion of requirement satisfied by
non-interest-earning vault cash $3,735,000 $3,484,000
Additional balances maintained with the
Federal Reserve 500,000 500,000
Total reserve requirements $4,235,000 $3,984,000
</TABLE>
NOTE 3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
December 31, Cost Unrealized Gains Unrealized Losses Market Value
<S> <C> <C> <C> <C>
1993
U.S. Treasury and agencies $ 12,537,273 $ 87,784 $ (16,057) $ 12,609,000
States and political subdivisions 32,183,401 3,270,265 (3,666) 35,450,000
Mortgage-backed securities:
U.S. Government agencies 57,996,036 1,017,022 (136,058) 58,877,000
Collateralized mortgage obligations 8,108,444 37,373 (25,817) 8,120,000
Other securities 7,625,717 95,497 (6,214) 7,715,000
Total $ 118,450,871 $ 4,507,941 $ (187,812) $ 122,771,000
1992
U.S. Treasury and agencies $ 12,557,408 $ 237,592 $ 0 $ 12,795,000
States and political subdivisions 45,295,636 3,292,368 (22,004) 48,566,000
Mortgage-backed securities:
U.S. Government agencies 44,385,481 1,074,979 (141,460) 45,319,000
Collateralized mortgage obligations 6,961,942 69,763 (18,705) 7,013,000
Other securities 4,453,552 115,448 0 4,569,000
Total $ 113,654,019 $ 4,790,150 $ (182,169) $ 118,262,000
</TABLE>
-44-
The amortized cost and estimated market value of debt securities at
December 31, 1993, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Cost Estimated Market Value
<S> <C> <C>
Due in one year or less $ 8,138,136 $ 8,224,000
Due after one year through five years 26,330,957 27,725,000
Due after five years through ten years 7,735,199 8,786,000
Due after ten years 10,142,099 11,039,000
Subtotal 52,346,391 55,774,000
Mortgage-backed securities 66,104,480 66,997,000
Total $118,450,871 $122,771,000
</TABLE>
Proceeds, gross gains and gross losses realized from sales and calls of
investments in debt securities for the years ending December 31, 1993, 1992
and 1991 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Proceeds from sales $ 2,027,125 $ 7,197,380 $ 9,727,194
Gross gains from sales $ 10,893 $ 141,490 $ 154,955
Gross losses from sales (670) (29,604) (21,580)
Net gains from sales 10,223 111,886 133,375
Net gains from calls 0 1,414 3,000
Net gain $ 10,223 $ 113,300 $ 136,375
</TABLE>
Debt securities having an amortized cost of approximately
$22,273,000 at December 31, 1993, were pledged to secure public and trust
deposits, securities sold under agreements to repurchase, advances from
Federal Home Loan Bank and for other purposes as required by law.
-45-
NOTE 4. SECURITIES HELD FOR SALE
The amortized cost and estimated market value of debt securities held
for sale are as follows:
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Gains Unrealized Losses Market Value
1993
<S> <C> <C> <C> <C>
States and political subdivisions $ 6,354,384 $ 679,616 $ 0 $ 7,034,000
Mortgage-backed securities:
U.S. Government agencies 6,145,585 45,145 (29,730) 6,161,000
Total $ 12,499,969 $ 724,761 $ (29,730) $13,195,000
1992
U.S. Treasury and agencies $ 1,000,000 $ 29,000 $ 0 $ 1,029,000
States and political subdivisions 1,321,165 35,835 0 1,357,000
Mortgage-backed securities:
U.S. Government agencies 6,289,767 46,882 (51,649) 6,285,000
Total $ 8,610,932 $ 111,717 $ (51,649) 8,671,000
</TABLE>
The amortized cost and estimated market value of debt securities held
for sale at December 31, 1993, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Cost Estimated Market Value
<S> <C> <C>
Due in one year or less $ 125,000 $ 127,000
Due after one year through five years 1,797,696 1,941,000
Due after five years through ten years 779,124 876,000
Due after ten years 3,652,564 4,090,000
Subtotal 6,354,384 7,034,000
Mortgage-backed securities 6,145,585 6,161,000
Total $ 12,499,969 $ 13,195,000
</TABLE>
-46-
Proceeds, gross gains and gross losses realized from sales and calls
of debt securities held for sale for the years ending December 31, 1993,
1992 and 1991, are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Proceeds from sales $ 9,733,983 $ 10,606,988 $ 0
Gross gains from sales $ 356,379 $ 311,321 $ 0
Gross losses from sales (2,500) (25,743) 0
Net gains from sales 353,879 285,578 0
Net gains from calls 6,300 0 0
Net gain $ 360,179 $ 285,578 $ 0
</TABLE>
NOTE 5. LOANS
At December 31, 1993 and 1992, the Corporation had approximately
$l,962,000 and $2,934,000, respectively, of loans for which no interest
income was being recognized due to the uncertainty of the collectibility of
the loans. If interest on such loans had been accrued, the income would
have approximated $131,000, $162,000 and $245,000 in 1993, 1992 and 1991,
respectively.
