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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, 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 Number: 0-16444
SHORELINE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2758932
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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. [ ]
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 date of filing.
Aggregate Market Value as of February 29, 1996: $102,438,726
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 29, 1996: 5,253,268 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1995, are incorporated by reference in Part II.
Portions of the registrant's definitive Proxy Statement for its May 1,
1996, annual meeting of shareholders are incorporated by reference in Part
III.
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PART I
ITEM 1. BUSINESS
GENERAL
Shoreline Financial Corporation ("Shoreline" or the "Corporation") is
a bank holding company. Shoreline had assets at December 31, 1995,
totaling $671.2 million, deposits of $592.3 million and shareholders'
equity of $64.4 million.
Shoreline's business is concentrated exclusively in the commercial
banking industry segment. Shoreline Bank offers 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
- Trust services
- Investment services
- Safe deposit services
- Automated transaction machine services
- Electronic and telephone banking services
- Other banking services
The business of Shoreline is mildly seasonal due to the recreational
and agricultural components of the local economy. No material part of the
business of Shoreline and Shoreline Bank 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 the
Michigan communities in which Shoreline Bank is located and the areas
immediately surrounding these communities. Shoreline and Shoreline Bank
serve these markets through 24 offices located in and around these
communities. Shoreline and Shoreline Bank have no material foreign assets
or income.
-2-
On December 9, 1995, the Corporation purchased and assumed from Old
Kent Bank certain assets and liabilities associated with its branch located
in Adamsville, Michigan. This branch had deposits totaling approximately
$10.2 million.
The principal source of revenue for Shoreline and Shoreline Bank is
interest and fees on loans. On a consolidated basis, interest and fees on
loans accounted for 73.7% of total revenues in 1995, 73.2% in 1994 and
70.7% in 1993. Interest on investment securities accounted for 17.4% of
Shoreline's total revenues in 1995, 16.2% in 1994 and 17.8% in 1993.
Shoreline and Shoreline Bank employed approximately 320 persons at
December 31, 1995.
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 methods of
competition for financial services are price (interest rates paid on
deposits, interest rates charged on borrowings and fees charged for
services) and the convenience and quality of services rendered to
customers.
SUPERVISION AND REGULATION
Banks and bank holding companies are extensively regulated. Shoreline
Bank is chartered under state law and is supervised, examined and regulated
by both the Financial Institutions Bureau of the Michigan Department of
Commerce and the Federal Deposit Insurance Corporation ("FDIC"). Shoreline
is regulated by the Federal Reserve System. The business activities of
Shoreline Bank are significantly limited in a number of respects by federal
and state laws governing banks. Deposits of Shoreline Bank are insured by
the FDIC to the extent provided by law. Prior approval of the Board of
Governors of the Federal Reserve System ("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.
Shoreline is a legal entity separate and distinct from Shoreline Bank.
There are legal limitations on the extent to which Shoreline Bank can lend
or otherwise supply funds to Shoreline. In addition, payment of dividends
to Shoreline by Shoreline Bank is subject to various state and federal
regulatory limitations.
Under Federal Reserve Board policy, Shoreline is expected to act as a
source of financial strength to Shoreline Bank and to commit resources to
support it. Under federal law, the FDIC also has authority to impose
-3-
special assessments on insured depository institutions to repay FDIC
borrowings from the United States Treasury or other sources and to
establish semiannual assessment rates on Bank Insurance Fund ("BIF") member
banks to maintain the BIF at the designated reserve ratio required by law.
Banks are subject to a number of federal and state laws and
regulations which have a material impact on 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 Expedited Funds
Availability Act, the Community Reinvestment Act, electronic funds transfer
laws, redlining laws, antitrust laws, environmental laws and privacy laws.
The instruments of monetary policy of authorities such as the Federal
Reserve Board may 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.
The nature of the business of Shoreline Bank is such that it holds
title, on a temporary or permanent basis, to a number of parcels of real
property. These include properties owned for branch offices and other
business purposes as well as properties taken in or in lieu of foreclosure
to satisfy loans in default. Under current state and federal laws, present
and past owners of real property are exposed to liability for the cost of
clean up of contamination on or originating from those properties, even if
they are wholly innocent of the actions that caused the contamination.
These liabilities can be material and can exceed the value of the
contaminated property.
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("IBBEA"), a bank holding company now may make certain interstate
acquisitions even if state law would otherwise prohibit it. Starting June
1, 1997, a bank may make certain interstate acquisitions unless one of the
states has enacted legislation prohibiting interstate bank acquisitions.
An interstate acquisition may occur earlier if the states of the buying and
selling banks both have enacted laws permitting interstate acquisitions by
all out-of-state banks. IBBEA also permits a bank to establish a DE NOVO
branch in another state if the state has a law expressly permitting all
out-of-state banks to establish DE NOVO branches in that state. In
November 1995, Michigan enacted legislation permitting a Michigan bank to
sell one or more of its branches to an out-of-state bank if that bank's
state law permits a Michigan bank to purchase branches of banks located
into that state. The Michigan legislation also permits a Michigan bank to
purchase one or more branches of an out-of-state bank, but the Michigan
bank must receive the approval of the Financial Institutions Bureau of the
State of Michigan before operating the purchased branch or branches.
-4-
Additional statistical information describing the business of
Shoreline appears on the following pages and in Management's Discussion and
Analysis of Financial Condition and Results of Operations incorporated by
reference in Item 7 and the Selected Financial Data incorporated by
reference in Item 6.
AVERAGE CONSOLIDATED BALANCE SHEETS/INTEREST RATES
The following table presents interest income from average earning assets,
expressed in dollars and yields on a fully tax equivalent basis at 34%, and
interest expense on average interest-bearing liabilities expressed in dollars
and rates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (IN THOUSANDS) 1995 1994 1993
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
Federal funds sold $ 15,270 $ 892 5.84% $ 13,766 $ 571 4.15% $ 15,799 $ 468 2.96%
Securities:
Taxable 99,814 6,774 6.79% 91,497 5,038 5.51% 86,375 5,119 5.93%
Tax-exempt <F2> 43,924 4,040 9.20% 42,808 4,079 9.53% 41,004 4,408 10.75%
Loans - net of unearned
income <F1><F2> 447,329 40,760 9.11% 428,478 35,809 8.36% 385,138 32,148 8.35%
Total interest-earning
assets 606,337 52,466 8.65% 576,549 45,497 7.89% 528,316 42,143 7.98%
NON-EARNING ASSETS
Cash and due from banks 27,337 28,864 28,075
Other assets 20,404 20,786 18,062
Allowance for loan losses (6,309) (5,769) (5,182)
Total assets $647,769 $620,430 $569,271
INTEREST-BEARING LIABILITIES
Demand deposits $ 70,587 1,745 2.47% $ 59,816 877 1.47% $ 59,255 1,169 1.97%
Savings deposits 183,480 7,113 3.88% 183,885 5,549 3.02% 153,033 4,262 2.79%
Time deposits 254,338 14,594 5.74% 248,522 11,950 4.81% 239,789 11,809 4.92%
Short-term borrowed funds 3,468 143 4.12% 2,702 87 3.22% 1,943 42 2.16%
Long-term debt 5,000 252 5.04% 5,000 252 5.04% 1,548 76 4.91%
Total interest-bearing
liabilities 516,873 23,847 4.61% 499,925 18,715 3.74% 455,568 17,358 3.81%
NON-INTEREST-BEARING
LIABILITIES
Demand deposits 66,181 62,591 59,987
Other Liabilities 4,453 2,628 2,848
Shareholders' equity 60,262 55,286 50,868
Total liabilities and
shareholders' equity $647,769 $620,430 $569,271
-5-
NET INTEREST INCOME $28,619 $26,782 $24,785
NET INTEREST INCOME AS A PERCENTAGE
OF INTEREST-EARNING ASSETS 4.72% 4.65% 4.69%
<FN>
<F1> Nonaccrual loans are included in the daily average loans outstanding for purposes of this
calculation. See Note 1 to the Consolidated Financial Statements regarding recognition of loan
fee income. Included in interest on loans are fees in the amount of $848,000, $733,000 and
$410,000 in 1995, 1994 and 1993, respectively.
<F2> Yields are computed on a fully tax-equivalent basis using a federal income tax rate of 34
percent in all years presented.
</FN>
</TABLE>
LOANS
The following table summarizes year-end totals for the major categories of
Shoreline's total loan portfolio for the last five years.
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
% OF % OF % OF % OF % OF
(IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $191,437 41.08% $179,850 41.20% $166,745 40.31% $161,787 45.61% $161,996 47.11%
Real estate mortgage 194,784 41.80% 175,912 40.30% 156,509 37.83% 114,453 32.26% 108,097 31.43%
Real estate construction 18,704 4.01% 26,679 6.11% 27,337 6.61% 25,618 7.22% 20,424 5.94%
Consumer 61,070 13.11% 54,088 12.39% 63,102 15.25% 52,882 14.91% 53,360 15.52%
Total loans $465,995 100.00% $436,529 100.00% $413,693 100.00% $354,740 100.00% $343,877 100.00%
</TABLE>
-6-
LOAN MATURITY
The following table summarizes the maturity distribution and interest
rate sensitivity of the loan portfolio, excluding real estate mortgage
and consumer loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
DUE IN ONE DUE IN ONE DUE AFTER DUE IN ONE DUE IN ONE DUE AFTER
(IN THOUSANDS) YEAR OR LESS TO FIVE YEARS FIVE YEARS YEAR OR LESS TO FIVE YEARS FIVE YEARS
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $35,243 $114,181 $42,013 $34,168 $109,351 $36,331
Real estate construction 12,259 3,652 2,793 10,178 12,810 3,691
Total $47,502 $117,833 $44,806 $44,346 $122,161 $40,022
Loans due after one year:
with fixed rates $ 51,743 $10,933 $ 54,163 $ 7,942
with floating rates $ 66,090 $33,873 $ 67,998 $32,080
</TABLE>
-7-
ALLOWANCE ALLOCATION
The following table summarizes management's allocation of the allowance for
loan losses over the past five years. The amounts indicated for each loan
type include amounts allocated for specific loans as well as general
allocations.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991
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 IN TOTAL IN TOTAL
(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 $2,361 41.08% $2,044 41.20% $2,112 40.31% $2,003 45.61% $1,775 47.11%
Real estate mortgage 698 41.80% 559 40.30% 423 37.83% 317 32.26% 357 31.43%
Real estate construction 107 4.01% 100 6.11% 106 6.61% 75 7.22% 51 5.94%
Consumer 1,111 13.11% 995 12.39% 1,103 15.25% 845 14.91% 762 15.52%
Unallocated 2,323 2,254 1,842 1,326 889
$6,600 100.00% $5,952 100.00% $5,586 100.00% $4,566 100.00% $3,834 100.00%
</TABLE>
-8-
ALLOWANCE ACTIVITY
The following table summarizes loan and allowance information for each
period shown.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loans outstanding, end
of period $465,995 $436,529 $413,693 $354,740 $343,877
Daily average of loans
outstanding for the
period $447,329 $428,478 $385,138 $351,168 $324,911
Allowance for loan losses,
balance at beginning of
period $ 5,952 $ 5,586 $ 4,566 $ 3,834 $ 3,489
Charge-offs:
Commercial, financial
and agricultural 151 391 186 437 279
Real estate mortgage 70 105 84 2 8
Real estate construction 0 0 0 0 0
Consumer 271 517 332 392 808
Total charge-offs 492 1,013 602 831 1,095
Recoveries:
Commercial, financial
and agricultural 200 367 107 55 63
Real estate mortgage 14 0 1 0 0
Real estate construction 0 0 0 0 0
Consumer 176 262 134 128 107
Total recoveries 390 629 242 183 170
Net charge-offs 102 384 360 648 925
Provision charged to
income 750 750 1,380 1,380 1,270
Balance at end of period $ 6,600 $ 5,952 $ 5,586 $ 4,566 $ 3,834
Key Ratios:
Net charge-offs to average
loans 0.02% 0.09% 0.09% 0.18% 0.28%
Recoveries to total
charge-offs 79.27% 62.09% 40.20% 22.02% 15.53%
-9-
Allowance to total loans
at end of period 1.42% 1.36% 1.35% 1.29% 1.11%
Allowance to total non-
performing assets at end
of period 410.19% 269.08% 102.84% 86.26% 64.50%
Provision to average loans 0.17% 0.17% 0.36% 0.39% 0.39%
</TABLE>
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.
MATURITY ANALYSIS
The following tables set forth the maturities and weighted average
interest rates of Shoreline's securities as of December 31, 1995.
<TABLE>
AVAILABLE FOR SALE
<CAPTION>
MATURING
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
(IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 7,025 6.01% $19,570 6.80% $ 6,087 7.10% $ 0 N/A
States and political sub-
divisions <F1> 2,908 9.41% 10,685 10.04% 7,908 9.22% 11,854 8.44%
Mortgage-backed
securities: <F2>
U.S. Government
agencies 8,304 6.59% 11,846 6.92% 9,830 6.91% 994 5.41%
Collateralized mortgage
obligations 2,019 6.32% 1,301 7.02% 0 N/A 0 N/A
Other securities 0 N/A 0 N/A 0 N/A 2,540 6.53%
Total $20,256 6.77% $43,402 7.64% $23,825 7.73% $15,388 7.93%
</TABLE>
-10-
<TABLE>
HELD TO MATURITY
<CAPTION>
MATURING
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
(IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 0 N/A $ 4,830 7.42% $ 2,000 7.13% $ 0 N/A
States and political sub-
divisions <F1> 1,646 10.01% 3,179 11.29% 837 9.20% 3,898 9.24%
Mortgage-backed
securities: <F2>
U.S. Government
agencies 6,785 6.90% 14,224 7.53% 3,171 8.34% 0 N/A
Collateralized mortgage
obligations 0 N/A 3,895 7.54% 0 N/A 0 N/A
Other securities 0 N/A 0 N/A 0 N/A 0 N/A
Total $ 8,431 7.51% $26,128 7.97% $ 6,008 8.06% $ 3,898 9.24%
<FN>
<F1> 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.
<F2> Maturity based upon estimated weighted average life.
</FN>
</TABLE>
TIME DEPOSITS $100,000 OR MORE
The time remaining until maturity of time certificates of deposit
$100,000 or more at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
TIME UNTIL MATURITY (IN THOUSANDS)
<S> <C>
Three months or less $ 17,363
Over three through six months 14,729
Over six through twelve months 8,300
Over 12 months 17,359
Total $ 57,751
</TABLE>
-11-
ITEM 2. PROPERTIES
Shoreline maintains its offices and conducts its business
operations from the principal banking office of Shoreline Bank in
Benton Harbor, Michigan. Shoreline Bank's principal office is located
at 823 Riverview Drive, Benton Harbor, Michigan. This location
encompasses approximately 21,000 square feet on three floors, all of
which are occupied by Shoreline Bank and Shoreline. Shoreline Bank
owns the premises occupied by each of its 24 branch offices.
ITEM 3. LEGAL PROCEEDINGS
Shoreline Bank is party, as plaintiff or as defendant, to a
number of legal proceedings, none of which is considered material and
all of which arose in the normal course of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information under the caption "Common Stock Information" on
page 10 and under the subheading "Cash Dividends" on page 18 of
Shoreline's annual report to shareholders for the year ended December
31, 1995, is here incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Financial Highlights" on
page 1 of Shoreline's annual report to shareholders for the year ended
December 31, 1995, is here incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all
subheadings on pages 11 through 18 of Shoreline's annual report to
shareholders for the year ended December 31, 1995, is here
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes and the report of the independent
auditors on pages 19 through 34 of Shoreline's annual report to
shareholders for the year ended December 31, 1995, are here
incorporated by reference.
The information under the caption "Quarterly Financial Data" on
page 10 of Shoreline's annual report to shareholders for the year
ended December 31, 1995, is here incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
-13-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Directors and
Executive Officers" and "Section 16(a) Reporting Delinquencies" in the
registrant's definitive Proxy Statement for its May 1, 1996, 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 1, 1996, 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 1, 1996,
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 1, 1996, annual meeting of shareholders is
here incorporated by reference.
