SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
Commission File No. 0-16444
SHORELINE FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-2758932
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Riverview Drive
Benton Harbor, Michigan 49022
(Address of Principal Executive Offices) (Zip Code)
(616) 927-2251
(Registrant's Telephone Number, Including Area Code)
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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
As of October 31, 1995 there were 5,251,786 issued and outstanding
shares of the registrant's Common Stock.
SHORELINE FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet,
September 30, 1995 and December 31, 1994 1-2
Condensed Consolidated Statement of Income,
Three Months and Nine Months Ended September
30, 1995 and 1994 3
Condensed Consolidated Statement of Cash Flows,
Nine Months Ended September 30, 1995 and 1994 4-5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 24,680,673 $ 31,287,807
Federal Funds Sold 11,575,000 20,350,000
Total Cash and Cash Equivalents 36,255,673 51,637,807
Securities Held to Maturity
(Approximate fair values of $72,039,000
and $47,949,000 at September 30, 1995
and December 31, 1994 respectively) 70,565,169 48,474,113
Securities Available for Sale
(Carried at fair value in 1995 and 1994) 79,751,462 81,175,780
Total Loans 455,713,151 436,529,139
Less Allowance for Loan Losses 6,478,636 5,951,969
Net Loans 449,234,515 430,577,170
Premises and Equipment-Net 10,083,051 9,875,374
Other Assets 10,447,123 12,113,418
Total Assets $ 656,336,993 $ 633,853,662
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non Interest-Bearing $ 68,098,953 $ 70,973,801
Interest-Bearing 513,272,069 495,121,822
Total Deposits 581,371,022 566,095,623
Securities Sold Under Agreements to
Repurchase 4,759,084 2,875,112
Other Liabilities 2,726,341 3,674,459
Long-Term Debt 5,000,000 5,000,000
Total Liabilities 593,856,447 577,645,194
Shareholders' Equity
Common Stock:
10,000,000 shares authorized;
5,251,786 and 4,989,483 shares issued
at September 30, 1995 and December 31,
1994 respectively - -
Additional Paid-in Capital 45,723,988 45,591,999
Net Unrealized Gain (Loss) on Securities
Available for Sale, Net of Tax Effect 1,451,226 (1,016,801)
Retained Earnings 15,305,332 11,633,270
Total Shareholders' Equity 62,480,546 56,208,468
Total Liabilities & Shareholders' Equity $ 656,336,993 $ 633,853,662
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 10,240,885 $ 9,184,241 $ 30,335,689 $26,079,704
Interest on Federal Funds Sold 165,248 157,939 775,431 357,020
Interest on Investments 2,512,190 2,023,028 7,126,018 5,755,901
Total Interest Income 12,918,323 11,365,208 38,237,138 32,192,625
INTEREST EXPENSE
Interest on Deposits 5,956,162 4,667,053 17,452,674 13,278,130
Other Interest Expense 102,117 88,347 283,357 246,229
Total Interest Expense 6,058,279 4,755,400 17,736,031 13,524,359
NET INTEREST INCOME 6,860,044 6,609,808 20,501,107 18,668,266
Provision for Loan Losses 175,000 200,007 575,000 550,000
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 6,685,044 6,409,801 19,926,107 18,118,266
OTHER INCOME
Service Charges on Deposit
Accounts 442,803 494,125 1,358,911 1,396,303
Trust Income 354,774 330,583 1,044,661 979,839
Investment Securities Transactions 40,050 9,261 (24,549) 105,169
Other Operating Income 92,507 414,634 682,941 996,132
Total Other Income 930,134 1,248,603 3,061,964 3,477,443
OTHER EXPENSES
Personnel 2,559,973 2,609,732 7,518,268 7,522,261
Occupancy 317,646 302,345 910,281 903,768
Equipment 427,112 402,109 1,315,765 1,199,579
Other Operating Expenses 1,114,241 1,800,407 4,430,701 5,098,314
Total Other Expense 4,418,972 5,114,593 14,175,015 14,723,922
-2-
INCOME BEFORE INCOME
TAXES 3,196,206 2,543,811 8,813,056 6,871,787
Federal Income Tax Expense 865,000 629,000 2,343,000 1,606,000
NET INCOME $ 2,331,206 $ 1,914,811 $ 6,470,056 $ 5,265,787
EARNINGS PER SHARE $ .44 $ .37 $ 1.23 $ 1.01
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,470,056 $ 5,265,787
Adjustments to Reconcile Net Income to Net Cash
from Operating Activities: Depreciation and Amortization 1,056,939 978,276
Provision for Loan Losses 575,000 550,000
Net Amortization and Accretion on Securities
Held-to-Maturity 282,212 524,409
Net Amortization and Accretion on Securities
Available-for-Sale 292,062 826,502
Amortization of Goodwill and Related Core
Deposit Intangible 191,106 196,750