Certain directors, executive officers and principal shareholders of
the Corporation, including associates of such persons, were loan customers
of the Corporation during 1993. A summary of aggregate related party loan
activity, for loans aggregating $60,000 or more to any one related party,
is as follows for the year ended December 31, 1993:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1 $12,146,037
New loans 4,573,015
Repayments (5,779,746)
Other changes, net (315,928)
Balance at December 31 $10,623,378
</TABLE>
Other changes include adjustments for persons included in one
reporting period that are not included in the other reporting period.
At December 31, 1993 and 1992, the Corporation had approximately
$1,800,000 and $730,000, respectively, of mortgage loans with an estimated
market value of $1,820,000 and $743,000, respectively, which were held for
sale.
-47-
NOTE 6. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Balance, at beginning
of year $ 4,565,840 $ 3,834,065 $ 3,489,007
Provision charged to
operating expense 1,380,000 1,380,000 1,270,000
5,945,840 5,214,065 4,759,007
Loan charge-offs (601,580) (831,045) (1,095,237)
Loan recoveries 241,830 182,820 170,295
Net loan charge-offs (359,750) (648,225) (924,942)
Balance, at end of year $ 5,586,090 $ 4,565,840 $ 3,834,065
</TABLE>
NOTE 7. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Land $ 903,904 $ 789,882
Building and improvements 8,382,975 7,610,213
Furniture and equipment 8,282,465 7,678,317
17,569,344 16,078,412
Less accumulated depreciation
and amortization 8,644,725 8,177,648
Net premises and equipment $ 8,924,619 $ 7,900,764
</TABLE>
Depreciation and amortization expense charged to operations was
$1,154,280, $1,127,939 and $874,182 in 1993, 1992 and 1991, respectively.
-48-
NOTE 8. DEPOSITS
Certificates of deposit in denominations of $100,000 or more totaled
approximately $37,991,000 and $36,921,000 at December 31, 1993 and 1992,
respectively. Interest expense on deposits for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Interest-bearing demand $ 1,169,122 $ 1,691,202 $ 2,133,684
Savings 4,261,699 4,151,905 5,281,885
Time deposits less than $100,000 10,330,579 11,741,124 13,236,388
Time deposits of $100,000 or more 1,478,064 1,939,125 3,135,664
Total $ 17,239,464 $19,523,356 $23,787,621
</TABLE>
NOTE 9. LONG-TERM DEBT
At December 31, 1993, the Corporation had advances from the Federal
Home Loan Bank of Indianapolis (FHLB) totaling $5,000,000. The terms of the
advances include monthly interest payments at annual percentage rates of
5.05%. Prepayment options exist on the anniversary dates of the advances,
without incurring penalty. The principal balances mature in September of
1998. The FHLB advances are collateralized by U.S. Government agency
mortgage-backed securities with a book value of approximately $7,600,000 as
of December 31, 1993.
NOTE 10. INCOME TAXES
Components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
<S> <C> <C> <C>
Taxes currently payable $ 2,329,050 $ 1,822,771 $ 1,400,977
Deferred tax benefit (413,550) (532,771) (248,977)
Total $ 1,915,500 $ 1,290,000 $ 1,152,000
</TABLE>
Taxes allocated to securities transactions were $125,937 in 1993,
$79,776 in 1992 and $27,275 in 1991.
-49-
The sources and related tax effects of the components of the deferred
federal income tax benefits are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1992 1991
<S> <C> <C>
Provision for loan losses $ (309,428) $ (117,320)
Accretion of bond discount (6,986) (17,333)
Depreciation 25,618 33,692
Net deferred loan fees (22,377) (78,562)
Deferred compensation (131,481) (72,108)
Other (88,117) 2,654
Total $ (532,771) $ (248,977)
</TABLE>
The difference between the provision in these financial statements and
amounts computed by applying the statutory federal income tax rate to
pretax income is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
<S> <C> <C> <C>
Statutory federal tax rate 34% 34% 34%
Income computed at the statutory
federal tax rate $ 2,874,027 $ 2,455,340 $ 2,205,467
Add (subtract) tax effect of:
Tax-exempt securities income (979,854) (1,030,775) (912,599)
Tax-exempt loan income (144,974) (171,013) (160,642)
Non-deductible interest expense 97,411 116,905 124,292
Other 68,890 (11,264) (68,316)
Effect of alternative minimum tax 0 (69,193) (36,202)
Total $ 1,915,500 $ 1,290,000 $ 1,152,000
</TABLE>
-50-
The components of the net deferred tax asset recorded in the balance
sheet as of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1993
<S> <C>
Deferred tax assets
Provision for loan losses $ 1,474,898
Net deferred loan fees 230,152
Deferred compensation 283,424
Other 59,275
Total deferred tax assets 2,047,749
Deferred tax liabilities
Accretion of bond discount (34,813)
Depreciation (239,669)
Other (127,372)
Total deferred tax liabilities (401,854)
Valuation allowance 0
Net deferred tax asset $ 1,645,895
</TABLE>
NOTE 11. EMPLOYEE BENEFITS
The Corporation has a defined benefit, noncontributory pension plan
which provides retirement benefits for substantially all employees. The
following sets forth the plan's funded status and amounts recognized in the
balance sheet at December 31.