-14-
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 subsidiary are filed as part of this report:
Consolidated Balance Sheets--December 31, 1995 and 1994
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994 and
1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Auditors dated February 7, 1996
The financial statements, the notes to financial statements and
the report of independent auditors listed above are incorporated by
reference in Item 8 of this report.
(2) FINANCIAL STATEMENT SCHEDULES. Not applicable.
(3) EXHIBITS. The following exhibits are filed as part of
this report:
NUMBER EXHIBIT
3(a) Restated Articles of Incorporation. Previously filed
as Exhibit 3(a) to the registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1994. Here
incorporated by reference.
3(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.
-15-
NUMBER EXHIBIT
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.
10(b) Employment Agreements.*
10(c) 1989 Stock Option Plan.* Previously filed as Exhibit
28 to the registrant's Form S-8 Registration Statement
filed May 31, 1989. Here incorporated by reference.
10(d) 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.
10(e) Bonus Program-1994 and -1995.* Previously filed as
Exhibit 10(g) to the registrant's 1994 Form 10-K Annual
Report filed March 29, 1995. Here incorporated by
reference.
11 Statement Regarding Computation of Earnings per Common
Share. The computation of earnings per common share is
fully described in Note 1 to the Consolidated Financial
Statements incorporated by reference in Item 8 of this
report.
13 Annual Report to Shareholders of Shoreline Financial
Corporation for the year ended December 31, 1995.
21 List of Subsidiaries. Previously filed as Exhibit 21
to the registrant's Form 10-K Annual Report filed March
29, 1995. Here incorporated by reference.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
-16-
_________________________________
* These agreements are management contracts or compensation plans
or arrangements required to be filed as exhibits to this Form 10-K.
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.
-17-
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 28, 1996 By /S/ DAN L. SMITH
Dan L. Smith
Chairman, President and
Chief Executive Officer
-18-
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 28, 1996 /S/ LOUIS A. DESENBERG*
Louis A. Desenberg
Director
March 28, 1996 /S/ MERLIN J. HANSON*
Merlin J. Hanson
Director
March 28, 1996 /S/ THOMAS T. HUFF*
Thomas T. Huff
Director
March 28, 1996 /S/ RONALD F. KINNEY*
Ronald F. Kinney
Director
March 28, 1996 /S/ JAMES E. LEBLANC*
James E. LeBlanc
Director
March 28, 1996 /S/ L. RICHARD MARZKE*
L. Richard Marzke
Director
March 28, 1996 /S/ JAMES F. MURPHY*
James F. Murphy
Director
March 28, 1996 /S/ DAN L. SMITH
Dan L. Smith
Chairman, President, Chief
Executive Officer and Director
(Principal Executive Officer)
-19-
March 28, 1996 /S/ ROBERT L. STARKS*
Robert L. Starks
Director
March 28, 1996 /S/ JEFFREY H. TOBIAN*
Jeffrey H. Tobian
Director
March 28, 1996 /S/ HARRY C. VORYS*
Harry C. Vorys
Director
March 28, 1996 /S/ HYMAN WARSHAWSKY*
Hyman Warshawsky
Director
March 28, 1996 /S/ RONALD L. ZILE*
Ronald L. Zile
Director
March 28, 1996 /S/ WAYNE R. KOEBEL
Wayne R. Koebel
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer (Principal Financial
and Accounting
Officer)
*By /S/ DAN L. SMITH
Dan L. Smith
Attorney-in-Fact for
the indicated persons
-20-
EXHIBIT INDEX
NUMBER EXHIBIT
3(a) Restated Articles of Incorporation. Previously filed
as Exhibit 3(a) to the registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1994. Here
incorporated by reference.
3(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.
10(b) Employment Agreements.*
10(c) 1989 Stock Option Plan.* Previously filed as Exhibit
28 to the registrant's Form S-8 Registration Statement
filed May 31, 1989. Here incorporated by reference.
10(d) 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.
10(e) Bonus Program-1994 and -1995.* Previously filed as
Exhibit 10(g) to the registrant's 1994 Form 10-K Annual
Report filed March 29, 1995. Here incorporated by
reference.
11 Statement Regarding Computation of Earnings per Common
Share. The computation of earnings per common share is
fully described in Note 1 to the Consolidated Financial
Statements incorporated by reference in Item 8 of this
report.
13 Annual Report to Shareholders of Shoreline Financial
Corporation for the year ended December 31, 1995.
21 List of Subsidiaries. Previously filed as Exhibit 21
to the registrant's Form 10-K Annual Report filed March
29, 1995. Here incorporated by reference.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
_________________________________
* These agreements are management contracts or compensation plans
or arrangements required to be filed as exhibits to this Form 10-K.
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
THIS IS AN AGREEMENT dated as of August 16, 1995, by and between
SHORELINE FINANCIAL CORPORATION, a Michigan corporation ("Shoreline"), and
WAYNE R. KOEBEL ("Employee").
Employee is currently serving as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer of Shoreline and Executive Vice
President and Chief Financial Officer of Shoreline Bank (the "Bank"), a
Michigan banking corporation and wholly owned subsidiary of Shoreline. In
view of Employee's knowledge, reputation and substantial experience, the
Board of Directors of Shoreline (the "Board") has determined that it is in
the best interests of Shoreline and the Bank to obtain the continued
services of Employee and the availability of his objective advice and
counsel.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. EMPLOYMENT. Shoreline agrees to employ Employee, effective
as of the date of this Agreement (the "Employment"), to serve as the
Executive Vice President, Chief Financial Officer, Secretary and
Treasurer of Shoreline and the Executive Vice President and Chief
Financial Officer of the Bank, or to serve such other subsidiary or
subsidiaries of Shoreline as may be mutually agreed by Shoreline and
Employee. Employee accepts the Employment on the terms and conditions
set forth in this Agreement. Employee agrees to devote substantially
his entire time and attention to the management and operation of
Shoreline and the Bank, or such other duties as may be assigned to him
by the Board pursuant to this Agreement. The Board may assign such
other duties and responsibilities as are substantially consistent with
the services being performed by Employee for Shoreline and the Bank on
the date of this Agreement. Notwithstanding the foregoing, Employee's
expenditure of reasonable amounts of time for personal or outside
business, charitable and professional activities shall not be deemed
to constitute a breach of this Agreement, so long as such activities
do not materially interfere with the services required to be rendered
by Employee under this Agreement.
2. COMPENSATION.
(a) SALARY AND BONUS OR INCENTIVE COMPENSATION. In
consideration for his services, Employee shall be paid a salary
and such bonus or incentive compensation as may be determined
from time to time by the Board upon the recommendation of its
Compensation Committee. In determining Employee's compensation,
the Compensation Committee shall consider the prevailing
compensation for comparable positions with peer group banks.
During the term of this Agreement, Employee's salary shall not be
decreased without his consent except pursuant to a general
decrease in the salary of all senior officers of Shoreline. The
Board may cause any Shoreline subsidiary to which Employee is
rendering services pursuant to this Agreement to pay all or any
part of Employee's salary, bonus, fringe benefits or other
compensation under this Agreement in lieu of payment by
Shoreline. Such payment by a subsidiary of Shoreline shall
discharge the obligation of Shoreline under this Agreement to the
extent of such payment.
(b) BENEFITS. Employee shall enjoy all rights, benefits
and privileges to which he may be entitled as an employee of
either or both of Shoreline or the Bank, as the case may be,
under any retirement, deferred compensation, pension, profit
sharing or other employee benefit plan, or under any policy of
health, life, disability, hospitalization or other insurance
which may now be in effect or which may hereafter be adopted, on
a basis at least as favorable as is enjoyed by other employees of
Shoreline or the Bank during the Employment. Employee shall be
provided other fringe benefits on the same basis and at a level
commensurate with those generally available to executive officers
of Shoreline and the Bank.
3. TERM AND TERMINATION. The Employment shall commence as of the
date of this Agreement and shall continue until this Agreement is
terminated in accordance with any of the following provisions:
(a) DEATH. If Employee shall die while this Agreement is in
effect, this Agreement shall terminate as of the date of his death.
Shoreline shall cause Employee's compensation and benefits pursuant to
Paragraph 2 of this Agreement to be paid through the last day of the
calendar month in which Employee's death occurs.
(b) DISABILITY. If Employee shall be unable to substantially
perform his employment duties for a period of nine (9) successive
months by reason of any physical or mental disability resulting from
accident or illness, this Agreement may be terminated as of the end of
any calendar month following the expiration of such nine-month period:
(i) by Shoreline based upon a determination that Employee is disabled
and by notice in writing to that effect to Employee; or (ii) by
Employee by his resignation in writing to Shoreline. Any determination
as to whether Employee is disabled shall be made by a licensed
physician selected by agreement of Shoreline and Employee or, if they
cannot agree upon a physician, then by a majority of a panel of three
(3) licensed physicians, consisting of one physician selected by
Shoreline, one physician selected by Employee, and the third selected
by the first two. All rights of Employee to compensation under this
Agreement shall terminate immediately upon termination of this
Agreement pursuant to this Subparagraph 3(b).
-2-
(c) TERMINATION FOR CAUSE. Shoreline shall have the right to
terminate the Employment and this Agreement for "Cause". For purposes
of this Agreement, "Cause" shall be limited to (i) the willful and
continued failure by Employee to substantially perform such employment
duties as are reasonable and appropriate to his positions (other than
any failure resulting from a disability described in Subparagraph
3(b)), after a demand for substantial performance is delivered to
Employee on behalf of the Board which specifically identifies the
manner in which it is alleged that Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in
misconduct which is materially injurious to Shoreline or the Bank,
monetarily or otherwise, including without limitation,
misappropriation of property or funds, conviction of a felony or
violation of banking statutes or regulations. For purposes of this
Subparagraph, no act or failure to act on Employee's part shall be
considered "willful" unless done or omitted to be done by Employee not
in good faith and without reasonable belief that his action or
omission was in the best interests of Shoreline and the Bank.
Notwithstanding the foregoing, this Agreement shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to Employee written notice of termination on behalf of the
Board after reasonable notice to him, an opportunity for him to be
heard before the Board, and a finding that in the reasonable opinion
of at least two-thirds (2/3) of the entire Board, Employee was guilty
of conduct set forth above in clauses (i) or (ii) above and describing
such conduct in detail.
(d) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee shall
have the right to terminate this Agreement for "Good Reason" by
delivering to Shoreline written notice of termination within three (3)
years after the occurrence of any of the events described in this
Subparagraph. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following without Employee's express
written consent:
(i) The assignment to Employee of any position or duties of
materially less responsibility and status than Employee's present
positions, duties, responsibilities and status with Shoreline or
the Bank, or a materially adverse change in Employee's reporting
responsibilities, titles or offices as presently in effect, or
any removal of Employee from or any failure to reelect Employee
to any of such positions, except in connection with the
termination of this Agreement by reason of Employee's death or
disability or for Cause, or by Employee pursuant to Subparagraph
3(e);
(ii) The failure by Shoreline to consider Employee for an
increase in salary no less frequently than annually, or a
material reduction or termination by Shoreline of Employee's
-3-
salary, bonus, incentive compensation or any other forms of
compensation payable to Employee pursuant to Subparagraph 2(a);
(iii) The relocation of Shoreline's principal executive
offices to a location outside Berrien County, Michigan, or
Shoreline's imposition of any requirement that Employee be based
anywhere other than in Berrien County, Michigan; or
(iv) The failure of Shoreline to fulfill any of its
obligations under this Agreement.
(e) VOLUNTARY TERMINATION BY EMPLOYEE. Employee shall have the
right to voluntarily terminate this Agreement and the Employment for
reasons other than those set forth in the foregoing Subparagraphs of
this Paragraph 3 by giving thirty (30) days' written notice to
Shoreline specifying the date of termination.
(f) TERMINATION BY SHORELINE. Shoreline shall have the right to
terminate this Agreement at any time (with or without also terminating
the Employment), upon the affirmative vote of two-thirds (2/3) of the
entire Board, by giving sixty (60) days' written notice to Employee
specifying the date of termination of this Agreement.
4. SEVERANCE BENEFITS. If this Agreement shall be terminated by
Employee for Good Reason pursuant to Subparagraph 3(d), or by Shoreline
pursuant to notice given in accordance with Subparagraph 3(f), Employee
shall be entitled to receive severance benefits consisting of the
following:
(a) SEVERANCE PAYMENTS. If such termination occurs within three
(3) years after a "Change in Control," as defined below, monthly
severance payments equal to the average of Employee's aggregate
monthly cash compensation received from Shoreline and the Bank during
the five (5) fiscal years of Shoreline immediately preceding
termination of this Agreement. Such severance payments shall be paid
for and over thirty-six (36) months.
(b) ACCRUED BONUS. Any bonus that was or would have been
accrued by Shoreline or the Bank, as the case may be, for the benefit
of Employee on the date of termination of this Agreement pursuant to
Shoreline's or the Bank's standard practices for computing bonuses.
(c) BENEFITS. Continued participation, during the period over
which severance payments are required pursuant to Subparagraph 4(a),
in all benefits provided by Subparagraph 2(b) in which Employee is
participating on the date of termination; provided, that if for any
reason Employee's participation in any such plan or program is barred
or otherwise prevented, Shoreline shall provide Employee with benefits
or payments of substantially the same value.
-4-
(d) CHANGE IN CONTROL DEFINED. For purposes of this Agreement,
a "Change in Control" shall have occurred if:
(i) There has been a change in the control of Shoreline of
a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14a promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"),
provided that, without limitation, such a change in control shall
be deemed to have occurred if (A) any "person" (as that term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of
securities of Shoreline representing 25 percent or more of the
combined voting power of Shoreline's then outstanding securities,
or (B) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority
thereof (unless the election or nomination for election by
Shoreline's shareholders of each new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of such period);
(ii) The Board has received any notice or other
communication from any individual, corporation, partnership,
joint venture or other entity expressing a desire to propose,
negotiate or discuss any tender offer, exchange offer, merger,
consolidation, sale of shares, sale of assets not in the ordinary
course, or other business combination involving Shoreline or any
of Shoreline's subsidiaries ("Business Combination") and such
notice, communication, or proposal has not been withdrawn or
terminated; or
(iii) Public announcement by any individual, corporation,
partnership, joint venture or other entity expressing an intent
to seek any Business Combination and such announcement or intent
has not been withdrawn or terminated.
Except as expressly provided in this Paragraph, upon termination of
this Agreement, Employee shall cease to be an employee of Shoreline or the
Bank for all purposes and shall have no further rights as an employee after
such termination.
5. PARACHUTE PAYMENTS. Notwithstanding any other provision of this
Agreement, if (i) part or all of any compensation and benefits to be paid
to Employee by or on behalf of Shoreline, whether under this Agreement or
otherwise, constitute a "parachute payment" (or payments) under Section
280G or any other similar provision of the Code, and (ii) if the aggregate
present value of such parachute payments (the "Parachute Amount") exceeds
2.99 times Employee's "base amount" as defined in Section 280G of the Code,
then the amounts otherwise payable to or for the benefit of Employee
-5-
subsequent to the termination of this Agreement and taken into account in
calculating the Parachute Amount (the "termination payments"), shall be
adjusted to the extent necessary to equate the Parachute Amount with 2.99
times Employee's "base amount." The adjustments permitted under this
Paragraph 5 may include the elimination of payments, the reduction of the
amount of any payments, and the extension of the date upon which the
payments would otherwise be due to reduce the present value of such
payments. Payment of the amount by which any compensation or benefit to
Employee is reduced pursuant to this Paragraph shall be deferred for one or
more fiscal years thereafter and shall be paid to Employee in the next
following fiscal year or years to the extent that he receives no parachute
payment subject to an excise tax in any such year.
6. NO SOLICITATION. Following the termination of the Employment or
this Agreement for any reason, Employee shall not, individually or on
behalf of any corporation, partnership, joint venture or other entity,
directly or indirectly solicit or induce any officer or other employee of
Shoreline or any of its affiliates to leave his or her employment with
Shoreline or such affiliate.