(Gains)Loss on Sales of Securities Available-for-Sale 92,175 (92,809)
Gains on Calls of Securities Held-to-Maturity (67,626) (12,360)
(Gains)Loss on Disposal of Premises and Equipment (155) 5,757
(Increase)Decrease in Income Taxes Receivable (677,000) (357,313)
Increase(Decrease) in Deferred Loan Fees (175,254) 53,258
Increase in Interest Receivable (554,655) (474,045)
Increase in Interest Payable 259,824 90,487
(Increase)Decrease in Other Assets 354,646 (347,972)
Decrease in Other Liabilities (126,950) (38,299)
Total Adjustments 1,502,324 1,902,641
NET CASH FROM OPERATING ACTIVITIES 7,972,380 7,168,428
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Securities Held-to-Maturity 1,473,972 0
Proceeds from Sales of Securities Available-for-Sale 5,629,808 11,432,672
Proceeds from Maturities, Calls and Principal
Reductions of Securities Held-to-Maturity 6,497,657 14,560,586
Proceeds from Maturities, Calls and Principal
Reductions of Securities Available-for-Sale 5,453,800 15,709,377
Purchase of Securities Held-to-Maturity (30,277,271) (13,256,340)
-3-
Purchase of Securities Available-for-Sale (6,304,139) (29,553,414)
Net Increase in Loans (19,345,720) (21,300,567)
Recoveries of Loans Charged-Off 288,629 559,173
Premises and Equipment Expenditures (1,288,144) (2,131,986)
Proceeds from Disposal of Premises and Equipment 23,528 16,000
NET CASH FROM INVESTING ACTIVITIES (37,847,880) (23,964,499)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 15,275,399 6,264,493
Net Decrease in Borrowed Funds 1,883,972 850,450
Dividends Paid (2,797,994) (2,390,316)
Proceeds from Shares Issued Under Dividend
Reinvestment Plan 471,331 370,348
Payments to Retire Common Stock (402,340)
Proceeds from Shares Issued Under Stock
Option Plan 62,998 93,785
NET CASH FROM FINANCING ACTIVITIES 14,493,366 5,188,760
NET CHANGE IN CASH AND CASH EQUIVALENTS (15,382,134) (11,607,311)
Cash and Cash Equivalents at Beginning of Year 51,637,807 61,028,786
Cash and Cash Equivalents at September 30 $ 36,255,673 $ 49,421,475
CASH PAID DURING THE YEAR FOR:
Interest $ 17,476,207 $ 13,433,872
Income Taxes $ 3,020,000 $ 1,927,817
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
-4-
SHORELINE FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements were prepared in accordance with Rule 10-01 of Regulation S-X
and the instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for
complete presentation of financial statements. In the opinion of
management, the condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial condition of Shoreline Financial Corporation
as of September 30, 1995 and December 31, 1994, and the results of its
operations for the three and nine months ended September 30, 1995 and
1994, and its cash flows for the nine months ended September 30, 1995
and September 30, 1994. The results of operations for the nine months
ended September 30, 1995 are not necessarily indicative of the results
to be expected for the full year.
FASB Standard No. 114 was adopted at January 1, 1995. Under this
standard, loans considered to be impaired are reduced to the present value
of expected future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans. If
these allocations cause the allowance for loan losses to require increase,
such increase is reported as bad debt expense. The effect of adopting
this standard was not material to the consolidated financial statements of
Shoreline Financial Corporation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Shoreline Financial Corporation and its wholly owned
subsidiary, Shoreline Bank. All material intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Securities are classified into held-to-maturity, available-for-sale
and trading categories. Held-to-maturity securities are those which the
Corporation has the positive intent and ability to hold to maturity, and
are reported at amortized cost. Available-for-sale securities are those
which the Corporation may decide to sell if needed for liquidity, asset-
liability management or other reasons. Available-for-sale securities are
reported at fair value, with unrealized gains or losses included as a
separate component of equity, net of tax. Trading securities are bought
principally for sale in the near term, and are reported at fair value with
-5-
unrealized gains or losses included in earnings. The Corporation did not
hold any securities considered for this category at any time during the
third quarter of 1995.