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations: Accumulated benefit obligation,
including vested benefits of $2,498,023 in 1993 and $2,737,048 in 1992 $ 2,575,281 $ 2,784,382
Projected benefit obligation for service rendered to date $ 3,694,315 $ 3,917,155
Plan assets at fair value, primarily money-market funds, listed stocks,
bonds and U.S. Government securities 3,886,235 4,128,375
Excess of plan assets over projected benefit obligation 191,920 211,220
Unrecognized transition asset (291,270) (321,074)
Unrecognized prior service cost (benefit) (73,324) (77,511)
Unrecognized net loss 532,020 580,257
Net pension asset $ 359,346 $ 392,892
</TABLE>
-51-
Net pension cost included the following:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 209,627 $ 191,028 $ 161,631
Interest cost on projected benefit obligation 290,111 268,486 255,960
Actual return on plan assets (346,852) (382,789) (551,086)
Net amortization and deferral 351 67,761 259,957
Additional liability recognized due to settlement 115,442 0 0
Net pension cost $ 268,679 $ 144,486 $ 126,462
</TABLE>
The weighted average discount rate was 7.25 percent for 1993, 7.5
percent for 1992, and 8.25 percent for 1991, and the rate of increase in
future compensation used in determining the actuarial present value of the
projected benefit obligation was 4.75 percent for 1993, 5 percent for 1992,
and 5.5 percent for 1991.
The expected long-term rate of return on assets was 7.75 percent for
1993, and 8 percent for 1992.
Unrecognized prior service cost is amortized on a straight-line basis,
based on the expected future service years of plan participants to receive
benefits.
OTHER EMPLOYEE BENEFIT PLANS
In 1988, the Corporation established a profit-sharing plan for
qualified employees with at least two years of service. Contributions equal
3 percent of "Net Profits" before federal income taxes and securities gains
or losses, or as determined at the discretion of the Board of Directors of
the Corporation limited to the maximum permitted by the Internal Revenue
Code. Under this plan, $248,878, $206,496 and $199,600 was expensed in
1993, 1992 and 1991, respectively.
In 1989, the Corporation established a 401(k) salary reduction plan
for qualified employees with at least one year of service. Participants may
make deferrals up to 15 percent of compensation. The Corporation matches 50
percent of elective deferrals on the first 4 percent of the participants'
compensation. Expense under this plan was $97,467, $91,736 and $78,889 in
1993, 1992 and 1991, respectively.
-52-
On May 16, 1989, the shareholders approved a stock-option plan under
which options may be issued at market prices to officers and other key
employees. The right to exercise the options vests over a five-year
period. The options outstanding at December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Issue Date Expiration Date Price Per Share(1) Number of Options
Outstanding
<S> <C> <C> <C>
August 10, 1989 August 10, 1999 $16.53 1,905
December 1, 1990 December 1, 2000 $12.70 62,923
64,828
</TABLE>
The following is a summary of the transactions for the period
January 1,1991 through December 31, 1993:
<TABLE>
<CAPTION>
Available Options
for Grant Outstanding Exercise Price Per Share(1)
<S> <C> <C> <C>
Balance January 1, 1991 13,650 46,850 $12.70-16.53
Effect of 10% stock dividend 1,365 4,685 0
Balance December 31, 1991 15,015 51,535 $12.70-16.53
Effect of 3-for-2 stock split 7,507 25,768 0
Balance December 31, 1992 22,522 77,303 $12.70-16.53
Effect of 5% stock dividend 1,126 3,865 0
Options exercised 0 (16,340) 12.70
Balance December 31, 1993 23,648 64,828 $12.70-16.53
<FN>
(1) Restated for subsequent stock dividends and stock splits, except for the three-for-two stock split to be paid May 31, 1994.
</TABLE>
NOTE 12. COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
The Corporation is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet financing needs of its
customers. These financial instruments include commitments to make loans,
unused lines of credit and standby letters of credit. The Corporation's
exposure to credit loss in the event of nonperformance by the other party
to financial instruments for commitments to make loans, unused lines of
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Corporation follows the same credit policy
to make such commitments as it uses for on-balance-sheet items.