7. SUCCESSORS; BINDING AGREEMENT.
(a) Shoreline shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or both of Shoreline or the
Bank, by agreement in form and substance reasonably satisfactory to
Employee, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that Shoreline would be
required to perform it if no such succession had taken place. Failure
of Shoreline to obtain such agreement prior to the effectiveness of
any succession shall be a breach of this Agreement and shall entitle
Employee to compensation in the same amount and on the same terms as
Employee would be entitled hereunder if Employee terminated his
employment for Good Reason, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed the date of termination. As used in this Agreement,
"Shoreline" shall mean Shoreline and any successor to Shoreline's
business, assets or both which executes and delivers the agreement
provided for in this Paragraph 7 or which otherwise becomes bound by
all of the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amount would still be
payable to him under this Agreement if he had continued to live, all
such amounts, except as otherwise provided in this Agreement, shall be
paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there be no such designee, to his
estate.
-6-
8. NOTICE. All notices and other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to Employee at his residence
address as reflected in the personnel records of Shoreline, or to Shoreline
at its principal executive offices to the attention of the Chief Executive
Officer of Shoreline with a copy to the Secretary of Shoreline, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
9. ENTIRE AGREEMENT. No agreements or representations, written or
oral, express or implied, with respect to the subject matter of this
Agreement have been made by either party which are not set forth expressly
in this Agreement, and this Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter
hereof.
10. AMENDMENT AND WAIVER. No provisions of this Agreement may be
amended, modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Employee and such officer as
may be specifically designated by the Board. No waiver by either party
hereto at any time of any breach by the other party hereto of any condition
or provision of this Agreement to be satisfied or performed by such other
party shall be deemed a waiver of similar or dissimilar conditions or
provisions at the time or at any prior or subsequent time.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
12. GOVERNING LAW. The validity, interpretation, construction and
enforcement of this Agreement shall be governed by the laws of the State of
Michigan.
-7-
IN WITNESS WHEREOF, the parties have signed this Agreement as of
the date and year first above written.
SHORELINE FINANCIAL CORPORATION
By /S/ DAN L. SMITH
Dan L. Smith
Chairman of the Board, President and
Chief Executive Officer
/S/ WAYNE R. KOEBEL
Wayne R. Koebel
"Employee"
-8-
EMPLOYMENT AGREEMENT
THIS IS AN AGREEMENT dated as of August 16, 1995, by and between
SHORELINE FINANCIAL CORPORATION, a Michigan corporation ("Shoreline"), and
DAN L. SMITH ("Employee").
Employee is currently serving as Chairman of the Board, President
and Chief Executive Officer of Shoreline and Chairman of the Board,
President and Chief Executive Officer of Shoreline Bank, a Michigan banking
corporation and wholly owned subsidiary of Shoreline (the "Bank").
Employee has been employed by Shoreline, the Bank, and their predecessors
since July 16, 1956. In view of Employee's knowledge, reputation and
substantial experience, the Board of Directors of Shoreline (the "Board")
has determined that it is in the best interests of Shoreline and the Bank
to obtain the continued services of Employee and the availability of his
objective advice and counsel.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. EMPLOYMENT. Shoreline agrees to employ Employee, effective
as of the date of this Agreement (the "Employment"), to serve as the
Chairman of the Board, President and Chief Executive Officer of
Shoreline and the Chairman of the Board, President and Chief Executive
Officer of the Bank, or to serve such other subsidiary or subsidiaries
of Shoreline as may be mutually agreed by Shoreline and Employee.
Employee accepts the Employment on the terms and conditions set forth
in this Agreement. Employee agrees to devote substantially his entire
time and attention to the management and operation of Shoreline and
the Bank, or such other duties as may be assigned to him by the Board
pursuant to this Agreement. The Board may assign such other duties
and responsibilities as are substantially consistent with the services
being performed by Employee for Shoreline and the Bank on the date of
this Agreement. Notwithstanding the foregoing, Employee's expenditure
of reasonable amounts of time for personal or outside business,
charitable and professional activities shall not be deemed to
constitute a breach of this Agreement, so long as such activities do
not materially interfere with the services required to be rendered by
Employee under this Agreement.
2. COMPENSATION.
(a) SALARY AND BONUS OR INCENTIVE COMPENSATION. In
consideration for his services, Employee shall be paid a salary
and such bonus or incentive compensation as may be determined
from time to time by the Board upon the recommendation of its
Compensation Committee. In determining Employee's compensation,
the Compensation Committee shall consider the prevailing
compensation for comparable positions with peer group banks.
During the term of this Agreement, Employee's salary shall not be
decreased without his consent except pursuant to a general
decrease in the salary of all senior officers of Shoreline. The
Board may cause any Shoreline subsidiary to which Employee is
rendering services pursuant to this Agreement to pay all or any
part of Employee's salary, bonus, fringe benefits or other
compensation under this Agreement in lieu of payment by
Shoreline. Such payment by a subsidiary of Shoreline shall
discharge the obligation of Shoreline under this Agreement to the
extent of such payment.
(b) BENEFITS. Employee shall enjoy all rights, benefits
and privileges to which he may be entitled as an employee of
either or both of Shoreline or the Bank, as the case may be,
under any retirement, deferred compensation, pension, profit
sharing or other employee benefit plan, or under any policy of
health, life, disability, hospitalization or other insurance
which may now be in effect or which may hereafter be adopted, on
a basis at least as favorable as is enjoyed by other employees of
Shoreline or the Bank during the Employment. Employee shall be
provided other fringe benefits on the same basis and at a level
commensurate with those generally available to executive officers
of Shoreline and the Bank.
(c) SUPPLEMENTAL RETIREMENT PLAN. The Company will provide
a supplemental retirement benefit to Employee. The benefit will
be calculated by first determining the amount of Employee's
benefit payable from qualified defined benefit plans maintained
by the Company, without reduction for any provisions of the
Internal Revenue Code that directly or indirectly limit benefits
payable from qualified defined benefit plans, including
Sections 401(a)(17) and 415. From this amount the actual benefit
payment from the Company qualified defined benefit plans will be
subtracted. The result is the benefit payable under the
provision. In addition to the amount described in the preceding
paragraph, the Company will pay a benefit equal to the amount
which was not contributed to any qualified defined contribution
plan by the Company as a result of any provisions of the Internal
Revenue Code that directly or indirectly limit Company
contributions to qualified defined contribution plans, including
Sections 401(a)(17), 401(m), 402(g) and 415. Amounts payable
under this provision will be adjusted for investment experience,
as set forth in the written plan document providing this benefit
for Employee. Time of distribution, form of payment, forfeiture
of payment and other provisions applicable to this benefit will
be governed by the written terms of the plan document established
by the Company to provide this benefit.
3. TERM AND TERMINATION. The Employment shall commence as of the
date of this Agreement and shall continue until this Agreement is
terminated in accordance with any of the following provisions:
-2-
(a) DEATH. If Employee shall die while this Agreement is in
effect, this Agreement shall terminate as of the date of his death.
Shoreline shall cause Employee's compensation and benefits pursuant to
Paragraph 2 of this Agreement to be paid through the last day of the
calendar month in which Employee's death occurs.
(b) DISABILITY. If Employee shall be unable to substantially
perform his employment duties for a period of nine (9) successive
months by reason of any physical or mental disability resulting from
accident or illness, this Agreement may be terminated as of the end of
any calendar month following the expiration of such nine-month
period: (i) by Shoreline based upon a determination that Employee is
disabled and by notice in writing to that effect to Employee; or
(ii) by Employee by his resignation in writing to Shoreline. Any
determination as to whether Employee is disabled shall be made by a
licensed physician selected by agreement of Shoreline and Employee or,
if they cannot agree upon a physician, then by a majority of a panel
of three (3) licensed physicians, consisting of one physician selected
by Shoreline, one physician selected by Employee, and the third
selected by the first two. All rights of Employee to compensation
under this Agreement shall terminate immediately upon termination of
this Agreement pursuant to this Subparagraph 3(b).
(c) TERMINATION FOR CAUSE. Shoreline shall have the right to
terminate the Employment and this Agreement for "Cause". For purposes
of this Agreement, "Cause" shall be limited to (i) the willful and
continued failure by Employee to substantially perform such employment
duties as are reasonable and appropriate to his positions (other than
any failure resulting from a disability described in Subparagraph
3(b)), after a demand for substantial performance is delivered to
Employee on behalf of the Board which specifically identifies the
manner in which it is alleged that Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in
misconduct which is materially injurious to Shoreline or the Bank,
monetarily or otherwise, including without limitation,
misappropriation of property or funds, conviction of a felony or
violation of banking statutes or regulations. For purposes of this
Subparagraph, no act or failure to act on Employee's part shall be
considered "willful" unless done or omitted to be done by Employee not
in good faith and without reasonable belief that his action or
omission was in the best interests of Shoreline and the Bank.
Notwithstanding the foregoing, this Agreement shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to Employee written notice of termination on behalf of the
Board after reasonable notice to him, an opportunity for him to be
heard before the Board, and a finding that in the reasonable opinion
of at least two-thirds (2/3) of the entire Board, Employee was guilty
of conduct set forth above in clauses (i) or (ii) above and describing
such conduct in detail.
-3-
(d) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee shall
have the right to terminate this Agreement for "Good Reason" by
delivering to Shoreline written notice of termination within three (3)
years after the occurrence of any of the events described in this
Subparagraph. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following without Employee's express
written consent:
(i) The assignment to Employee of any position or duties of
materially less responsibility and status than Employee's present
positions, duties, responsibilities and status with Shoreline or
the Bank, or a materially adverse change in Employee's reporting
responsibilities, titles or offices as presently in effect, or
any removal of Employee from or any failure to reelect Employee
to any of such positions, except in connection with the
termination of this Agreement by reason of Employee's death or
disability or for Cause, or by Employee pursuant to Subparagraph
3(e);
(ii) The failure by Shoreline to consider Employee for an
increase in salary no less frequently than annually, or a
material reduction or termination by Shoreline of Employee's
salary, bonus, incentive compensation or any other forms of
compensation payable to Employee pursuant to Subparagraph 2(a);
(iii) The relocation of Shoreline's principal executive
offices to a location outside Berrien County, Michigan, or
Shoreline's imposition of any requirement that Employee be based
anywhere other than the principal executive offices of Shoreline
or the Bank; or
(iv) The failure of Shoreline to fulfill any of its
obligations under this Agreement.
(e) VOLUNTARY TERMINATION BY EMPLOYEE. Employee shall have the
right to voluntarily terminate this Agreement and the Employment for
reasons other than those set forth in the foregoing Subparagraphs of
this Paragraph 3 by giving thirty (30) days' written notice to
Shoreline specifying the date of termination.
(f) TERMINATION BY SHORELINE. Shoreline shall have the right to
terminate this Agreement at any time (with or without also terminating
the Employment), upon the affirmative vote of two-thirds (2/3) of the
entire Board, by giving sixty (60) days' written notice to Employee
specifying the date of termination of this Agreement, and with
Severance Benefits to Employee as provided in Paragraph 4.
-4-
4. SEVERANCE BENEFITS. If this Agreement shall be terminated by
Employee for Good Reason pursuant to Subparagraph 3(d), or by Shoreline
other than as permitted in accordance with Subparagraph 3(b) or (c),
Employee shall be entitled to receive severance benefits consisting of the
following:
(a) SEVERANCE PAYMENTS. Monthly severance payments equal to the
average of Employee's aggregate monthly cash compensation received
from Shoreline and the Bank during the five (5) fiscal years of
Shoreline immediately preceding termination of this Agreement. Such
severance payments shall be paid for and over the number of months
equal to the number of years for which Employee has been employed by
Shoreline or the Bank.
(b) ACCRUED BONUS. Any bonus that was or would have been
accrued by Shoreline or the Bank, as the case may be, for the benefit
of Employee on the date of termination of this Agreement pursuant to
Shoreline's or the Bank's standard practices for computing bonuses.
(c) BENEFITS. Continued participation, during the period over
which severance payments are required pursuant to Subparagraph 4(a),
in all benefits provided by Subparagraph 2(b) in which Employee is
participating on the date of termination; provided, that if for any
reason Employee's participation in any such plan or program is barred
or otherwise prevented, Shoreline shall provide Employee with benefits
or payments of substantially the same value.
(d) ADDITIONAL PROTECTION. If it is ever asserted that all or
partial payment made to Employee under this Paragraph 4 constitutes a
"parachute" payment, within the meaning of <Section> 280G of the
Internal Revenue Code, Shoreline will pay any additional excise or
other taxes, interest, penalties, and expense incurred by Employee
because of such assertion, or because of any characterization of such
payment as a "parachute payment." It is the intent of this
subparagraph to protect the Employee fully against any such assertion
or characterization by returning him to the financial position he
would have enjoyed had such assertion or characterization never
occurred, including but not limited to payment of any additional
federal, state, or local income taxes incurred by Employee as a result
of any payment to him by Shoreline under this Subparagraph (d).
5. NO SOLICITATION. Following the termination of the Employment or
this Agreement for any reason, Employee shall not, individually or on
behalf of any corporation, partnership, joint venture or other entity,
directly or indirectly solicit or induce any officer or other employee of
Shoreline or any of its affiliates to leave his or her employment with
Shoreline or such affiliate.
-5-
6. SUCCESSORS; BINDING AGREEMENT.
(a) Shoreline shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or both of Shoreline or the
Bank, by agreement in form and substance reasonably satisfactory to
Employee, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that Shoreline would be
required to perform it if no such succession had taken place. Failure
of Shoreline to obtain such agreement prior to the effectiveness of
any succession shall be a breach of this Agreement and shall entitle
Employee to compensation in the same amount and on the same terms as
Employee would be entitled hereunder if Employee terminated his
employment for Good Reason, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed the date of termination. As used in this Agreement,
"Shoreline" shall mean Shoreline and any successor to Shoreline's
business, assets or both which executes and delivers the agreement
provided for in this Paragraph 7 or which otherwise becomes bound by
all of the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amount would still be
payable to him under this Agreement if he had continued to live, all
such amounts, except as otherwise provided in this Agreement, shall be
paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there be no such designee, to his
estate.
8. NOTICE. All notices and other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to Employee at his residence
address as reflected in the personnel records of Shoreline, or to Shoreline
at its principal executive offices to the attention of the Board of
Directors of Shoreline with a copy to the Secretary of Shoreline, or to
such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
9. ENTIRE AGREEMENT. No agreements or representations, written or
oral, express or implied, with respect to the subject matter of this
Agreement have been made by either party which are not set forth expressly
in this Agreement, and this Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter
hereof.
-6-
10. AMENDMENT AND WAIVER. No provisions of this Agreement may be
amended, modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Employee and such officer as
may be specifically designated by the Board. No waiver by either party
hereto at any time of any breach by the other party hereto of any condition
or provision of this Agreement to be satisfied or performed by such other
party shall be deemed a waiver of similar or dissimilar conditions or
provisions at the time or at any prior or subsequent time.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
12. GOVERNING LAW. The validity, interpretation, construction and
enforcement of this Agreement shall be governed by the laws of the State of
Michigan.
IN WITNESS WHEREOF, the parties have signed this Agreement as of
the date and year first above written.
SHORELINE FINANCIAL CORPORATION
By /S/ WAYNE R. KOEBEL
Wayne R. Koebel,
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
/S/ DAN L. SMITH
Dan L. Smith
"Employee"
-7-
EXHIBIT 13
SHORELINE FINANCIAL CORPORATION
[DRAWING OF WAVE AND BIRDS]
1995 ANNUAL REPORT
SURGING TO THE CREST
ON THE COVER: With five consecutive years of double-
digit increases, Shoreline Financial Corporation's
growth and prosperity are surging.