Realized gains or losses are determined based on the amortized cost
of the specific security sold.
During the nine-month period ended September 30, 1995, the proceeds
from sales of available-for-sale securities were $5,629,808, with gross
realized gains of $33,133 and gross realized losses of $125,308 from
those sales. For this period, the change in net unrealized holding gains
on available-for-sale securities was an increase of $3.7 million. There
were no sales or transfers of securities classified as held-to-maturity.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the net
value of tangible assets acquired and related core deposit intangibles
identified in branch acquisitions. Goodwill is being amortized on a
straight-line basis for a period of ten years. The related core deposit
intangibles are amortized on an accelerated basis over the estimated life
of the deposits acquired. Goodwill totaled $192,437 and $222,290 at
September 30, 1995 and December 31, 1994, respectively. Core deposit
intangibles totaled $2,207,785 and $2,369,038 at September 30, 1995 and
December 31, 1994, respectively. These amounts are included in Other
Assets in the accompanying balance sheet.
INCOME TAXES
Income tax expense for the quarter ended September 30, 1995 and
1994 is based upon the liability method, according to Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes".
Certain income tax and expense items are reported in different time
periods for tax purposes. Deferred or prepaid taxes are recorded in the
balance sheet for these temporary differences.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and common equivalent
shares with a dilutive effect. On May 4, 1995, the Board of Directors
declared a 5% stock dividend, payable June 15, 1995, to shareholders of
record on June 1, 1995. Common equivalent shares are shares which may be
issuable to employees upon exercise of outstanding stock options. The
average number of shares was 5,261,001 in the third quarter of 1995, and
5,217,122 in the third quarter of 1994. The average number of shares was
5,250,956 in the nine months ended September 30, 1995 and 5,209,870 in the
nine months ended September 30, 1994.
-6-
NOTE 2 - INCOME TAXES
Components for the provision of federal income taxes are as follows:
<TABLE>
<CAPTION>
September 30, 1995
<S> <C>
Taxes currently payable $ 3,427,000
Deferred tax benefit (1,084,000)
Income Tax Expense $ 2,343,000
</TABLE>
The deferred income taxes are due primarily to the temporary difference
related to depreciation, bad debt deductions, mark-to-market of securities
held-for-sale and deferred loan fees.
The difference between the provision for income taxes shown on the
statement of income and amounts computed by applying the statutory federal
income tax rate to income before tax expense is as follows:
<TABLE>
<CAPTION>
September 30, 1995
<S> <C>
Income tax calculated at statutory
federal rate of 34% $ 2,996,000
Increase (decrease) due to tax effect of
Tax-exempt income (845,000)
Nondeductible expense and other 192,000
Income Tax Expense $ 2,343,000
</TABLE>
The components of the net deferred tax asset recorded in the balance
sheet as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Total deferred tax liabilities $ (1,270,000)
Total deferred tax assets 3,023,000
Total valuation allowance 0
Net Deferred Tax Asset $ 1,753,000
</TABLE>
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total deposits averaged $575.6 million during the third quarter of
1995. This represents a modest increase of approximately $700,000 over the
second quarter's average of $574.9 million. A comparison of the quarterly
averages for the first three quarters in 1995 follows:
<TABLE>
<CAPTION>
Avg Bal Avg Bal Avg Bal
(000S) 3rd Qtr 95 2nd Qtr 95 1st Qtr 95
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 67,912 $ 64,894 $ 62,454
Interest-Bearing Demand Deposits 70,550 70,441 67,907
Savings Deposits 185,431 184,261 184,703
Time Deposits 251,736 255,390 247,797
Total $ 575,629 $ 574,986 $ 562,861
</TABLE>
In comparison to the second quarter of 1995, average demand
deposits increased $3 million which helped to offset the $3.6 million
decline in time deposits. The third quarter decline in time deposits was
seen primarily in the less than $100,000 category. Interest-bearing demand
deposits remained unchanged while average savings accounts increased by a
modest $1.2 million. At September 30, 1995, total deposits had increased
to $581.4 million as a result of certain large corporate and municipal
depositor activity. Deposits totaled $566.1 million on December 31, 1994.