-53-
As of December 31, 1993, commitments to make loans and unused lines of
credit amounted to approximately $72,820,000 and commitments under
outstanding standby letters of credit amounted to approximately $2,632,000.
Since many commitments to make loans expire without being used, the amount
does not necessarily represent future cash commitments. No losses are
anticipated as a result of these transactions. Collateral obtained upon
exercise of commitments is determined using management's credit evaluation
of the borrowers and may include real estate, business assets, deposits and
other items.
Rental expense for the years ended December 31, 1993, 1992 and 1991
totaled $90,650, $82,333 and $45,078, respectively. As of December 31,
1993, there were no significant future rental commitments.
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related
carrying values of the Corporation's financial instruments at December 31,
1993 and 1992. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
1993 1992
December 31 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 61,028,786 $ 61,029,000 $ 44,169,395 $ 44,169,000
Investment securities 118,450,871 122,771,000 113,654,019 118,262,000
Securities held for sale 12,499,969 13,195,000 8,610,932 8,671,000
Loans, net of allowance for loan losses 408,107,188 412,150,000 350,173,864 354,074,000
Demand and savings deposits (303,377,004) (303,377,000) (250,157,395) (250,157,000)
Time deposits (254,031,640) (258,364,000) (230,301,104) (235,451,000)
Securities sold under agreements to repurchase (2,410,920) (2,411,000) (1,164,191) (1,164,000)
Long-term debt (5,000,000) (4,849,000) 0 0
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1993 and 1992. The
estimated fair value for cash and cash equivalents is considered to
approximate cost. The estimated fair value for investment securities and
securities held for sale is based on quoted market values for the
individual securities or for equivalent securities. The estimated fair
value for commercial loans is based on estimates of the difference in
interest rates the Corporation would charge the borrowers for similar such
loans with similar maturities made at December 31, 1993 and 1992, applied
for an estimated time period until the loan is assumed to reprice or be
paid. The estimated fair value for other loans is based on estimates of the
rate the Corporation would charge for similar such loans at December 31,
1993 and 1992, applied for the time period until estimated repayment. The
-54-
estimated fair value for demand and savings deposits, is based on their
carrying value. The estimated fair value for time deposits, securities sold
under agreements to repurchase and long-term debt, is based on estimates of
the rate the Corporation would pay on such deposits or borrowings at
December 31, 1993 and 1992, applied for the time period until maturity. The
estimated fair value of other financial instruments and off-balance-sheet
loan commitments approximate cost and are not considered significant to
this presentation.
While these estimates of fair value are based on management's judgment
of the most appropriate factors, there is no assurance that were the
Corporation to have disposed of such items at December 31, 1993 and 1992,
the estimated fair values would necessarily have been achieved at that
date, since market values may differ depending on various circumstances.
The estimated fair values at December 31, 1993 and 1992, should not
necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Corporation that are
not defined as financial instruments are not included in the above
disclosures, such as property and equipment. Also, non-financial
instruments typically not recognized in financial statements nevertheless
may have value but are not included in the above disclosures. These
include, among other items, the estimated earnings power of core deposit
accounts, the earnings potential of loan servicing rights, the earnings
potential of the Corporation's subsidiary banks' trust departments, the
trained work force, customer goodwill and similar items.
-55-
NOTE 14. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The condensed financial information of the parent company, Shoreline
Financial Corporation, is summarized below.
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31 1993 1992
<S> <C> <C>
Assets
Cash and cash equivalents $ 429,751 $ 738,774
Investments in subsidiaries 50,428,533 45,925,808
Premises and equipment 1,680,980 1,436,960
Other assets 195,504 236,610
Total assets $ 52,734,768 $ 48,338,152
Liabilities and Shareholders' Equity
Liabilities
Other liabilities $ 127,649 $ 144,303
Total liabilities 127,649 144,303
Shareholders' Equity 52,607,119 48,193,849
Total liabilities & shareholders' equity $ 52,734,768 $ 48,338,152
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Income
Dividends from subsidiaries - cash $ 2,937,264 $ 3,879,232 $ 2,234,176
Corporate service fees 3,078,686 2,861,937 2,487,547
Total income 6,015,950 6,741,169 4,721,723
Expense
Salaries and employee benefits 2,566,378 2,356,917 1,903,583
Other 1,629,775 1,569,888 1,193,586
Total expense 4,196,153 3,926,805 3,097,169
Income before income tax benefit and equity