TABLE OF CONTENTS
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 1
To Our Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business of Shoreline. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Setting a Course for Future Growth . . . . . . . . . . . . . . . . . . . 6
Riding a Wave of Success . . . . . . . . . . . . . . . . . . . . . . . . 8
Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . .10
Common Stock Information . . . . . . . . . . . . . . . . . . . . . . . .10
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . .11
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . .19
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . .20
Consolidated Statements of Changes in Shareholders' Equity . . . . . . .21
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . .22
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .23
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .34
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
-1-
FINANCIAL HIGHLIGHTS
(In thousands except financial ratios and per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
AT YEAR END:
Total assets $671,173 $633,854 $620,620 $533,004 $507,129
Net loans 459,395 430,577 408,107 350,174 340,043
Total deposits 592,300 566,096 557,409 480,458 458,913
Long-term debt 5,000 5,000 5,000 0 0
Shareholders' equity 64,360 56,208 52,607 48,194 44,360
Tier 1 risk-based capital 14.56% 13.62% 12.90% 14.46% 13.95%
FOR THE YEAR:
Net interest income 27,229 25,356 23,066 22,130 19,980
Provision for loan losses (750) (750) (1,380) (1,380) (1,270)
Other income 3,979 4,593 4,754 3,968 3,188
Other expense (18,720) (19,721) (17,987) (17,496) (15,411)
Income before income taxes 11,738 9,478 8,453 7,222 6,487
Income tax expense (3,131) (2,280) (1,915) (1,290) (1,152)
Net income $ 8,607 $ 7,198 $ 6,538 $ 5,932 $ 5,335
FINANCIAL RATIOS:
Return on average shareholders'
equity 14.28% 13.02% 12.85% 12.77% 12.55%
Return on average assets 1.33% 1.16% 1.15% 1.13% 1.09%
Average equity capital to
average assets 9.30% 8.91% 8.94% 8.87% 8.72%
Dividend payout ratio 43.39% 44.19% 41.72% 40.83% 39.78%
PER SHARE DATA:
Earnings per share $ 1.64 $ 1.38 $ 1.27 $ 1.15 $ 1.05
Cash dividends declared
per share .71 .61 .52 .47 .41
Book value per share
(year end) 12.26 10.72 10.12 9.36 8.66
</TABLE>
See Notes to the Consolidated Financial Statements. All per share data
adjusted to reflect stock splits and stock dividends.
-2-
"IT WAS ANOTHER HIGH WATER MARK FOR THE SHORELINE."
[PICTURED IS DAN L. SMITH, CHAIRMAN OF THE BOARD, PRESIDENT AND CEO]
TO OUR SHAREHOLDERS
We are very pleased to report that 1995 represented a new high water mark
for Shoreline Financial Corporation -- our fifth consecutive year of
record earnings. Net income was $8,607,456, which represented a 19.6%
increase over 1994 earnings of $7,198,322. Both our return on equity of
14.28% and our return on assets of 1.33% represent the best levels
achieved by Shoreline over the last seven years.
As earnings per share increased from $1.38 in 1994 to $1.64 in 1995, the
Board of Directors raised cash dividends from $.61 to $.71, an increase
of 16.4%. The market price of our stock, adjusted for a 5% stock
dividend, increased 16.6%. And total shareholder return, including cash
dividends, was over 20% for the year.
Several factors contributed to Shoreline's solid earnings growth in 1995.
Average earning assets, consisting of loans and investments, increased
$29.8 million during the year. This growth, as well as a seven basis
point improvement in the net interest margin to 4.72%, produced $1.9
million in additional net interest income.
Reduced operating expenses were another contributing factor to improved
earnings. Shoreline's non-interest expense declined approximately $1
million for the year. The long-awaited rollback in FDIC insurance
premium levels was responsible for nearly one-half of our total cost
savings. Efficiencies gained by the 1994 merger of the Corporation's two
banks were largely responsible for the remainder of these savings.
At Shoreline, we are committed to growth in earnings and in assets, but
not at the expense of quality. In 1995, Shoreline's non-performing asset
ratio declined for the fifth consecutive year, and stood at only .35% of
total loans on December 31, 1995. The benefit of maintaining high
quality standards is also reflected in our extraordinarily low level of
net loan charge-offs of $102,000, or .02% of total loans.
Another reason for our success was our continued commitment to provide
customers with convenient banking facilities and services. In December
1995, Shoreline added a twenty-fourth location to its banking network,
through the acquisition of an Adamsville, Michigan branch formerly
operated by Old Kent Bank. This location, along with the new Edwardsburg
branch, expanded Shoreline's presence in the Indiana and Michigan border
area. Shoreline also added a new freestanding Automated Teller Machine
(ATM) to its growing network, and began construction of a new drive-up
facility located on Niles Road in St. Joseph Township.
-3-
Shoreline's leadership in developing and delivering quality financial
services continued in 1995. Our Capital Club savings account, Super
Public Fund checking account, and Equity Edge home equity loans accounted
for a substantial portion of our deposit and loan growth. We were also
pleased that during 1995, Shoreline became the number one mortgage lender
in our four-county service area of southwest Michigan.
In 1996, we plan to introduce more convenient products and services to
our customers that will help us maintain our competitive edge. Our new
One Check card service will provide customers with a fast and efficient
replacement for checks, as well as serve as their ATM card. A
computerized bill-paying service called Easy Pay will provide customers
with bill-paying convenience by phone, or through their personal
computers at home. And, our new Automated Loan Machine (ALM) service
will expedite the lending process for consumers.
During 1995, our efforts to support our communities were recognized by
the FDIC when they assigned Shoreline Bank an "Outstanding" Community
Reinvestment Act rating. Among the reasons cited for this high rating
were: officer involvement in organizations such as Cornerstone Alliance,
NISE, and CORD; special loan programs for first-time home buyers and
credit re-establishment loans; participation in government-insured or
subsidized loan programs, and marketing directed toward low and moderate
income individuals. We are pleased that our involvement is having a
positive impact and correspondingly find this to be good, profitable
business for us.
Shoreline continued its investment in its people by promoting a number of
hardworking and dedicated employees in 1995. We congratulate them and
wish them well in their new positions of added responsibility. During
the past year, Ronald F. Kinney, Donald E. Spencer, and Hyman Warshawsky
retired from the Board of Directors of Shoreline Bank. We thank them for
their contributions over the combined 79 years of their board membership.
We are saddened by the loss of William Asche, Vice President of Mortgage
Loans at our South Haven branch office, who passed away in October 1995.
His years of service to the organization and contributions he made to
Shoreline will be missed.
While it would be foolish to attempt to predict the future, your
management team feels that prospects are favorable for our continued
success in 1996. We expect interest rates to remain at levels that will
continue to be attractive to business and consumers alike and should help
to sustain or improve on our loan growth. As the financial industry
becomes increasingly more competitive, Shoreline will continue to develop
the products and services that will help us maintain our leadership
position in the markets we serve.
-4-
We invite you, our shareholders, to join us on Wednesday, May 1, 1996, at
Lake Michigan College, for our Annual Shareholders' Meeting. As always,
we welcome the opportunity to visit with you and answer any questions you
may have.
/S/ DAN L. SMITH
Dan L. Smith
Chairman of the Board
President and CEO
-5-
UNITY OF LEADERSHIP
Pictured clockwise from front: Dan L. Smith, Wayne R. Koebel, Richard D.
Bailey II, Robert K. Burch and James R. Milroy
BUSINESS OF SHORELINE
Shoreline Financial Corporation ("Shoreline" or the "Corporation") is a
bank holding company. Shoreline's business is concentrated exclusively in
the commercial banking industry segment. Shoreline's subsidiary,
Shoreline Bank, offers 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
- - Trust services
- - Investment services
- - Safe deposit services
- - Automated transaction machine services
- - Electronic, telephone and other banking services
The business of Shoreline is mildly seasonal due to the recreational and
agricultural components of the local economy. No material part of the
business of Shoreline and its subsidiary is dependent upon a single
customer or very few customers, the loss of which would have a materially
adverse effect on the Corporation.
The principal markets for Shoreline's financial services are the
communities in which Shoreline Bank is located, and the areas immediately
surrounding these communities. Shoreline and its subsidiary serve these
markets through 24 offices located in and around these communities.
Shoreline and its subsidiary have no material foreign assets or income.
The principal source of revenue for Shoreline and its subsidiary is
interest and fees on loans. On a consolidated basis, interest and fees on
loans accounted for 73.7% of Shoreline's total revenues in 1995, 73.2%
in 1994 and 70.7% in 1993. Interest on investment securities accounted
for 17.4% of Shoreline's total revenues in 1995, 16.2% in 1994 and 17.8%
in 1993.
[SHAREHOLDERS' EQUITY GROWTH CHART]
-6-
SHORELINE MANAGEMENT COMMITTEE
DAN L. SMITH WAYNE R. KOEBEL ROBERT K. BURCH
Chairman Executive Executive
of the Board Vice President Vice President,
President Chief Financial Retail Banking
Chief Executive Officer
Officer
RICHARD D. BAILEY II JAMES R. MILROY
Senior Senior
Vice President, Vice President,
Corporate Banking Controller
and Cashier
-7-
SETTING A COURSE FOR FUTURE GROWTH
[DRAWING OF MAN AND SHIP STEERING WHEEL]
For the past five years, Shoreline Financial Corporation has been riding
a wave of growth in southwest Michigan. We attribute our growth to
focusing on three core strategies:
- - Provide our customers with the highest quality products available in
the markets that we serve.
- - Make banking convenient for our customers.
- - Reinvest in the communities in which our customers and employees
live.
PROVIDE THE HIGHEST QUALITY PRODUCTS.
We continued to deliver quality financial products to our customers in
1995. Capital Club, our relationship savings account, met with
overwhelming customer acceptance. Our Super Public Fund account has been
a success among our area's municipalities and school districts. Both
significantly contributed to our deposit growth.
Equity Edge, our fixed term, fixed rate home equity loan was extremely
popular in 1995. Equity Edge allows customers to borrow up to 100% of
the equity value of their home. We also provide a home equity line of
credit to qualified new mortgage borrowers so they can decorate, make
improvements, or buy furniture or appliances for their new home. We
believe customers value the flexibility of these equity-type products and
we will continue to market them aggressively.
A broad array of special mortgage products was created last year by
Shoreline Bank to help our customers and the communities in which they
live. New loan programs included First Time Homebuyers, loans for
individuals with poor credit histories or those trying to re-establish
credit, and unique loans for farmers. Advertising was directed to these
markets and consumer seminars were held to promote our credit re-
establishment program. These new loan programs will continue to grow in
1996.
Other new products in 1995 included Premier Partners, a program of
services for preferred customers; Business Basic Checking, designed for
small businesses in need of one simple checking account; and Bank-By-Phone, our
phone-activated bank access service.
In the first quarter of 1996, Shoreline introduced Security First
Investment Services, a program offering customers a broad range of
securities, annuities, and mutual funds. Security First Investment
Services provides a large choice of investments from the industry's most
-8-
reputable firms, financial reviews, monthly consolidated statements, and
convenient access to account information.
The One Check card, a new ATM card that provides Shoreline customers with
a fast, convenient substitute for check writing, will be introduced in
1996. Using the card, customers can save time and money by debiting
their checking account directly. The One Check card is accepted at over
eleven million merchants that display the VISA[REGISTERED] symbol.
Also being introduced in 1996 is our new Easy Pay bill-paying service
that lets customers pay all bills, from mortgages to the local paperboy,
without envelopes, postage stamps or checks. It is available in two
versions: Easy Pay Phone and Easy Pay PC. The PC version also allows
users to keep records and budget money on their home computer.
Shoreline remains committed to providing a full range of quality products
for our customers. We will continue to analyze technology-based products
that will better serve our customers. Now. And in the future.
[ASSET GROWTH CHART]
MAKE BANKING CONVENIENT.
A convenient location is the number one reason why a person chooses a
bank. And Shoreline, already offering the most locations in the area,
continues to expand and make banking more convenient for customers.
Construction recently began on a new Auto Bank facility in St. Joseph
township. Along with expanded hours, this location will offer something
unique -- an automated loan machine. This innovative ALM will provide
customers with instant loans after confirming credit with a credit card
or other identification. It will either issue a check or deposit the
loan amount into the borrower's Shoreline account.
Shoreline's strong ATM network continued to grow last year. New
automated teller machines were added at Ace[REGISTERED] Hardware and
Roger's Foodland in St. Joseph, and at the Buchanan Auto Bank. An ATM
will also be installed at our new Niles Road Auto Bank.
Shoreline expanded its branch network with the purchase of the
Adamsville, Michigan branch, formerly operated by Old Kent Bank. This
new location increases our presence on the Indiana-Michigan border, an
area with tremendous growth potential.
With these additions, Shoreline will offer customers 25 convenient branch
locations and 22 automated teller and cash machines -- far more than any
other bank in southwest Michigan.
-9-
REINVEST IN OUR COMMUNITIES.
Shoreline Financial Corporation now operates in 17 southwest Michigan
communities. We're not only in these communities, we're part of these
communities.
RIDING A WAVE OF SUCCESS
[DRAWING OF WAVE AND DOLLAR BILLS]
Last year, our employees donated blood, improved local parks, biked for
cancer, walked for muscular dystrophy, donated to hospitals and provided
for food banks. Some of the many organizations our employees have
supported include: American Cancer Society, Junior Achievement, March of
Dimes, United Way, the Cornerstone Alliance, YMCA, 4-H, Berrien County
Cancer Service, Safe Shelter, and the Christian Outreach Rehabilitation &
Development Program.
Shoreline was involved, too, by making significant financial
contributions to local organizations, programs and events.
Our efforts were rewarded when the FDIC gave us an "Outstanding"
Community Reinvestment Act rating -- their highest rating. This rating
is a credit to our efforts and our people. We are pleased with the
rating, but, more importantly, pleased that we are making a positive
impact on the communities we serve.
REACHING OUR GOAL.
Shoreline's goal has always been to produce strong, steady, profitable
growth. Our financial results have shown that we have dramatically
surpassed this goal. This year, we achieved record earnings, record
dividends, record shareholder return, and an extraordinarily high asset
quality in 1995 -- compared to the last five years.
We have not just reached our goal. We have exceeded it.
[EARNINGS PER SHARE GROWTH CHART]
[DIVIDENDS PER SHARE GROWTH CHART]
SEEKING FUTURE CHALLENGES.
Shoreline is optimistic about the future of southwest Michigan. Growth
is likely to continue because our area has many assets, including an
excellent quality of life and a favorable cost of living.
-10-
We will continue to evaluate the local marketplace as we are challenged
to meet the changing needs of our banking customers. We will continue to
add additional branch facilities and ATMs as the need arises. Moreover,
we will maintain our strategy of seeking high-quality financial
institutions and branches for possible acquisition.
LEADING THE WAY.
Shoreline Financial Corporation is constantly searching for better ways
to serve our shareholders, benefit our customers and operate our
business. Looking for new ideas. Leading the way. Always striving to
succeed.
As our industry becomes increasingly more competitive, Shoreline will
continue to develop the products and services to help us maintain our
leadership position. New technologies will enable us to effectively
deliver these new products and services.
Shoreline has a solid capital position, a strong management team, many
diverse financial products and services and a group of conscientious,
dedicated employees. Above all, we have the will to lead.
It is against our nature to stand still.
-11-
QUARTERLY FINANCIAL DATA
The following is a summary of selected quarterly results of operations
for the years ended December 31, 1995 and 1994. All information has been
adjusted to reflect stock splits and stock dividends.
<TABLE>
<CAPTION>
1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Interest income $12,261 $13,058 $12,918 $12,839
Net interest income 6,692 6,949 6,860 6,728
Provision for loan losses 200 200 175 175
Income before income taxes 2,797 2,820 3,196 2,925
Net income 2,043 2,096 2,331 2,137
Net income per common share $ .39 $ .40 $ .44 $ .41
</TABLE>
<TABLE>
<CAPTION>
1994 (IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Interest income $10,028 $10,799 $11,365 $11,879
Net interest income 5,714 6,344 6,610 6,688
Provision for loan losses 175 175 200 200
Income before income taxes 2,064 2,264 2,544 2,606
Net income 1,609 1,742 1,915 1,932
Net income per common share $ .31 $ .33 $ .37 $ .37
</TABLE>
-12-
COMMON STOCK INFORMATION
Shoreline common stock is traded on The NASDAQ Stock Market under the
symbol SLFC. The following table shows the high and low bid prices on
a quarterly basis as reported on that system. Prices shown are
interdealer prices without retail markups, markdowns or commissions
and may not necessarily represent actual transactions. Market prices
have been adjusted to reflect stock splits and stock dividends. At
January 31, 1996, there were approximately 1,351 shareholders of
record.