Average total loans increased to $447.6 million during the third
quarter of 1995 compared to the previous quarter's average of $441.8
million. Shoreline's average mortgage loan portfolio increased $5 million
during the third quarter of 1995, partially due to the seasonality of home
buying activity. The consumer loan portfolio increased approximately $3
million during the third quarter which helped to offset the $2.3 million
decline in commercial loans during the same period. At September 30, 1995,
total loans amounted to $455.7 million, an increase of $19.2 million over
December 31, 1994.
Total investments averaged $161.1 million in the third quarter of
1995. This compares to the second quarter's average of $164.4 million.
Average federal funds sold declined approximately $9.6 million during the
third quarter and averaged $11.3 million or 1.7% of total average assets.
US Treasury and Government Agency securities increased approximately $8.2
million during the third quarter while municipal securities declined $2
million.
-8-
Shoreline continues to experience favorable trends in its level of
non-performing assets. Total non-performing assets at September 30, 1995
were $1.4 million, which represents .32% of Shoreline's total loan
portfolio at that date. This level of non-performing assets compares to
June 30, 1995's ratio .40% and December 31, 1994's ratio of .51%. Non-
performing assets include loans that are classified for regulatory
purposes as contractually past due 90 days or more, on non-accrual status
or "troubled debt restructurings" and other real estate owned.
During the third quarter of 1995, Shoreline experienced net loan
charge-offs of only $30,074, which represents less than .01% of total
average loans. As a result of this favorable experience, the Corporation
lowered its quarterly provision for loan losses from $200,000 in both the
first and second quarters of 1995 to $175,000 in the third quarter of
1995. For the nine months ended September 30, 1995, net charge-offs
amounted to $48,333 or .01% of total average loans. At September 30, 1995,
the Corporation's allowance for loan losses amounted to $6,478,636 which
represents 1.42% of total loans and provides a coverage of over four times
the level of non-performing assets identified at September 30, 1995. At
December 31, 1994, the ratio of the allowance for loan losses to total
loans was 1.36%.
FUTURE TRANSACTIONS
During the third quarter, regulatory authorities approved
outstanding agreements to purchase the South Haven, Michigan branch from
Great Lakes Bancorp and the Adamsville, Michigan branch from Old Kent
Bank. It is anticipated the Adamsville transaction will be consummated
during the fourth quarter of 1995. However, with the delay experienced in
obtaining regulatory approval, negotiations over the South Haven branch
have broken down and it is anticipated the transaction will not occur.
LIQUIDITY AND RATE SENSITIVITY
During the third quarter of 1995, Shoreline's loan to deposit ratio
was 77.75%. This represents a slight increase from the second quarter
ratio of 76.8%. As noted previously, during the third quarter, average
federal funds sold represented 1.7% of the Corporation's total assets,
which compares to the second quarter's ratio of 3.2%. Approximately $79.7
million or 53.1% of Shoreline's total securities portfolio was classified
as available-for-sale on September 30, 1995 and $386,000 of loans were
classified as held-for-sale. On September 30, 1995, Shoreline had
commitments to make or purchase loans, including the unused portion of
lines of credit, totaling $67.1 million.
On September 30, 1995, the cumulative funding gaps of interest-
earning assets and interest-bearing liabilities for selected maturity
periods are illustrated as follows:
-9-
<TABLE>
<CAPTION>
Repriceable or Maturing Within:
0 to 3 0 to 12 0 to 5
(000S) Months Months Years
<S> <C> <C> <C>
Interest-earning assets
Loans $ 157,534 $ 238,300 $ 409,543
Securities 10,920 28,986 107,877
Federal funds sold 11,575 11,575 11,575
Total $ 180,029 $ 278,861 $ 528,995
Interest-bearing liabilities
Time deposits $ 55,989 $ 159,894 $ 250,203
Demand deposits 75,556 75,556 75,556
Savings deposits 186,535 186,535 186,535
Other borrowings 4,759 4,759 9,759
Total $ 322,839 $ 426,744 $ 522,053
Asset/(Liability) Gap $(142,810) $(147,883) $ 6,942
</TABLE>
This table indicates that total liabilities maturing or repricing
within one year exceed assets maturing or repricing within one year by
$147.9 million. The same presentation as of December 31, 1994 produced a
liability gap of $115.9 million. Competitive pressures and other
influences may cause certain assets and liabilities to mature or reprice
in other periods or at different volumes than indicated above.