in undistributed income of subsidiaries 1,819,797 2,814,364 1,624,554
Income tax benefit 215,000 388,000 332,000
Net income before equity in undistributed income of subsidiaries 2,034,797 3,202,364 1,956,554
Equity in undistributed net income of subsidiaries 4,502,725 2,729,225 3,378,115
Net income $ 6,537,522 $ 5,931,589 $ 5,334,669
</TABLE>
-56-
NOTE 14. CONDENSED FINANCIAL INFORMATION ON PARENT COMPANY (Continued)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,537,522 $ 5,931,589 $ 5,334,669
Adjustments to reconcile net income to net cash
from operating activities:
Equity in undistributed income of subsidiaries (4,502,725) (2,729,225) (3,378,115)
Depreciation and amortization 372,009 312,940 163,804
Decrease in income taxes receivable 28,702 23,000 12,948
Losses on disposal of assets 25,203 51,122 8,143
(Increase) Decrease in other assets 12,404 50,703 (130,119)
Increase (Decrease) in other liabilities (16,654) 14,134 (32,561)
Total adjustments (4,081,061) (2,277,326) (3,355,900)
Net cash from operating activities 2,456,461 3,654,263 1,978,769
Cash flows from investing activities:
Property and equipment expenditures (654,788) (1,364,181) (156,691)
Proceeds from disposal of assets 13,556 27,551 12,835
Net cash from investing activities (641,232) (1,336,630) (143,856)
Cash flows from financing activities:
Dividends paid (2,727,181) (2,422,068) (2,121,870)
Stock dividends and splits - cash paid for fractional shares (15,925) (5,348) (13,538)
Proceeds from shares issued under dividend reinvestment plan 411,336 329,736 299,913
Proceeds from shares issued under stock option plan 207,518 0 0
Net cash from financing activities (2,124,252) (2,097,680) (1,835,495)
Net change in cash and cash equivalents (309,023) 219,953 (582)
Cash and cash equivalents at beginning of year 738,774 518,821 519,403
Cash and cash equivalents at end of year $ 429,751 $ 738,774 $ 518,821
Federal income tax refund $ 243,702 $ 411,000 $ 344,948
</TABLE>
Shoreline Financial Corporation's primary source of revenue is its
wholly owned subsidiaries, Inter-City Bank and Citizens Trust and Savings
Bank. The payment of dividends by these banks is restricted to "net
profits" as defined by the Michigan Banking Code, then on hand after
deducting their losses and "bad debts," as also defined by the Michigan
Banking Code. Accordingly, in 1994, the subsidiary banks may distribute to
Shoreline, in addition to their 1994 "net profits," approximately
$24,000,000 in dividends without prior approval from bank regulatory
agencies.
NOTE 15. FUTURE TRANSACTIONS
On May 5, 1993, the Corporation announced its intention to effect a
merger between its two subsidiary banks, Inter-City Bank and Citizens Trust
& Savings Bank. The resulting single bank will be named Shoreline Bank.
Completion of the transaction is subject to regulatory approval and is
anticipated to be consummated during the second quarter of 1994.
-57-
On December 7, 1993, the Corporation announced an agreement with Great
Lakes Bancorp, Ann Arbor, Michigan under which the Corporation will
purchase and assume from Great Lakes Bancorp certain assets and liabilities
associated with its branch located in South Haven, Michigan. This branch
has deposits totaling approximately $13 million. Completion of the
transaction, which will be accounted for as a purchase, is subject to
regulatory approval and a number of other conditions, and is anticipated to
be consummated during the second quarter of 1994.
NOTE 16. IMPACT OF NEW ACCOUNTING STANDARD
In May 1993, the Financial Accounting Standards Board issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 focuses on the accounting and reporting treatment of
investment securities. Securities classified as "available for sale" will
be those the Corporation does not have the positive intent and ability to
hold to maturity. These securities will be accounted for at fair value
with unrealized gains and losses, net of deferred income taxes, reported as
a separate component of shareholders' equity. Securities classified as
"held to maturity" will be those the Corporation has the positive intent
and ability to hold to maturity. These securities will be accounted for at
amortized cost. Securities classified as "trading securities" include
those purchased and held principally to sell in the near term. These
securities will be accounted for at fair value with unrealized gains and
losses included in current earnings. SFAS No. 115 is effective for fiscal
years beginning after December 15, 1993. The Corporation plans to adopt
SFAS No. 115, as required, on January 1, 1994. The effect of adopting the
new standard will be to increase shareholders' equity by approximately $2.4
million on January 1, 1994.
-58-
QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of selected quarterly results of operations
for the years ended December 31, 1993 and 1992. The per share data for the
first quarter of 1992 has been restated to reflect the three-for-two stock
split paid in April of 1992. Additionally, the per share data for 1992 and
the first quarter of 1993 have been restated to reflect the 5 percent stock
dividend paid in April of 1993. The per share data has not been restated to
reflect the proposed three-for-two stock split payable May 31, 1994.