<TABLE>
<CAPTION>
QUARTER ENDED 1995 1994
MARKET PRICE OF COMMON STOCK (BID PRICE) HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
March 31 $18.10 $14.76 $19.69 $17.78
June 30 18.10 16.19 19.52 18.10
September 30 19.50 17.25 19.29 16.67
December 31 19.50 18.75 17.62 15.71
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides further information about the
financial condition and results of operations of Shoreline Financial
Corporation. It should be read in conjunction with the financial
statements included elsewhere in this annual report.
1995 HIGHLIGHTS
Net income for 1995 for $8,607,456, 19.6% more than the $7,198,322
earned in 1994. Two significant facts help to explain the increase
from 1994 to 1995. First, net interest income increased $1.9 million
(7.4%) in 1995 due primarily to growth in average earning assets. A 7
basis point improvement in Shoreline's net interest margin also
contributed to the increase. Secondly, non-interest expense declined
by approximately $1 million in 1995. Lower FDIC insurance premium
expense and cost reductions realized from the 1994 merger of
Shoreline's two affiliate banks contributed to lower overhead expense
in 1995. The impact of the reduction in non-interest expense is seen
in Shoreline's efficiency ratio, which fell from 62.03% in 1994 to
56.88% in 1995.
Earnings per share increased from $1.38 in 1994 to $1.64 in 1995.
Return on average shareholders' equity was 14.28% in 1995, an increase
of 126 basis points over the previous year. Return on average assets
also improved from 11.6% in 1994 to 1.33% in 1995.
-13-
At year-end, total assets were $671.2 million, an increase of $37.3
million (5.9%) over year-end 1994. Shoreline's asset quality remained
strong and improved further during 1995. Non-performing assets as a
percent of total loans were .35% at year-end which compares to 1994
and 1993 year-end percentages of .51% and 1.31%, respectively. Net
charge-offs as a percent of average loans declined, as well, from .09%
in both 1994 and 1993 to .02% in 1995.
SUMMARY OF OPERATING RESULTS
The major components of Shoreline's operating results for 1995, 1994
and 1993 have been provided in the following table to establish a
framework for further discussion on subsequent pages.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Net interest income $27,229 $25,356 $23,066
Add: Taxable equivalent adjustment<F1> 1,390 1,426 1,719
Taxable equivalent net interest income 28,619 26,782 24,785
Provision for loan losses (750) (750) (1,380)
Other income 3,979 4,594 4,754
Other expenses (18,720) (19,721) (17,987)
Income taxes, including taxable
equivalent adjustment<F1> (4,521) (3,707) (3,634)
Net income $ 8,607 $ 7,198 $ 6,538
<FN>
<F1> Tax equivalent adjustment based upon federal tax rate of 34
percent
</FN>
</TABLE>
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned
on earning assets and the interest paid on deposits and other borrowed
funds. A number of factors influence net interest income, such as
changes in the volume and mix of interest-earning assets and interest-
bearing liabilities, market interest rates, governmental monetary and
fiscal policies, and customer preference.
Net interest income on a fully taxable equivalent basis was $28.6
million in 1995, an increase of $1.8 million (6.9%) over 1994. In
1994, net interest income increased $2 million (8.1%) over the prior
year. Shoreline's yearly increases in net interest income result
primarily from growth in the volume of earning assets. Average
earning assets increased 5.2% and 9.1% in 1995 and 1994, respectively.
In addition to growth, net interest income was enhanced by a slightly
stronger net interest margin in 1995.
-14-
Changes in interest income (fully tax equivalent) and interest expense
are due to changes in volume and changes in rate. The following table
shows these changes. Changes due to both volume and rate are
allocated to volume and rate in proportion to the relationship of the
absolute dollar amount of the change in each. Yields are computed on
a fully tax equivalent basis using a federal income tax rate of 34% in
all years presented.
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO DUE TO DUE TO
(IN THOUSANDS) VOLUME RATE NET VOLUME RATE NET
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 68 $ 253 $ 321 $ (66) $ 169 $ 103
Securities:
Taxable 488 1,248 1,736 294 (375) (81)
Tax-exempt 105 (144) (39) 188 (517) (329)
Loans-net of unearned income 1,622 3,329 4,951 3,621 40 3,661
Change in interest income 2,283 4,686 6,969 4,037 (683) 3,354
Interest-bearing liabilities:
Demand deposits 180 688 868 11 (303) (292)
Savings deposits (12) 1,576 1,564 910 377 1,287
Time deposits 285 2,359 2,644 424 (283) 141
Short-term borrowings 28 28 56 20 25 45
Long-term debt 0 0 0 174 2 176
Change in interest expense 481 4,651 5,132 1,539 (182) 1,357
Change in net interest income $1,802 $ 35 $1,837 $2,498 $ (501) $1,997
</TABLE>
Net interest margin is net interest income (fully tax equivalent)
divided by average earning assets. Management continually monitors
Shoreline's balance sheet and employs other methods of analysis to
protect net interest income from fluctuations caused by interest rate
volatility. These methods helped to produce relatively stable net
interest margins of 4.72%, 4.65% and 4.69% in 1995, 1994 and 1993.
Shoreline's interest sensitive assets generally respond more rapidly
to changes in interest rates than its interest sensitive liabilities.
The upward swing in interest rates during the last half of 1994 and
first half of 1995 contributed to the seven basis point increase in
1995's net interest margin.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the amount added to the allowance for
loan losses to absorb losses that are currently anticipated. The loan
loss provision is based on loss experience and such other factors
-15-
which, in management's judgment, deserve current recognition in
maintaining an adequate allowance for loan losses. For 1995, the
provision for loan losses was $750,000, unchanged from 1994. Despite
growth in Shoreline's loan portfolio of 6.7% from year-end to year-
end, no change in 1995's provision was deemed necessary due to the
decline in net charge-offs and non-performing loans during the year.
Management decreased 1994's provision for loan losses from $1,380,000
in 1993 to $750,000 in response to continued modest net charge-offs,
lower non-performing assets and generally improved economic
conditions.
OTHER INCOME
Total other income was $4 million in 1995, a decrease of $615,000 from
1994. Excluding gains on the sale of assets, total other income
decreased $462,000. The components of other income are shown in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Service charges on deposit accounts $1,787 $1,860 $1,731
Trust income 1,388 1,346 1,181
Securities transactions (36) (165) 370
Credit card fees 108 575 518
Gain on sale of mortgage loans 24 -0- 295
Gain on sale of loans 32 302 -0-
Gain on sale of other real estate owned 26 62 81
Safe deposit box income 137 151 147
ATM network fee income 149 114 64
Other customer service fee 96 123 127
Other 268 226 240
Total other income $3,979 $4,594 $4,754
</TABLE>
The decline in other income in 1995 is primarily attributable to three
factors. First, Shoreline sold its credit card portfolio in December
of 1994 and discontinued providing related services to merchants
during the first quarter of 1995. This change resulted in a decline
in credit card fee income of $467,000 in 1995. Second, the sale of
credit cards along with the sale of student loans produced gains of
$302,000 in 1994. Similar gains totaled only $32,000 in 1995. Third,
service charge income on deposit accounts, the largest category in
other income, declined $73,000 in 1995. Emphasis on relationship
business contributed to a 4% decline in this area. The declines
discussed above were offset by reduced losses from the sale of
securities. Losses from this activity totaled $36,000 in 1995
compared to losses of $165,000 in 1994.
-16-
In 1994, total other income decreased $160,000 from 1993. This
decrease resulted from securities losses of $165,000 in 1994 compared
to securities gains in 1993 of $370,000. The resulting decline of
$535,000 of income was offset by gains from credit card and student
loan portfolio sales of $302,000 and increased deposit service charge
income of $129,000.
OTHER EXPENSE
Total other expense was $18.7 million in 1995, a decrease of $1
million (5.1%) from 1994. This decrease helped Shoreline reduce its
efficiency ratio from 62.03% in 1994 to 56.88% in 1995. The
efficiency ratio is a measure of how effectively a company's resources
produce revenue. The components of other expense are shown in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Salaries $ 7,587 $ 7,734 $ 7,274
Employee benefits 2,391 2,435 1,844
Occupancy 1,281 1,221 1,245
Equipment 1,191 1,122 924
Data processing 579 532 415
Professional fees 688 758 586
FDIC deposit insurance 729 1,225 1,139
Michigan Single Business Tax 571 403 368
Supplies 426 554 453
Postage 338 372 359
Telephone 310 249 265
Advertising 301 526 345
Amortization of goodwill and
core deposit intangibles 256 264 316
Marketing and public relations 188 190 250
Other insurance 140 196 186
Other taxes 103 99 101
Credit card expense 71 427 412
Other 1,570 1,414 1,505
Total other expense $18,720 $19,721 $17,987
KEY RATIOS:
Efficiency ratio 56.88% 62.03% 61.67%
Other expense as a percent
of average assets 2.89% 3.18% 3.16%
Salary and employee benefits as
a percent of average assets 1.54% 1.64% 1.60%
</TABLE>
-17-
Three significant events contributed to the decline in total other
expense in 1995. First, effective June 1, 1995, FDIC insurance
premiums on deposits covered by the Bank Insurance Fund (BIF) were
reduced. For Shoreline, a well-capitalized institution, premiums were
reduced from $.23 to $.04 per $100 of insured deposits, resulting in
an expense reduction of over $496,000 in 1995. Effective January 1,
1996, premiums on BIF deposits were further reduced to zero for well-
capitalized institutions. Shoreline does maintain approximately $57
million of deposits included in the Savings Association Insurance Fund
(SAIF) on which premiums will be assessed in 1996. Secondly, the sale
of Shoreline's credit card portfolio and related merchant services
(discussed in "Other Income") reduced credit card expense in 1995 by
$356,000. Finally, the merger of Shoreline's two affiliate banks in
1994 caused advertising and supplies expense to increase significantly
in that year. These expense areas returned to more normal operating
levels in 1995. In addition, efficiencies from the merger provided
further reductions in both of these areas as well as in personnel
expense. Salary and employee benefits totaled $10 million, a
reduction of $191,000 from 1994.
In 1994, total other expense was $19.7 million, an increase of $1.7
million from the prior year. Increased salary and employee benefits
expense accounted for $1.1 million of this increase. Additional staff
associated with acquisitions along with increased medical insurance
and pension expense provided the majority of the increase in this
area. Increases in advertising and supplies expense (due to the
merger of the Shoreline's affiliates), equipment and data processing
expense as well as professional fees expense accounted for most of the
remaining increase in 1994.
INCOME TAX EXPENSE
Shoreline's federal income tax expense was $3.1 million in 1995,
compared to $2.3 million in 1994 and $1.9 million in 1993.
Shoreline's effective tax rate was 26.7% in 1995, 24.1% in 1994 and
22.7% in 1993. The statutory federal tax rate during these same years
was 34%. The lower effective tax rates are largely the result of tax-
exempt income earned on state and municipal bonds. A decline in the
relative level of tax-exempt income to income before income taxes in
1995 and 1994 has resulted in higher effective tax rates in those
years.
LOAN PORTFOLIO
Shoreline's management understands that credit risk is a fundamental
element of its business. Shoreline concentrates its lending efforts
primarily in the Michigan communities in which Shoreline Bank branches
are located and maintains a diversified loan portfolio of commercial,
real estate and consumer loans. Shoreline Bank has no foreign loans.
Exposures to any single borrower, as well as industry concentrations,
are continually monitored by management.
-18-
At December 31, 1995, Shoreline's total loan portfolio was $466
million, an increase of $29.5 million (6.7%) over year-end 1994.
Retail lending, primarily mortgage and consumer loans, provided the
majority of the growth in 1995. Residential real estate mortgage
loans increased $18.9 million (10.7%) from year-end 1994. Shoreline's
residential mortgage loan portfolio consistently has the strongest
credit quality when compared to other portfolios. Shoreline's loan
portfolio increased $22.8 million (5.5%) from year-end 1993 to year-
end 1994. Residential mortgage and commercial loans provided the
growth in 1994, while the sale of Shoreline's credit card and student
loan portfolio produced the decline in consumer loans. The breakdown
of Shoreline's loan portfolio for the past three years is shown below.
<TABLE>
<CAPTION>
1995 1994 1993
DECEMBER 31 (IN THOUSANDS) AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $191,437 41.08% $179,850 41.20% $166,745 40.31%
Real estate mortgage 194,784 41.80 175,912 40.30 156,509 37.83
Real estate construction 18,704 4.01 26,679 6.11 27,337 6.61
Consumer 61,070 13.11 54,088 12.39 63,102 15.25
Total loans $465,995 100.00% $436,529 100.00% $413,693 100.00%
</TABLE>
-19-
ASSET QUALITY
Total non-performing assets for the past five years are shown in the
table below. Non-performing assets include non-accrual loans, loans 90
days or more past due, renegotiated loans and other real estate owned.
Shoreline's ratio of non-performing assets to total loans declined again
in 1995. The year-end ratio of .35% is the lowest level attained in
Shoreline's history and marks the sixth consecutive year of improvement
in this ratio. Steady economic conditions, consistent underwriting
standards, loan portfolio mix and timely attention to potential problem
loans contributed in varying degrees to this improved experience.
<TABLE>
<CAPTION>
DECEMBER 31 (IN THOUSANDS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 235 $ 802 $1,962 $2,934 $2,591
Accruing loans past due
90 days or more 1,204 856 2,233 1,497 1,749
Restructured loans 0 2 211 222 442
Other real estate owned 170 552 1,026 640 1,162
Total non-performing
assets $1,609 $2,212 $5,432 $5,293 $5,944
AS A PERCENTAGE OF TOTAL
LOANS:
Non-accrual loans .05% .18% .47% .83% .75%
Accruing loans past due
90 days or more .26 .20 .54 .42 .51
Restructured loans .00 .00 .05 .06 .13
Other real estate owned .04 .13 .25 .18 .34
Total non-performing assets .35% .51% 1.31% 1.49% 1.73%
</TABLE>
When reasonable doubt exists concerning the collectibility of interest
or principal, a 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 1995 under
original terms on non-accrual loans outstanding at December 31, 1995 was
approximately $9,000. Interest income of $23,000 was recorded in 1995
on non-accrual loans outstanding at December 31, 1995.
At year-end 1995, Shoreline has approximately $3.2 million in loans for
which payments are current, but known financial difficulties of the
borrowers cause management concern about the ability to comply with
existing loan repayment terms. These loans, along with any other loans
classified for regulatory purposes that are not included in the table
above, are subject to constant management attention and their
classification is reviewed on a monthly basis.
-20-
Under the guidelines of SFAS No. 114 and 118, "Accounting by Creditors
for Impairment of a Loan" and "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures," Shoreline identified
$538,000 of loans considered impaired at December 31, 1995. No
allocation of the allowance for loan losses was necessary for these
loans, however.
ALLOWANCE FOR LOAN LOSSES
Management considers such factors as historical charge-off experience,
problem loan levels, current and projected economic conditions,
portfolio mix and specific loan reviews in determining its allowance for
loan losses. Quarterly, management evaluates the adequacy of the
allowance for loan losses with a detailed written analysis.
Management's allocation of the allowance for loan losses over the past
three years is shown in the following table. The amounts indicated for
each loan type include amounts allocated for specific loans as well as
general allocations.
<TABLE>
<CAPTION>
1995 1994 1993
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
DECEMBER 31 (IN THOUSANDS) ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $2,361 41.08% $2,044 41.20% $2,112 40.31%
Real estate -- mortgage 698 41.80 559 40.30 423 37.83
Real estate -- construction 107 4.01 100 6.11 106 6.61
Consumer 1,111 13.11 995 12.39 1,103 15.25
Unallocated 2,323 2,254 1,842
Total $6,600 100.00% $5,952 100.00% $5,586 100.00%
</TABLE>
Net charge-offs were $102,000 in 1995, which represents only .02% of
average total loans. This compares to ratios of .09% in both 1994 and
1993. The allowance for loan losses at December 31, 1995 was $6.6
million, an increase of $648,000 over year-end 1994. The ratio of the
allowance to total loans at year-end increased from 1.36% in 1994 to
1.42% in 1995. The allowance coverage of non-performing assets at
December 31, 1995 was 410.19% compared with 269.08% at December 31,
1994. The following table summarizes loan and allowance information for
the past three years.