Specifically, all demand and savings accounts are presented as repricing
in the 0-3 month period. Management believes that these types of accounts
are not as sensitive to changes in interest rates in the short term as
this presentation would indicate and that the positive funding gap in the
0-5 year period is more reflective of the Corporation's experience during
1994 and 1995.
CAPITAL RESOURCES
Total shareholders' equity amounted to $62.5 million on September
30, 1995. Included in this total are net unrealized gains on available-for-
sale securities of $1.5 million. During the third quarter of 1995, the
Corporation's Board of Directors approved and paid a cash dividend of $.18
per share. A summary of Shoreline's capital position follows:
-10-
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
<S> <C> <C>
Equity to assets 9.52% 9.02%
Tier I leverage 8.96% 8.65%
Risk-based:
Tier I Capital 14.14% 13.62%
Total Capital 15.70% 14.87%
</TABLE>
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1995 was $2,331,206,
an increase of 21.7% over the same period in 1994. Increased net
interest income along with a significant reduction in other expenses
produced the increase in earnings over the prior year. Shoreline's net
income for the preceding quarter was $2,096,309. For the nine months ended
September 30, 1995, net income totaled $6,470,056, which represents an
increase of $1,204,269 or 22.9% over the same period in 1994. Again,
increased net interest income and reduced other expenses helped to produce
the improved results. The following table illustrates the effect that
changes in rates and volumes of earning assets and interest-bearing
liabilities had on net interest income:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995 1994
<S> <C> <C>
(000S)
Interest Income (taxable equivalent) $ 13,330 $ 11,774
Interest Expense 6,058 4,755
Net Interest Income $ 7,272 $ 7,019
Average Volume:
Interest-Earning Assets $ 608,686 $ 576,595
Interest-Bearing Liabilities 516,427 500,212
Net Differential $ 92,259 $ 76,383
Average Yields/Rates:
Yield on earning assets 8.69% 8.10%
Rate paid on liabilities 4.65% 3.77%
Interest Spread 4.04% 4.33%
Net Interest Margin 4.74% 4.83%
</TABLE>
-11-
The change in net interest income (in thousands) is attributable to
the following:
<TABLE>
<CAPTION>
Volume Rate Inc/(Dec)
<S> <C> <C> <C>
Interest-Earning Assets $ 674 $ 882 $ 1,556
Interest-Bearing Liabilities 159 1,144 1,303
Net Interest $ 515 $ (262) $ 253
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
(000S)
Interest Income (taxable equivalent) $ 39,271 $ 33,322
Interest Expense 17,736 13,524
Net Interest Income $ 21,535 $ 19,798
Average Volume:
Interest-Earning Assets $ 603,604 $ 573,382
Interest-Bearing Liabilities 515,971 498,182
Net Differential $ 87,633 $ 75,200
Average Yields/Rates:
Yield on earning assets 8.70% 7.75%
Rate paid on liabilities 4.60% 3.62%
Interest Spread 4.10% 4.11%
Net Interest Margin 4.77% 4.60%
</TABLE>
The change in net interest income (in thousands) is
attributable to the following:
<TABLE>
<CAPTION>
Volume Rate Inc/(Dec)
<S> <C> <C> <C>
Interest-Earning Assets $ 1,789 $ 4,160 $ 5,949
Interest-Bearing Liabilities 523 3,689 4,212
Net Interest $ 1,266 $ 471 $ 1,737
</TABLE>
-12-
The Corporation expensed $175,000 for the provision for loan losses
in the third quarter of 1995, reduced from the previous quarter's
provision of $200,000. For the nine months ended September 30, 1995,
Shoreline has provided $575,000 for the provision for loan losses which
compares to $550,000 during the first nine months in 1994. The provision
for loan losses is based upon loan loss experience and such other factors
which, in management's judgment, deserve current recognition in
maintaining an adequate allowance for loan losses.
Total other income for the quarter ended September 30, 1995
amounted to $930,134, a decrease of $318,469 from the third quarter in
1994. A decline of approximately $322,000 in other income accounted for
this variance. The sale of the Corporation's credit card portfolio in
December of 1994 eliminated corresponding fee income in this area in 1995.