<TABLE>
(In thousands, except per share data)
<CAPTION>
1993 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $9,840 $9,732 $ 10,437 $ 10,415
Net interest income 5,625 5,613 5,952 5,876
Provision for loan losses 375 375 345 285
Income before income taxes 1,991 2,032 2,419 2,011
Net income 1,595 1,587 1,814 1,542
Net income per common share $ .49 $ .48 $ .55 $ .48
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per share data)
1992 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $10,560 $10,621 $ 10,364 $ 10,136
Net interest income 5,251 5,566 5,616 5,697
Provision for loan losses 345 345 345 345
Income before income taxes 1,637 1,838 1,955 1,792
Net income 1,335 1,549 1,586 1,462
Net income per common share $ .41 $ .48 $ .48 $ .45
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
-59-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Directors and Executive
Officers" in the registrant's definitive Proxy Statement for its May 5,
1994, annual meeting of shareholders is here incorporated by reference.
Item 11. Executive Compensation.
The information set forth under the caption "Compensation of Executive
Officers and Directors" in the registrant's definitive Proxy Statement for
its May 5, 1994, annual meeting of shareholders is here incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Voting Securities" in the
registrant's definitive Proxy Statement for its May 5, 1994, annual meeting
of shareholders is here incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain Relationships and
Related Transactions" in the registrant's definitive Proxy Statement for
its May 5, 1994, annual meeting of shareholders is here incorporated by
reference.
-60-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements. The following financial statements
and independent auditors' report of Shoreline Financial Corporation and its
subsidiaries are filed as part of this report:
Report of Independent Auditors dated February 11, 1994,
except for Note 1 (Stock Splits and Dividends) as to
which the date is February 16,1994
Consolidated Balance Sheets--December 31, 1993 and 1992
Consolidated Statements of Income for the years ended
December 31, 1993, 1992, and 1991
Consolidated Statements of changes in Shareholders' Equity
for the years ended December 31, 1993, 1992, and 1991
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992, and 1991
Notes to Consolidated Financial Statements
The financial statements, the notes to financial statements, and
the report of independent auditors listed above are set forth in Item 8 of
this report.
(2) Financial Statement Schedules. Not applicable.
(3) Exhibits. The following exhibits are filed as part of this
report:
<TABLE>
<CAPTION>
Number Exhibit
<S> <C> <C>
3(a) Restated Articles of Incorporation. Previously filed
as Exhibit 3(a) to the registrant's Form S-4 Registra-
tion Statement filed September 25, 1987. Here incor-
porated by reference.
(b) Bylaws. Previously filed as Exhibit 3(b) to the
registrant's Form S-1 Registration Statement filed
March 23, 1990. Here incorporated by reference.
4 Long-term debt. The registrant has outstanding long-term
debt which at the time of this report does not exceed 10%
of the registrant's total consolidated assets. The
registrant agrees to furnish copies of the agreements
defining the rights of holders of such long-term
indebtedness to the Securities and Exchange Commission
upon request.
10(a) Form of Indemnity Agreement. Previously filed as
Exhibit 10(d) to the registrant's Form S-4 Registration
Statement filed September 25, 1987. Here incorporated
by reference.
-61-
(b) Employment Agreements.* Previously filed as
Exhibit 10(g) to the registrant's 1988 Form 10-K Annual
Report filed March 30, 1989. Here incorporated by
reference.
(c) Bonus Program.* Previously filed as Exhibit 10(c) to
the registrant's Form S-1 Registration Statement filed
March 23, 1990. Here incorporated by reference.
(d) 1989 Stock Option Plan.* Previously filed as
Exhibit 10(i) to the registrant's 1988 Form 10-K Annual
Report filed March 30, 1989. Here incorporated by
reference.
(e) Deferred Compensation Agreements.* Previously filed as
Exhibit 10(e) to the registrant's 1991 Form 10-K Annual
Report filed March 27, 1992. Here incorporated by
reference.
(f) Bonus Program-1993.*
11 Statement Re Computation of Earnings per Common Share.
12 Statement Re Computation of Other Ratios.
21 Subsidiaries of Registrant. Previously filed as
Exhibit 22 to the registrant's 1991 Form 10-K Annual
Report filed March 27, 1992. Here incorporated by
reference.
23 Consents of Independent Auditors.
24 Powers of Attorney.
<FN>
_________________
* These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
</TABLE>
Shoreline will furnish a copy of any exhibit listed above to any
shareholder of the registrant without charge upon written request to
Secretary, Shoreline Financial Corporation, 823 Riverview Drive, Benton
Harbor, Michigan 49022.
(b) Reports on Form 8-K.
Shoreline filed no Current Reports on Form 8-K during the last quarter
of the period covered by this report.