-21-
<TABLE>
<CAPTION>
DECEMBER 31 (IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Loans outstanding, end of period $465,995 $436,529 $413,693
Daily average of loans outstanding
for the period $447,329 $428,478 $385,138
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 5,952 $ 5,586 $ 4,566
Charge-offs:
Commercial, financial and
agricultural 151 391 186
Real estate -- mortgage 70 105 84
Real estate -- construction 0 0 0
Consumer 271 517 332
Total charge-offs 492 1,013 602
Recoveries:
Commercial, financial and
agricultural 200 367 107
Real estate -- mortgage 14 0 1
Real estate -- construction 0 0 0
Consumer 176 262 134
Total recoveries 390 629 242
Net charge-offs 102 384 360
Provision charged to income 750 750 1,380
Balance at end of period $ 6,600 $ 5,952 $ 5,586
KEY RATIOS:
Net charge-offs to average loans .02% .09% .09%
Recoveries to total charge-offs 79.27% 62.09% 40.20%
Allowance to total loans at end
of period 1.42% 1.36% 1.35%
Allowance to total non-performing
assets at end of period 410.19% 269.08% 102.84%
Provision to average loans .17% .17% .36%
</TABLE>
-22-
SECURITIES
On December 1, 1995, Shoreline reclassified approximately $25.4 million
of securities from held-to-maturity to available-for-sale. This one
time reassessment and reclassification was made in accordance with
FASB's "Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" issued November 15,
1995. Shoreline had previously adopted SFAS No. 115 on January 1, 1994.
A summary of Shoreline's securities portfolio is shown in the following
table.
<TABLE>
<CAPTION>
1995 1994 1993
AVAILABLE HELD TO AVAILABLE HELD TO AVAILABLE HELD TO
DECEMBER 31 (IN THOUSANDS) FOR SALE MATURITY FOR SALE MATURITY FOR SALE MATURITY
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $ 32,682 $ 6,830 $11,642 $ 8,998 $ 0 $ 12,537
States and political
subdivisions 33,355 9,560 31,107 13,458 6,354 32,184
Mortgage-backed securities:
U.S. Government agencies 30,974 24,180 29,128 22,676 6,146 57,996
Collateralized mortgage
obligations 3,320 3,895 4,565 2,324 0 8,108
Other securities 2,540 0 4,734 1,018 0 7,626
Total $102,871 $44,465 $81,176 $48,474 $12,500 $118,451
</TABLE>
Shoreline's Investment Committee is responsible for establishing
guidelines and strategies related to securities investments. At
December 31, 1995, Shoreline held no securities it would consider to be
impaired. In addition, Shoreline does not invest in derivatives or
related types of financial instruments except for U.S. Government agency
mortgage-backed securities and collateralized mortgage obligations. The
aggregate value of securities of no single issuer, except the U.S.
government and its agencies, exceeded 10% of Shoreline's shareholders'
equity.
SOURCES AND USES OF FUNDS
The following table of average balances summarizes the sources and uses
of funds for 1995 and 1994:
-23-
<TABLE>
<CAPTION>
1995 1994
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
(IN THOUSANDS) AVG BAL AMOUNT PERCENT AVG BAL AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
FUNDING USES:
Loans -- net of unearned income $447,329 $ 18,851 4.4% $428,478 $43,340 11.3%
Taxable securities 99,814 8,317 9.1% 91,497 5,122 5.9%
Tax-exempt securities 43,924 1,116 2.6% 42,808 1,804 4.4%
Federal funds sold 15,270 1,504 10.9% 13,766 (2,033) (12.9%)
Total uses $606,337 $ 29,788 5.2% $576,549 $48,233 9.1%
FUNDING SOURCES:
Non-interest-bearing demand
deposits $ 66,181 $ 3,590 5.7% $ 62,591 $ 2,604 4.3%
Interest-bearing demand and
savings deposits 254,067 10,366 4.3% 243,701 31,413 14.8%
Time deposits 254,338 5,816 2.3% 248,522 8,733 3.6%
Securities sold under agreements
to repurchase 3,468 801 30.0% 2,667 724 37.3%
Long-term debt 5,000 0 0% 5,000 3,452 223.0%
Other 23,283 9,215 65.5% 14,068 1,307 10.2%
Total sources $606,337 $ 29,788 5.2% $576,549 $48,233 9.1%
</TABLE>
Shoreline's primary source of funding is increased deposits. Total
deposits averaged $574.6 million in 1995, an increase of $19.8 million
(3.6%) over 1994's average. The majority of 1995's growth in total
deposits was provided by interest-bearing demand and savings deposits.
More specifically, Shoreline's Capital Club account, a premium rate
savings product, and its Super Public Fund account, an interest-bearing
demand deposit account geared toward municipalities, produced most of
the growth in this area. Total average deposits increased $42.7 million
(8.3%) in 1994. This increase was positively impacted by branch
acquisitions that occurred in mid-1993. Other funding sources,
including repurchase agreements, long-term debt and other sources,
increased $10 million in 1995 and $5.5 million in 1994. Use of other
funding sources is continually evaluated in conjunction with Shoreline's
deposit growth strategy.
Average total loans increased $18.9 million (4.4%) in 1995. Increased
retail lending activity, primarily residential mortgage lending,
contributed to this increase. Average mortgage loans increased $17.4
million (10.3%) in 1995. During 1995, Shoreline originated $11.4
million of mortgage loans for sale to the secondary market compared to
$8.2 million of loans originated for sale in 1994. At December 31,
1995, Shoreline had $2.9 million of mortgage loans held for sale to the
secondary market. Average commercial loans increased $2.9 million
-24-
(1.5%) in 1995, a reduction from 1994's growth of $9.1 million. It is
anticipated retail lending will continue to play an important role in
Shoreline's loan growth plans. The average total loans increase in 1994
($42 million or 11.3%) was impacted by loans purchased in conjunction
with 1993's branch acquisitions.
Federal funds sold averaged $15.3 million in 1995. This represents 2.4%
of total average assets, compared to 1994's ratio of 2.2%. Shoreline
targets federal funds sold to range between 1% and 3% of total assets.
Average taxable securities increased $8.3 million (9.1%) in 1995
compared to 5.9% in 1994. Investments in U.S. Treasury and agency
securities produced the increase in both 1994 and 1995.
LIQUIDITY
Liquidity is generally defined as the ability to meet cash flow
requirements. Shoreline manages liquidity at two levels, the parent
company and its subsidiary, Shoreline Bank. The parent company's
primary cash requirement is to pay dividends to Shoreline's
shareholders. Its primary source of funds is dividends received from
its subsidiary bank.
Shoreline Bank's primary liquidity consideration is to meet the cash
flow needs of it customers, such as borrowings and deposit withdrawals.
To meet cash flow requirements, sufficient sources of liquid funds must
be available. These sources include short-term investments; repayments
and maturities of loans and securities; sales of assets; growth in
deposits and other liabilities, and bank profits. At December 31, 1995,
Shoreline Bank had $13 million of federal funds sold. In addition,
approximately $12 million of securities were scheduled to mature within
one year and approximately $103 million of securities were classified as
available for sale at year-end 1995. Principal reductions received on
loans and mortgage-backed securities also provide a continual stream of
cash flows. Another source of liquid funds is net cash provided from
operating activities which provided $9.7 million of cash in 1995.
Finally, as a member of the Federal Home Loan Bank of Indianapolis,
Shoreline Bank can access up to approximately $50 million of borrowings.
At December 31, 1995, the bank had $5 million of borrowings with the
FHLB.
ASSET/LIABILITY MANAGEMENT
Asset/liability management involves developing, implementing and
monitoring strategies to maintain sufficient liquidity, maximize net
interest income and minimize the impact significant fluctuations in
market interest rates have on earnings. Shoreline's Asset/Liability
Committee is responsible for managing this process. Much of this
committee's efforts are focused on minimizing Shoreline's sensitivity to
changes in interest rates. One method of gauging sensitivity is by a
static gap analysis. Shoreline's static gap position at December 31,
1995 is shown in the following table:
-25-
<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 $ 153,889 $ 81,385 $182,491 $48,230 $465,995
Securities 14,354 16,540 86,707 29,735 147,336
Federal funds sold 12,950 0 0 0 12,950
Total interest-earning
assets $ 181,193 $ 97,925 $269,198 $77,965 $626,281
INTEREST-BEARING LIABILITIES:
Time deposits 59,788 115,090 90,527 1,509 266,914
Demand and savings accounts 256,150 256,150
Other 4,691 0 5,000 0 9,691
Total interest-bearing
liabilities 320,629 115,090 95,527 1,509 532,755
Asset (liability) gap $(139,436) $ (17,165) $173,671 $76,456 $ 93,526
Cumulative asset
(liability) gap $(139,436) $(156,601) $ 17,070 $93,526
</TABLE>
As shown, Shoreline had a cumulative liability gap position of $156.6
million within the one-year time frame. This position suggests that if
market interest rates decline in the next 12 months, Shoreline has the
potential to earn more net interest income. A limitation of the
traditional static gap analysis, however, is that it does not consider
the timing or magnitude of noncontractual repricing. In addition, the
static gap analysis treats demand and savings accounts as repriceable
within 90 days, while experience suggests that these categories of
deposits are actually comparatively resistant to rate sensitivity.
Because of these and other limitations of the static gap analysis,
Shoreline's Asset/Liability Committee utilizes simulation modeling as
its primary tool to project how changes in interest rates will impact
net interest income. These models indicate that Shoreline's assets are
somewhat more sensitive than its liabilities. Shoreline has maintained
relatively stable net interest margins of 4.72%, 4.65% and 4.69% in
1995, 1994 and 1993, respectively. Based upon the policies and
strategies developed, management believes Shoreline is properly
positioned to respond to future interest rate movements.
CAPITAL RESOURCES
At December 31, 1995, total equity capital of Shoreline was $64.4
million. This includes an unrealized gain of $2.2 million for the
mark-to-market adjustment of Shoreline's available for sale securities
portfolio. Total equity capital was $56.2 million at December 31, 1994
with an unrealized loss adjustment for available-for-sale securities of
$1 million. Shoreline maintains a stock repurchase program initiated in
1990. During 1995, 33,094 shares were purchased at $18.25 per share.
Shares were first purchased under this program in 1995.
-26-
Management monitors its capital levels to comply with regulatory
requirements and to provide for current and future business
opportunities. As shown below, Shoreline's capital ratios were well in
excess of regulatory standards for classification as "well-capitalized".
Being considered "well-capitalized" is one condition for assessing the
federal deposit insurance premium at the lowest available rate.
<TABLE>
<CAPTION>
REGULATORY WELL-
DECEMBER 31 MINIMUM CAPITALIZED 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Risk based:
Tier I capital 4.00% 6.00% 14.56% 13.62% 12.90%
Total capital 8.00% 10.00% 15.81% 14.87% 14.15%
Tier I leverage 3.00% 5.00% 8.91% 8.65% 8.05%
</TABLE>
CASH DIVIDENDS
Cash dividends declared increased 16.4% to $.71 per share in 1995. Cash
dividends in 1994 totaled $.61 per share, an increase of 17.3% over
1993. The following table summarizes the quarterly cash dividends per
share paid to common shareholders during the last three years, adjusted
for stock dividends and stock splits.
<TABLE>
<CAPTION>
QUARTER 1995 1994 1993
<S> <C> <C> <C>
1st $.17 $.16 $.13
2nd .18 .15 .13
3rd .18 .15 .13
4th .18 .15 .13
Total $.71 $.61 $.52
</TABLE>
Shoreline's principal source of funds to pay cash dividends is the
earnings of its subsidiary bank. 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 the bank. Based on projected earnings,
management expects Shoreline to declare and pay regular quarterly
dividends on its common shares in 1996.
Shoreline maintains a Dividend Reinvestment Plan for its shareholders.
Under this plan, 36,066 shares were issued during 1995 and 24,546 shares
were issued in 1994.
-27-
IMPACT OF INFLATION
Reported earnings are affected by inflation, indirectly through changing
interest rates, and directly by increased operating 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.
NEW ACCOUNTING PRONOUNCEMENTS
A number of new accounting pronouncements will be adopted by Shoreline
in 1996. SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," establishes further
guidance in determining impairment of long-lived assets and treatment if
value is impaired. SFAS No. 122, "Accounting for Mortgage Servicing
Rights," requires recognition of an asset when servicing rights are
retained for loans originated and subsequently sold. SFAS No. 123,
"Accounting for Stock-Based Compensation," requires disclosure of the
effect future stock option grants have on net income. These statements
are not anticipated to have a material effect on Shoreline's financial
position or results of operation in 1996.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 29,810,198 $ 31,287,807
Federal funds sold 12,950,000 20,350,000
Total cash and cash equivalents 42,760,198 51,637,807
Securities available for sale
(carried at fair value) 102,870,733 81,175,780
Securities held to maturity (fair
values of $45,875,132 and $47,948,707
in 1995 and 1994, respectively) 44,465,217 48,474,113
Total loans 465,995,264 436,529,139
Less allowance for loan losses 6,600,119 5,951,969
Net loans 459,395,145 430,577,170
Premises and equipment - net 10,143,851 9,875,374
Other assets 11,537,594 12,113,418
Total Assets $671,172,738 $633,853,662
-28-
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest-bearing $ 69,236,346 $ 70,973,801
Interest-bearing 523,063,666 495,121,822
Total deposits 592,300,012 566,095,623
Securities sold under agreement
to repurchase 4,690,818 2,875,112
Other liabilities 4,822,065 3,674,459
Long-term debt 5,000,000 5,000,000
Total Liabilities 606,812,895 577,645,194
Commitments, off-balance sheet risk
and contingencies
Shareholders' Equity
Preferred stock, no par value;
1,000,000 shares authorized; no
shares outstanding
Common stock; 10,000,000 shares
authorized; 5,251,018 and 4,989,483
outstanding at December 31, 1995
and 1994, respectively 0 0
Additional paid-in capital 50,147,966 45,591,999
Net unrealized gain/(loss) on
securities available for sale,
net of tax effect 2,160,403 (1,016,801)
Retained earnings 12,051,474 11,633,270
Total Shareholders' Equity 64,359,843 56,208,468
Total Liabilities and
Shareholders' Equity $671,172,738 $633,853,662
</TABLE>
See accompanying notes to consolidated financial statements.
-29-
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $40,584,977 $35,624,574 $31,928,435
Interest on securities:
Taxable 6,774,289 5,037,912 5,118,720
Tax-exempt 2,824,779 2,837,000 2,908,548
Interest on federal funds sold 892,408 571,474 468,320
Total interest income 51,076,453 44,070,960 40,424,023
INTEREST EXPENSE
Interest on deposits 23,451,256 18,375,377 17,239,464
Interest on short-term borrowings 143,164 87,267 41,767
Interest on long-term debt 252,502 252,500 76,788
Total interest expense 23,846,922 18,715,144 17,358,019
NET INTEREST INCOME 27,229,531 25,355,816 23,066,004
Provision for loan losses 750,000 750,000 1,380,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 26,479,531 24,605,816 21,686,004
OTHER INCOME
Service charges on deposit accounts 1,787,405 1,859,778 1,731,423
Trust income 1,387,819 1,346,244 1,180,927
Securities gains/(losses) (35,812) (164,944) 370,402
Credit card fees 108,309 575,397 518,348
Other 731,644 977,299 952,446
Total other income 3,979,365 4,593,774 4,753,546
OTHER EXPENSES
Salaries and employee benefits 9,978,312 10,169,411 9,117,703
Occupancy expense 1,281,079 1,220,742 1,245,279
Equipment expense 1,770,636 1,654,780 1,339,826
Insurance expense 868,495 1,421,033 1,325,694
Professional fees 687,759 757,689 586,486
Other taxes 673,778 501,522 469,368
Other 3,460,381 3,996,091 3,902,172
Total other expenses 18,720,440 19,721,268 17,986,528
INCOME BEFORE INCOME TAXES 11,738,456 9,478,322 8,453,022
Federal income tax expense 3,131,000 2,280,000 1,915,500
NET INCOME $ 8,607,456 $ 7,198,322 $ 6,537,522
EARNINGS PER SHARE $ 1.64 $ 1.38 $ 1.27
</TABLE>
See accompanying notes to consolidated financial statements.