This change accounted for over $250,000 of the variance in the other
income category. A decline of $51,322 of deposit service charge income in
comparison to the third quarter of 1994 added to the overall decline in
other income. Increased securities gains in the third quarter of 1995 in
comparison to the third quarter of 1994 helped to partially offset the
declines noted above. For the nine months ended September 30, 1995, total
other income amounted to $3,061,964, which is a decline of $415,479 from
the same period in 1994. Losses from the sale of securities totaling
$24,549 were recorded during the first nine months of 1995, which compares
to gains recorded during the same period in 1994 of $105,169, a reduction
of over $129,718. In addition, the sale of Shoreline's credit card
portfolio in December of 1994 has resulted in a $327,657 reduction in
related fee income through the first nine months of 1995.
Total other expense amounted to $4,418,972 for the quarter ended
September 30, 1995. This represents a significant reduction of over
$695,000 or 13.6% from the same period in 1994. The reduction in the FDIC
insurance premiums from $.23 to $.04 per $100 of deposits retroactive to
June 1, 1995 reduced Shoreline's FDIC expense in the third quarter to
zero. FDIC insurance expense during the third quarter of 1994 was
approximately $305,000. Advertising and public relations expense decreased
approximately $160,000 from the third quarter of 1994 to the third quarter
of 1995. The expense in 1994 was increased as a result of the advertising
campaign associated with the merger of Shoreline's two affiliate banks.
Finally, credit card processing expense decreased approximately $161,000
from the third quarter of 1994 to the third quarter of 1995. As mentioned
above, the sale of the Corporation's credit card portfolio caused this
decrease.
For the nine months ended September 30, 1995, total other expense
amounted to $14,175,015, which compares to $14,723,922 recorded during the
same period in 1994, a decrease of $548,907 or 3.7%. Personnel expense
remained virtually unchanged in comparison to the same period in 1994.
Occupancy and equipment expense increased 5.8% through the first nine
months of 1995 primarily the result of increased equipment depreciation
-13-
and amortization. This increase was more than offset by the $667,613
decrease in other expense. As mentioned previously, reduced FDIC insurance
premiums, advertising and public relations and credit card processing
expense accounted for the majority of this decrease in comparison to the
first nine months in 1994.
Shoreline's ratio of total other expenses to total average assets
decreased from 3.19% during the nine months ended September 30, 1994 to
2.94% in the nine months ended September 30, 1995. Over the same period of
time, Shoreline's efficiency ratio has declined from 63.20% to 57.00%.
Currently, legislators are contemplating a special one-time assessment on
deposits covered by the Savings Association Insurance Fund that are held by
financial institutions which, if enacted during the fourth quarter, would
negatively impact Shoreline's efficiency ratio.
In summary, Shoreline's net income of $2,331,206 for the third
quarter of 1995 produced a return on average shareholders' equity of
15.20% and a return on average assets of 1.42%. This compares to the
prior year's ratios of 13.65% and 1.22%, respectively. On a year-to-date
basis, Shoreline's return on average shareholders' equity stands at 14.48%
and its return on average assets is 1.34%. This compares to the prior
year's ratios of 12.86% and 1.14%, respectively. Earnings per share
through September 30, 1995 were $1.23 and dividends per share were $.53,
which produces a dividend payout ratio of 43.1%. Earnings per share
through September 30, 1994 were $1.01 and dividends per share were $.46.
-14-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Shoreline Bank is a party, as plaintiff or defendant, to a
number of legal proceedings, none of which is considered material, and all
of which arose in the normal course of its operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to
this report on Form 10-Q:
Exhibit
Number Document
3.1 Restated Articles of Incorporation. Previously filed as
Exhibit 1(a) to the registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1994. Here incorporated
by reference.
3.2 Bylaws. Previously filed as Exhibit 3(b) to the
registrant's Form S-1 Registration Statement filed March
23, 1990. Here incorporated by reference.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
-15-
SIGNATURES
Pursuant to the requirements 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 November 14, 1995 By /S/ DAN L. SMITH
Dan L. Smith
Chairman, President and Chief
Executive Officer
Date November 14, 1995 By /S/ WAYNE R. KOEBEL
Wayne R. Koebel
Executive Vice President, Chief
Financial Officer, Secretary
and Treasurer
-16-
EXHIBIT INDEX
Exhibit
Number Document
3.1 Restated Articles of Incorporation. Previously filed as
Exhibit 1(a) to the registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1994. Here incorporated
by reference.
3.2 Bylaws. Previously filed as Exhibit 3(b) to the
registrant's Form S-1 Registration Statement filed March
23, 1990. Here incorporated by reference.
27 Financial Data Schedule
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
SHORELINE FINANCIAL CORPORATION FOR THE PERIOD ENDED SEPTEMBER 30, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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