-62-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 23, 1994 By /s/ Dan L. Smith
Dan L. Smith
Chairman, President and
Chief Executive Officer
-63-
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 23, 1994 /s/ Louis A. Desenberg*
Louis A. Desenberg
Director
March 23, 1994 /s/ Merlin Hanson*
Merlin Hanson
Director
March 23, 1994 /s/ Thomas T. Huff*
Thomas T. Huff
Director
March 23, 1994 /s/ Ronald F. Kinney*
Ronald F. Kinney
Director
March 23, 1994 /s/ James E. LeBlanc*
James E. LeBlanc
Director
March 23, 1994 /s/ L. Richard Marzke*
L. Richard Marzke
Director
March 23, 1994 /s/ James F. Murphy*
James F. Murphy
Director
March 23, 1994 /s/ Dan L. Smith
Dan L. Smith
Chairman, President and
Chief Executive Officer and Director
(Principal Executive Officer)
March 23, 1994 /s/ Robert L. Starks*
Robert L. Starks
Director
-64-
March 23, 1994 /s/ Harry C. Vorys*
Harry C. Vorys
Director
March 23, 1994 /s/ Hyman Warshawsky*
Hyman Warshawsky
Director
March 23, 1994 /s/ Ronald L. Zile*
Ronald L. Zile
Vice Chairman of the Board and Director
March 23, 1994 /s/ Wayne R. Koebel
Wayne R. Koebel
Chief Financial Officer, Secretary and
Treasurer (Principal Financial Officer
and Principal Accounting Officer)
*By /s/ Dan L. Smith
Dan L. Smith
Attorney-in-Fact for
the indicated persons
-65-
Commission File No. 0-16444
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the Fiscal Year Ended
December 31, 1993
SHORELINE FINANCIAL CORPORATION
823 Riverview Drive
Benton Harbor, Michigan 49022
<TABLE>
EXHIBIT INDEX
<CAPTION>
Number Exhibit Page
<S> <C> <C>
3(a) Restated Articles of Incorporation. Previously *
filed as Exhibit 3(a) to the registrant's Form S-4
Registration Statement filed September 25, 1987.
Here incorporated by reference.
(b) Bylaws. Previously filed as Exhibit 3(b) to the *
registrant's Form S-1 Registration Statement filed
March 23, 1990. Here incorporated by reference.
4 Long-term debt. The registrant has outstanding
long-term debt which at the time of this report
does not exceed 10% of the registrant's total
consolidated assets. The registrant agrees to
furnish copies of the agreements defining the
rights of holders of such long-term indebtedness
to the Securities and Exchange Commission upon
request.
10(a) Form of Indemnity Agreement. Previously filed as *
Exhibit 10(d) to the registrant's Form S-4
Registration Statement filed September 25, 1987.
Here incorporated by reference.
(b) Employment Agreements. Previously filed as *
Exhibit 10(g) to the registrant's 1988 Form 10-K
Annual Report filed March 30, 1989. Here
incorporated by reference.
(c) Bonus Program. Previously filed as Exhibit 10(c) *
to the registrant's Form S-1 Registration Statement
filed March 23, 1990. Here incorporated by
reference.
(d) 1989 Stock Option Plan. Previously filed as Exhibit *
10(i) to the registrant's 1988 Form 10-K Annual
Report filed March 30, 1989. Here incorporated by
reference.
(e) Deferred Compensation Agreements. Previously *
filed as Exhibit 10(e) to the registrant's 1991
Form 10-K Annual Report filed March 27, 1992.
Here incorporated by reference.
(f) Bonus Program-1993.
11 Statement Re Computation of Earnings per Common
Share.
12 Statement Re Computation of Other Ratios.
21 Subsidiaries of Registrant. Previously filed as *
Exhibit 22 to the registrant's 1991 Form 10-K
Annual Report filed March 27, 1992. Here
incorporated by reference.
23 Consents of Independent Auditors.
24 Powers of Attorney.
<FN>
_________________
* Previously filed
</TABLE>
Exhibit 10(f)
SHORELINE FINANCIAL CORPORATION BONUS PROGRAM
(Approved January 28th, 1993)
NET INCOME GROWTH
<TABLE>
<CAPTION>
3 Year Compounded
Net Income Annual Net Income
Growth
<S> <C> <C>
1987 3,950
1988 4,807
1989 4,916
1990 4,707 + 6.0% ('90 vs '87)
1991 5,335 + 3.6% ('91 vs '88)
1992 5,931 + 6.5% ('92 vs '89)
1993 6,537 +11.6% ('93 vs '90)
1994 (Budget) 7,177 +10.4% ('94 vs '91)
</TABLE>
The change in net income (compounded growth rate over most
recent 3
years) is the most important component of the bonus formula,
producing a
bonus according to the following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
Decline in Net Income = 0% bonus
0 - 2.99% Increase = 3% bonus
3 - 4.99% Increase = 6% bonus
5 - 7.99% Increase = 9% bonus
8 - 9.99% Increase = 12% bonus
10%+ Increase = 15% bonus
</TABLE>
EFFICIENTY (Overhead Control)
The second component of the bonus formula compares Shoreline's
Non-Interest Expense to Asset ratio to peer, and rewards bonus
participants
if Shoreline is more efficient (lower ratio) than peer.