-30-
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN/(LOSS) ON
ADDITIONAL SECURITIES TOTAL
COMMON PAID-IN AVAILABLE RETAINED SHAREHOLDERS'
THREE YEARS ENDED DECEMBER 31, 1995 STOCK CAPITAL FOR SALE EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $3,114,362 $36,865,896 n/a $ 8,213,591 $48,193,849
Net income for year 6,537,522 6,537,522
Cash dividends declared:
$0.52 per common share (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 n/a 7,621,912 52,607,119
Transfer to Additional
Paid-in Capital (3,300,645) 3,300,645
Effect of adoption of SFAS
No. 115, net of taxes $ 2,366,171 2,366,171
Net income for year 7,198,322 7,198,322
Cash dividends declared:
$0.61 per common share (3,181,208) (3,181,208)
3-for-2 stock split-fractional
shares (5,756) (5,756)
Shares issued under
dividend reinvestment plan 504,961 504,961
Shares issued under stock
option plan 101,831 101,831
Change in unrealized losses
on securities available
for sale, net of tax effect (3,382,972) (3,382,972)
BALANCE AT DECEMBER 31, 1994 0 45,591,999 (1,016,801) 11,633,270 56,208,468
Net income for year 8,607,456 8,607,456
Cash dividends declared:
$0.71 per common share (3,734,978) (3,734,978)
5% stock dividend-fractional
shares 4,447,710 (4,454,274) (6,564)
Shares issued under
dividend reinvestment plan 639,541 639,541
Transfer of securities from
held to maturity to available
for sale 302,642 302,642
-31-
Shares issued under stock
option plan 72,682 72,682
Change in unrealized gains/(losses)
on securities available for sale,
net of tax effect 2,874,562 2,874,562
Common stock retired (603,966) (603,966)
BALANCE AT DECEMBER 31, 1995 $ 0 $50,147,966 $ 2,160,403 $12,051,474 $64,359,843
</TABLE>
See accompanying notes to consolidated financial statements.
-32-
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,607,456 $ 7,198,322 $ 6,537,522
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 1,413,972 1,329,203 1,154,280
Provision for loan losses 750,000 750,000 1,380,000
Net amortization and accretion on securities 744,864 1,615,161 1,513,557
Amortization of goodwill and related core
deposit intangibles 255,686 264,399 186,113
(Gain)/Loss on sales and calls of securities 35,812 164,944 (370,402)
Mortgage loans originated for sale (13,552,773) (8,178,797) (18,888,024)
Proceeds from sale of mortgage loans 11,380,687 8,178,928 18,112,864
Gains on sale of mortgage loans (23,518) (131) (294,840)
Gains on sale of credit card and student loans (32,088) (302,220) 0
(Increase)/Decrease in other assets (1,009,854) (143,480) (893,832)
Increase in other liabilities 1,094,522 481,369 5,954
Total adjustments 1,057,310 4,159,316 1,905,670
NET CASH FROM OPERATING ACTIVITIES 9,664,766 11,357,638 8,443,192
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (28,171,998) (28,441,465) (16,200,536)
Proceeds from sale of credit card and
student loan portfolios 847,223 5,441,036 0
Securities available for sale:
Purchase (6,309,595) (31,568,095) (1,582,627)
Proceeds from sale 6,708,546 18,383,241 9,733,983
Proceeds from maturities, calls and
principal reductions 7,697,973 17,522,447 8,169,762
Securities held to maturity:
Purchase (38,121,538) (23,052,958) (71,306,826)
Proceeds from sale 0 0 2,027,125
Proceeds from maturities, calls and
principal reductions 16,371,828 16,695,605 43,129,539
Premises and equipment expenditures (1,545,649) (2,299,427) (1,427,847)
Net cash received in acquisition of branches 9,765,976 0 11,369,958
NET CASH FROM INVESTING ACTIVITIES (32,757,234) (27,319,616) (16,087,469)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 16,032,438 8,686,979 20,381,191
Net increase in short-term borrowing 1,815,706 464,192 1,246,729
Net increase in long-term debt 0 0 5,000,000
Dividends paid (3,734,978) (3,181,208) (2,727,181)
Net proceeds from shares issued 705,659 601,036 602,929
Payments to retire common stock (603,966) 0 0
-33-
NET CASH FROM FINANCING ACTIVITIES 14,214,859 6,570,999 24,503,668
NET CHANGE IN CASH AND CASH EQUIVALENTS (8,877,609) (9,390,979) 16,859,391
Cash and cash equivalents at beginning of year 51,637,807 61,028,786 44,169,395
Cash and cash equivalents at end of year $42,760,198 $51,637,807 $61,028,786
CASH PAID DURING THE YEAR FOR:
Interest $23,447,129 $18,509,997 $17,516,332
Income taxes $ 4,270,000 $ 2,738,313 $ 2,255,000
</TABLE>
SUPPLEMENTARY INFORMATION: Supplemental Schedule of Non-Cash Investing
Activities: During 1995, $25,444,120 was reclassified from securities
held to maturity to securities available for sale. During 1994,
$88,221,857 was reclassified from securities held to maturity and
securities held for sale to securities available for sale upon adoption
of SFAS No. 115. During 1993, $19,989,527 was reclassified from
investment securities to securities held for sale. The branch
acquisition in 1995 resulted in an increase in deposits of $10,171,951.
The branch acquisitions in 1993 resulted in an increase in loans of
$40,824,114 and deposits of $56,568,954.
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accounting and reporting policies and practices of Shoreline
Financial Corporation and its subsidiary conform with generally accepted
accounting principles. Significant accounting and reporting policies
employed in the preparation of these financial statements are described
below. Management must make estimates and assumptions in preparing
financial statements that affect the amounts reported therein and the
disclosures provided. These estimates and assumptions may change in the
future and future results could differ.
Areas involving the use of management's estimates and assumptions
include the allowance for loan losses, the realization of deferred tax
assets, fair values of certain securities, the determination and
carrying value of impaired loans, the carrying value of loans held for
sale, the carrying value of other real estate, the accrued liability for
deferred compensation, the accrued liability for incurred but unreported
medical claims, the determination of premises and equipment, the
carrying value and amortization of intangibles, the actuarial present
value of pension benefit obligations and net periodic pension expense
and prepaid pension costs recognized in Shoreline's financial
statements.
-34-
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Shoreline Financial Corporation and its wholly owned subsidiary,
Shoreline Bank (together referred to as "Shoreline"). All material
inter-company accounts and transactions have been eliminated in
consolidation.
SECURITIES
Shoreline classifies securities into held to maturity, available for
sale and trading categories as prescribed under Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Held to maturity securities are those
which Shoreline has the positive intent and ability to hold to maturity,
and are reported at amortized cost. Available for sale securities are
those Shoreline may decide to sell if needed for liquidity,
asset-liability management or for other reasons. Available for sale
securities are reported at fair value, with unrealized gains and losses
included as a separate component of shareholders' equity, net of tax
effect. Trading securities are bought principally for sale in the near
term, and are reported at fair value with unrealized gains and losses
included in earnings. SFAS No. 115 was adopted January 1, 1994. Prior to
1994, securities were reported at amortized cost except for securities
held for sale, which were reported at the lower of cost or market.
Realized gains and losses resulting from the sale of securities are
computed by the specific identification method. Interest and dividend
income, adjusted by amortization of purchase premium or discount, is
included in earnings.
LOANS HELD FOR SALE
Loans originated and intended for sale 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 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.
-35-
Statements of Financial Accounting Standards No. 114 and 118 were
adopted on January 1, 1995 and require recognition of loan impairment.
Loans are considered impaired if full principal or interest payments are
not anticipated. Impaired loans are carried at the present value of
expected cash flows discounted at the loan's effective interest rate or
at the fair value of the collateral if the loan is collateral dependent.
A portion of the allowance for loan losses may be allocated to impaired
loans. The effect of adopting these standards was included in 1995 bad
debt expense, and was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by
one-to-four family residences, residential construction loans, and
automobile, home equity and second mortgage loans. Commercial loans and
mortgage loans secured by other properties are evaluated individually
for impairment. When analysis of borrower operating results and
financial condition indicates that underlying cash flows of the
borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans
are often considered impaired. Impaired loans, or portions thereof, are
charged off when deemed uncollectible. The nature of disclosures for
impaired loans is considered generally comparable to prior nonaccrual
and renegotiated loans and non-performing and past-due asset
disclosures.
INTEREST AND FEES ON LOANS
Interest on loans is accrued over the term of the loans based on
principal amounts outstanding. Where serious doubt exists as to the
collectibility of a loan, the accrual of interest is discontinued. Under
SFAS No. 114, as amended by SFAS No. 118, the carrying value of impaired
loans is periodically adjusted to reflect cash payments, revised
estimates of future cash flows, and increases in the present value of
expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash
payments are reported as reductions in carrying value. Increases or
decreases in carrying value due to changes in estimates of future
payments or passage of time are reported as reductions or increases in
bad debt expense. 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 ($507,000 and
$760,000, at December 31, 1995 and 1994, 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 with useful lives ranging
-36-
primarily from 10 to 40 years for bank premises, and 3 to 15 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 or acceptance of a deed in lieu of foreclosure. 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 $170,000 and $552,000 at December 31,
1995 and 1994, respectively.
INTANGIBLE ASSETS
Intangible assets consist primarily of core deposit intangibles
identified in branch acquisitions. These are amortized on an accelerated
basis over the estimated life of the deposits acquired. At December 31,
1995, the unamortized core deposit intangibles were $2,642,000.
EMPLOYEE BENEFITS
Shoreline has a noncontributory pension plan covering substantially all
employees. It funds the plan based on annual actuarial computations. In
addition, Shoreline has a profit sharing plan and 401(k) salary
reduction plan for which contributions are made and expensed annually.
Also, Shoreline has a post-retirement health care plan that covers both
salaried and nonsalaried employees. Retiree's contributions approximate
their premium expense determined exclusively on the loss experience of
the retirees in the plan.
INCOME TAXES
Income tax expense is based upon the asset and liability method.
Shoreline records income tax expense based on the amount of taxes due on
its 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.
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.
-37-
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 5,246,076 in 1995, 5,219,500 in 1994 and 5,159,915
in 1993.
STOCK SPLITS AND DIVIDENDS
In 1994, shareholders of Shoreline approved an Amendment to the Articles
of Incorporation to delete the Common Stock designation of $1 par value
per share. As a result, the outstanding balance in Common Stock was
transferred to Additional Paid-In Capital. A 5% stock dividend was
declared in 1995, a three-for-two stock split was declared in 1994, and
a 5% stock dividend was declared in 1993. Stock dividends are accounted
for by transferring the fair market value of the stock from retained
earnings to additional paid in capital. Fractional shares are paid in
cash for all stock splits and dividends.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
the cash on hand, demand deposits in other institutions and federal
funds sold with a maturity of 90 days or less. Shoreline reports net
cash flows for customer loan transactions, deposit transactions and
interest-earning balances with other financial institutions.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Shoreline, 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.
RECLASSIFICATIONS
Certain amounts appearing in the financial statements and notes thereto
for the years ended December 31, 1994 and 1993 have been reclassified to
conform with the December 31, 1995 presentation.
NOTE 2. NATURE OF OPERATIONS
Shoreline Financial Corporation is a bank holding company. Shoreline's
business is concentrated in the commercial banking industry segment. The
business of commercial and retail banking accounts for more than 90% of
its revenues, operating income, and assets. Shoreline's subsidiary,
Shoreline Bank, offers individuals, businesses, institutions and
government agencies a full range of commercial banking services
primarily in the Michigan communities in which the bank is located and
in areas immediately surrounding these communities.
Shoreline Bank grants commercial, real estate and consumer loans to
customers. 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.
There are no foreign loans.
-38-
NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS
A summary of Shoreline's subsidiary bank's legal reserve requirements
established by the Federal Reserve System is as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Portion of requirement satisfied by
non-interest earning vault cash $6,616,000 $4,774,000
Additional balances maintained with
the Federal Reserve 2,419,000 250,000
Total reserve requirements $9,035,000 $5,024,000
</TABLE>
-39-
NOTE 4. SECURITIES
The amortized cost and fair value of securities is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
AT DECEMBER 31, 1995
U.S. Treasury and agencies $31,953,847 $ 738,657 $ (10,312) $ 32,682,192
States and political
subdivisions 31,303,696 2,054,634 (3,726) 33,354,604
Mortgage-backed securities:
U.S. Government agencies 30,531,203 505,091 (62,792) 30,973,502
Collateralized mortgage
obligations 3,268,316 52,926 (803) 3,320,439
Other securities 2,539,996 0 0 2,539,996
Total $99,597,058 $3,351,308 $ (77,633) $102,870,733
SECURITIES HELD TO MATURITY AT
DECEMBER 31, 1995
U.S. Treasury and agencies $ 6,830,171 $ 144,920 $ 0 $ 6,975,091
States and political subdivisions 9,559,578 737,247 (1,227) 10,295,598
Mortgage-backed securities:
U.S. Government agencies 24,180,308 488,152 (3,692) 24,664,768
Collateralized mortgage
obligations 3,895,160 44,515 0 3,939,675
Total $44,465,217 $1,414,834 $ (4,919) $45,875,132
SECURITIES AVAILABLE FOR SALE
AT DECEMBER 31, 1994
U.S. Treasury and agencies $11,992,803 $ 1,458 $ (352,386) $11,641,875
States and political
subdivisions 30,981,840 868,132 (742,905) 31,107,067
Mortgage-backed securities:
U.S. Government agencies 30,342,836 11,407 (1,226,475) 29,127,768
Collateralized mortgage
obligations 4,664,420 0 (99,790) 4,564,630
Other securities 4,734,440 0 0 4,734,440
Total $82,716,339 $ 880,997 $(2,421,556) $ 81,175,780
</TABLE>
-40-
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
AT DECEMBER 31, 1994
U.S. Treasury and agencies $ 8,998,180 $ 0 $ (319,658) $ 8,678,522
States and political
subdivisions 13,458,322 377,869 (209,670) 13,626,521
Mortgage-backed securities:
U.S. Government agencies 22,675,808 135,294 (460,030) 22,351,072
Collateralized mortgage
obligations 2,324,347 0 (49,211) 2,275,136
Other securities 1,017,456 0 0 1,017,456
Total $48,474,113 $ 513,163 $(1,038,569) $ 47,948,707
</TABLE>
Information regarding the amortized cost and fair value of securities by
contractual maturity at December 31, 1995 is presented below. Maturity
information is based on contractual maturity for all securities other
than mortgage-backed securities. Actual maturities of mortgage-backed
securities may differ from contractual maturities because borrowers have
the right to prepay the underlying obligation without prepayment
penalty.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE DECEMBER 31, 1995 HELD TO MATURITY DECEMBER 31, 1995
AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ 9,905,720 $ 9,933,361 $ 1,646,322 $ 1,656,397
Due after one year through
five years 29,076,901 30,254,355 8,009,078 8,328,524
Due after five years through
ten years 13,154,368 13,994,830 2,837,039 2,950,953
Due after ten years 13,660,550 14,394,246 3,897,310 4,334,815
Subtotal 65,797,539 68,576,792 16,389,749 17,270,689
Mortgage-backed securities 33,799,519 34,293,941 28,075,468 28,604,443
Total $99,597,058 $102,870,733 $44,465,217 $45,875,132
</TABLE>
Proceeds, gross gains and gross losses from sales and calls of
securities are as follows:
-41-
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
AVAILABLE FOR SALE
Proceeds from sales $6,708,546 $18,383,241
Gross gains from sales $ 14,333 $ 150,801
Gross losses from sales (140,822) (336,005)
Net losses from sales (126,489) (185,204)
Net gains from calls 20,050 2,500
Net loss $ (106,439) $ (182,704)
HELD FOR SALE
Proceeds from sales $9,733,983
Gross gains from sales $ 356,379
Gross losses from sales (2,500)
Net gains from sales 353,879
Net gain from calls 6,300
Net gain $ 360,179
HELD TO MATURITY
Proceeds from sales $ 0 $ 0 $2,027,125
Gross gains from sales $ 0 $ 0 $ 10,893
Gross losses from sales 0 0 (670)
Net gains from sales 0 0 10,223
Net gain from calls 70,627 17,760 0
Net gain $ 70,627 $ 17,760 $ 10,223
</TABLE>
Debt securities having an amortized cost of $26,400,000 at December 31,
1995 were pledged to secure public trust deposits, securities sold under
agreements to repurchase and advances from the Federal Home Loan Bank.