We pay a bonus of 1% for every 5 basis points that Shoreline
is below peer.
Recent figures are as follows:
<TABLE>
<CAPTION>
SLFC Peer Bonus
<S> <C> <C> <C>
1993 (June) 3.26% 3.54% 5%
1992 3.33% 3.55% 4%
1991 3.17% 3.55% 7%
1990 3.21% 3.46% 5%
1989 3.24% 3.48% 4%
</TABLE>
This portion is capped at 10%, which we would hit if Shoreline
was 50
basis points under peer.
SAFETY AND SOUNDNESS/CAPITAL ADEQUACY
The third and final component of the bonus formula compares
Shoreline's
Total Risk-Based Capital to Risk-Weighted Asset ratio to peer.
Bonus
participants are rewarded if Shoreline's ratio is above peer.
We pay a bonus of 1% for every 25 basis points that Shoreline
is above
peer. Recent figures are as follows:
<TABLE>
<CAPTION>
SLFC Peer Bonus
<S> <C> <C> <C>
1993 (June) 16.17% 15.39% 3%
1992 15.83% 14.92% 3%
1991 15.16% 14.02% 4%
1990 15.32% 12.52% 11%
</TABLE>
This portion is capped at 5%, which we would hit if Shoreline was
1.25% over
peer.
Exhibit 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Earnings per share on a
fully diluted basis are computed by dividing net income by the weighted
average number of common shares outstanding and common equivalent
shares with a dilutive effect. Common equivalent shares are shares
which may be issuable to employees upon exercise of outstanding stock
options. Earnings and dividends per share are restated for all stock
splits and dividends paid.
Shoreline Financial Corporation is not required to present earnings per
share on a fully diluted basis in the Consolidated Statements of
Income, Item 8. Financial Statements and Supplementary Data under the
provisions of Accounting Principles Board Opinion No. 15. That Opinion
provides that any reduction of less than 3% need not be considered as
dilution.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
For the year ended
December 31:
Net Income $6,537,522 $6,931,589 $5,334,669
Weighted average number
of common shares 3,276,137 3,261,290 3,242,839
Weighted average number
of common equivalent
shares 34,837 28,485 5,188
Earnings per share $2.00 $1.82 $1.65
Fully diluted earnings
per share $1.97 $1.80 $1.64
</TABLE>
Exhibit 12
STATEMENT OF COMPUTATION OF OTHER RATIOS
<TABLE>
<CAPTION>
(In thousands, except
per share data) 1993 1992 1991
For the year ended
December 31:
<S> <C> <C> <C>
Net income $ 6,538 $ 5,932 $ 5,335
Cash dividends declared 2,727 2,422 2,122
Average shareholders'
equity 50,868 46,463 42,514
Average assets 569,271 523,719 487,779
Earnings per share $2.00 $1.82 $1.65
Dividends per share $ .83 $ .74 $ .65
Ratios:
Return on average 12.85% 12.77% 12.55%
shareholders' equity
(net income divided by
average shareholders'
equity)
Return on average assets 1.15% 1.13% 1.09%
(net income divided by
average assets)
Average equity capital to
average assets 8.94% 8.87% 8.72%
Dividend payout ratio 41.72% 40.83% 39.78%
(net income divided by
cash dividends declared)
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference and use of our report,
dated February 11, 1994, except for Note 1 (stock splits and dividends) as to
which the date is February 16, 1994, on the consolidated financial statements
of Shoreline Financial Corporation which appears on page 49 of Shoreline
Financial Corporation's Annual Report to Shareholders for the year ended
December 31, 1993, in Shoreline Financial Corporation's previously filed
registration statements for its 1989 Stock Option Plan (Registration
No. 33-29052) and Dividend Reinvestment Plan (Registration No. 33-34008).
/s/ Crowe, Chizek and Company
Crowe, Chizek and Company
South Bend, Indiana
March 28, 1994
EXHIBIT 24
FORM OF POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or both, as
the case may be, of Shoreline Financial Corporation, does hereby appoint DAN L.
SMITH and RONALD L. ZILE, and each of them severally, his attorneys or attorney
to execute in his name, place and stead an Annual Report of Shoreline Financial
Corporation on Form 10-K for its fiscal year ended December 31, 1993, and any
and all amendments thereto, and to file it with the Securities and Exchange
Commission.
Date Signature
March __, 1994 ____________________________________________
A power of attorney in substantially similar form to that above has been
executed by the following persons:
Louis A. Desenberg
Merlin Hanson
Thomas T. Huff
Ronald F. Kinney
James E. LeBlanc
L. Richard Marzke
James F. Murphy
Dan L. Smith
Robert L. Starks
Harry C. Vorys
Hyman Warshawsky
Ronald L. Zile
Wayne R. Koebel