In November 1995, the Financial Accounting Standards Board issued a
special report titled "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities."
Concurrent with the initial adoption of this implementation guidance but
no later than December 31, 1995, a company was allowed to reassess the
appropriateness of the classification of all securities held at that
time and account for any resulting reclassification at fair value. On
December 1, 1995, Shoreline transferred securities with an amortized
cost of $25,444,120 and a net unrealized gain of $458,549 from the held
to maturity category to the available for sale category. As a result,
equity was increased by $302,642, net of taxes.
NOTE 5. LOANS
The composition of the loan portfolio is as follows:
-42-
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Commercial, financial and agricultural $191,437,205 $179,849,788
Residential real estate 194,783,996 175,911,980
Real estate construction 18,704,202 26,679,742
Consumer 61,069,861 54,087,629
Total $465,995,264 $436,529,139
</TABLE>
Certain directors, executive officers and principal shareholders of
Shoreline, including associates of such persons, were loan customers of
Shoreline during 1995. 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, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at January 1 $ 9,944,978
New loans 997,742
Repayments (2,074,350)
Other changes, net (112,182)
BALANCE AT DECEMBER 31 $ 8,756,188
</TABLE>
Other changes include adjustments for persons included in one reporting
period that are not included in the other reporting period.
At December 31, 1995 and 1994, the Corporation had approximately
$2,863,000 and $667,000, respectively, of loans with an estimated market
value of $2,898,000 and $710,000, respectively, which it intends to
sell.
-43-
NOTE 6. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
Balance, at beginning of year $5,951,969 $5,586,090 $4,565,840
Provision charged to operating
expense 750,000 750,000 1,380,000
6,701,969 6,336,090 5,945,840
Loan charge-offs (491,943) (1,013,533) (601,580)
Loan recoveries 390,093 629,412 241,830
Net loan charge-offs (101,850) (384,121) (359,750)
Balance, at end of year $6,600,119 $5,951,969 $5,586,090
</TABLE>
At December 31, 1995, Shoreline had $538,000 of impaired loans. No
portion of the allowance for loan losses was allocated to these impaired
loans. Information regarding impaired loans for the year-ended 1995 is
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Average investment in impaired loans $ 752,000
Interest income recognized on impaired loans
including interest income on a cash basis $ 50,583
Interest income recognized on impaired loans
on a cash basis $ 38,731
</TABLE>
At December 31, 1994, Shoreline had approximately $802,000 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 $64,000 and $131,000 in 1994
and 1993, respectively.
-44-
NOTE 7. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Land $ 903,904 $ 903,904
Building and improvements 9,954,873 9,311,183
Furniture and equipment 10,583,582 9,590,401
21,442,359 19,805,488
Less accumulated depreciation
and amortization 11,298,508 9,930,114
Net premises and equipment $10,143,851 $ 9,875,374
</TABLE>
Depreciation and amortization expense charged to operations was
$1,413,972, $1,329,203 and $1,154,280 in 1995, 1994 and 1993,
respectively.
NOTE 8. INTEREST ON DEPOSITS
Certificates of deposit in denominations of $100,000 or more totaled
$57,751,000 and $43,603,000 at December 31, 1995 and 1994, respectively.
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
Interest-bearing demand $ 1,744,583 $ 877,108 $ 1,169,122
Savings 7,113,051 5,548,495 4,261,699
Time deposits less than $100,000 11,873,078 10,310,384 10,330,579
Time deposits of $100,000 or more 2,720,544 1,639,390 1,478,064
Total $23,451,256 $18,375,377 $17,239,464
</TABLE>
NOTE 9. LONG-TERM DEBT
At December 31, 1995 and 1994, Shoreline 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 date of the
advances, without incurring penalty. The principal balances mature in
September of 1998. The FHLB advances are collateralized by qualified 1
to 4 family whole mortgage loans and U.S. Government agency
mortgage-backed securities.
-45-
NOTE 10. INCOME TAXES
Components of the provision for federal taxes on income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
Taxes currently payable $ 5,194,400 $1,935,000 $2,329,050
Deferred tax expense/(benefit) (2,063,400) 345,000 (413,550)
Total $ 3,131,000 $2,280,000 $1,915,500
</TABLE>
Taxes allocated to securities transactions were $(12,176) in 1995,
$(56,081) in 1994 and $125,937 in 1993.
The difference between the provision in these financial statements and
amounts computed by applying the statutory federal income tax rate to
pre-tax income is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
Statutory federal tax rate 34% 34% 34%
Income computed at the
statutory federal tax rate $3,991,075 $3,222,629 $2,874,027
Add (subtract) tax effect of:
Tax-exempt securities income (948,785) (934,191) (979,854)
Tax-exempt loan income (138,623) (142,991) (144,974)
Non-deductible interest expense 122,278 100,932 97,411
Other 105,055 33,621 68,890
Total $3,131,000 $2,280,000 $1,915,500
</TABLE>
The components of the net deferred tax asset recorded in the balance
sheet are as follows:
-46-
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Deferred tax assets
Provision for loan losses $2,244,040 $1,780,152
Net deferred loan fees 187,898 258,260
Deferred compensation 288,791 287,411
Other 63,407 164,778
Mark-to-market adjustment for
securities held for sale 1,014,383 0
Net unrealized losses on securities
available for sale 0 523,758
Total deferred tax assets 3,798,519 3,014,359
Deferred tax liabilities
Accretion of bond discount (66,068) (41,422)
Depreciation (277,770) (153,137)
Other 0 (140,563)
Pension (119,684) (212,247)
Mark-to-market adjustment for
securities held for sale 0 (671,622)
Net unrealized gains on securities
available for sale (1,113,272) 0
Total deferred tax liabilities (1,576,794) (1,218,991)
Valuation Allowance 0 0
Net Deferred Tax Asset $2,221,725 $1,795,368
</TABLE>
NOTE 11. EMPLOYEE BENEFITS
Shoreline has a defined benefit, noncontributory pension plan which
provides retirement benefits for essentially all employees. The
following sets forth the plan's funded status and amounts recognized in
the financial statements.
-47-
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,549,225 in 1995
and $2,162,753 in 1994 $2,584,679 $2,206,244
Projected benefit obligation for service
rendered to date $3,592,861 $3,117,184
Plan assets at fair value, primarily money
market funds, listed stocks, bonds and
U.S. Government securities 3,912,237 3,248,276
Excess of plan assets over projected
benefit obligation 319,376 131,092
Unrecognized transition asset (181,021) (204,310)
Unrecognized prior service benefit (253,835) (271,911)
Unrecognized net loss 417,865 645,108
Net pension asset $ 302,385 $ 299,979
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
Net pension cost included in
the following:
Service cost-benefits earned
during the year $221,152 $230,654 $209,627
Interest cost on projected
benefit obligation 245,773 254,801 290,111
Actual return on plan assets (722,581) (42,650) (346,852)
Net amortization and deferral 471,836 (291,219) 351
Additional liability recognized
due to settlement 0 123,316 115,442
Net pension cost $216,180 $274,902 $268,679
</TABLE>
The weighted average discount rate was 7.25% for 1995, 1994 and 1993.
The rate of increase in future compensation used in determining the
actuarial present value of the projected benefit obligation was 4.50%
for 1995 and 1994 and 4.75% for 1993.
The expected long-term rate of return on assets was 7.50% for 1995 and
1994 and 7.75% for 1993.
Unrecognized prior service cost is amortized on a straight line basis,
based on the expected future service years of plan participants to
receive benefits.
-48-
OTHER EMPLOYEE BENEFIT PLANS
Shoreline maintains a profit-sharing plan for qualified employees with
at least two years of service. Contributions to the profit-sharing plan
are determined at the discretion of the Board of Directors and equaled 3%
of net profits before federal income taxes and securities gains or losses
in 1995, 1994, and 1993. Under this plan, $366,851, $298,960 and $248,878
was expensed in 1995, 1994 and 1993, respectively.
Participants in Shoreline's 401(k) salary reduction plan may make
deferrals up to 15% of compensation. Shoreline matches 50% of elective
deferrals on the first 4% of the participants' compensation. Expense
under this plan was $109,529, $108,991 and $97,467 in 1995, 1994 and
1993, respectively.
A stock option plan exists under which options may be issued at market
prices to employees. The right to exercise the options vests over a
five-year period. The options outstanding at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
NUMBER
PRICE OF OPTIONS
ISSUE DATE EXPIRATION DATE PER SHARE<F1> OUTSTANDING<F1>
<S> <C> <C> <C>
August 10, 1989 August 10, 1999 $10.50 3,000
December 1, 1980 December 1, 2000 $ 8.07 74,139
January 1, 1994 January 1, 2004 $18.26 8,322
85,461
<FN>
<F1> Restated for stock dividends and stock splits.
</FN>
</TABLE>
The following is a summary of the option transactions for the period
January 1, 1993 through December 31, 1995:
-49-
<TABLE>
<CAPTION>
AVAILABLE OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE<F1>
<S> <C> <C> <C>
Balance, January 1, 1993 22,522 77,303 $8.07-10.50
Effect of 5% stock dividend 1,126 3,865 0
Options exercised 0 (16,340) 8.07
Balance at December 31, 1993 23,648 64,828 $8.07-10.50
Options issued (5,284) 5,284 18.26
Effect of 3-for-2 stock split 9,182 31,778 0
Options exercised (8,748) 8.07
Options cancelled 3,171 (3,171) 8.07
Balance at December 31, 1994 30,717 89,971 $8.07-18.26
Effect of 5% stock dividend 1,536 4,357 0
Options exercised 0 (8,867) 8.07
Balance at December 31, 1995 32,253 85,461 $8.07-18.26
<FN>
<F1> Restated for stock dividends and stock splits.
</FN>
</TABLE>
NOTE 12. COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
Shoreline 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. Shoreline's
exposure to credit loss in the event of non-performance 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. Shoreline follows the same
credit policy to make such commitments as it uses for on-balance-sheet
items.
Shoreline has the following commitments outstanding:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
Fixed rate loan commitments $10,111,000 $ 3,475,000
Variable rate loan commitments 8,876,000 7,749,000
Unused lines of credit 65,225,000 64,064,000
Standby letters of credit 2,250,000 3,762,000
Total $86,462,000 $79,050,000
</TABLE>
Fixed rate loan commitments at December 31, 1995 are at current rates,
primarily from 7.125% to 9.75%, and terms from 5 to 30 years. Variable
rate loan commitments at December 31, 1995 are at current rates ranging
-50-
from 6.50% to 10.50% indexed primarily to Shoreline's prime lending rate
or other U.S. Treasury rate indices. Terms range primarily from 5 to 15
years.
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, 1995, 1994 and 1993
totaled $82,961, $80,426 and $90,650, respectively. As of December 31,
1995 there were no significant future rental commitments.
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related
carrying amount of Shoreline's financial instruments at December 31,
1995 and 1994. Items which are not financial instruments are not
included.
<TABLE>
<CAPTION>
1995 1994
CARRYING ESTIMATED CARRYING ESTIMATED
DECEMBER 31 AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 42,760,198 $ 42,760,000 $ 51,637,807 $ 51,638,000
Securities available for sale 102,870,733 102,871,000 81,175,780 81,176,000
Securities held to maturity 44,465,217 45,875,000 48,474,113 47,949,000
Loans, net of allowance
for loan losses 459,395,145 460,119,000 430,577,170 425,345,000
Demand and savings deposits (325,386,319) (325,386,000) (316,113,048) (316,113,000)
Time deposits (266,913,693) (269,383,000) (249,982,575) (248,183,000)
Securities sold under
agreement to repurchase (4,690,818) (4,691,000) (2,875,112) (2,875,000)
Long-term debt (5,000,000) (4,946,000) (5,000,000) (4,457,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1995 and 1994. The
estimated fair value for cash and cash equivalents is considered to
approximate cost. The estimated fair value for held to maturity
securities and securities available 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 Shoreline would charge the borrowers for
similar loans with similar maturities made at December 31, 1995 and
-51-
1994, 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 Shoreline would charge for similar loans at
December 31, 1995 and 1994, applied for the time period until estimated
repayment. The estimated fair value for demand and savings deposits, and
securities sold under agreement to repurchase, is based on their
carrying value. The estimated fair value for time deposits and long-term
debt is based on estimates of the rate Shoreline would pay on such
deposits or borrowings at December 31, 1995 and 1994, applied for the
time period until maturity. The estimated fair value for 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 if Shoreline
had disposed of such items at December 31, 1995, 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, 1995 should not necessarily be considered to
apply at subsequent dates.
In addition, other assets and liabilities of Shoreline 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 Shoreline's subsidiary bank's trust
department, the trained work force, customer goodwill and similar items.
NOTE 14. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The condensed financial information of the parent company, Shoreline
Financial Corporation, is summarized below.
<TABLE>
CONDENSED BALANCE SHEET
<CAPTION>
DECEMBER 31 1995 1994
<S> <C> <C>
ASSETS:
Cash $ 799,936 $ 509,161
Investment in subsidiary 63,561,443 54,324,689
Other assets 9,508 1,597,174
Total Assets $64,370,887 $56,431,024
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities $ 11,044 $ 222,556
Shareholders' Equity 69,359,843 56,208,468
Total Liabilities and Shareholders'
Equity $64,370,887 $56,431,024
</TABLE>
-52-
<TABLE>
CONDENSED STATEMENT OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary -
cash $4,212,961 $3,362,695 $2,937,264
Corporate service fees 0 3,308,086 3,078,686
Total income 4,212,961 6,670,781 6,015,950
EXPENSE:
Salaries and employee benefits 0 3,037,186 2,566,378
Other 315,838 1,861,229 1,629,775
Total expense 315,838 4,898,415 4,196,153
Income before income tax and
undistributed subsidiary income 3,897,123 1,772,366 1,819,797
Income tax benefit 108,000 513,000 215,000
Equity in undistributed net
income of subsidiary 4,602,333 4,912,956 4,502,725
NET INCOME $8,607,456 $7,198,322 $6,537,522
</TABLE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 8,607,456 $ 7,198,322 $ 6,537,522
Adjustments:
Equity in undistributed income of
subsidiary (4,602,333) (4,912,956) (4,502,725)
Depreciation and amortization 0 464,073 372,009
Other (81,063) 198,824 49,655
Total adjustments (4,683,396) (4,250,059) (4,081,061)
NET CASH FROM OPERATING ACTIVITIES 3,924,060 2,948,263 2,456,461
CASH FLOWS FROM INVESTING ACTIVITIES:
Net property and equipment expenditures 0 (288,681) (641,232)
NET CASH FROM INVESTING ACTIVITIES 0 (288,681) (641,232)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (3,734,978) (3,181,208) (2,727,181)
Net shares issued 101,693 601,036 602,929
NET CASH FROM FINANCING ACTIVITIES (3,633,285) (2,580,172) (2,124,252)
NET CHANGE IN CASH AND CASH EQUIVALENTS 290,775 79,410 (309,023)
Cash and cash equivalents at beginning of year 509,161 429,751 738,774
Cash and cash equivalents at end of year $ 799,936 $ 509,161 $ 429,751
</TABLE>
-53-
Shoreline Financial Corporation's primary source of revenue is its
wholly-owned subsidiary, Shoreline Bank. The payment of dividends by
Shoreline Bank is restricted to net profits, as defined by the Michigan
Banking Code, then on hand after deducting losses and bad debts, as also
defined by the Michigan Banking Code. Accordingly, in 1996, the
subsidiary bank may distribute to Shoreline, in addition to 1996 net
profits, approximately $34,000,000 in dividends without prior approval
from bank regulatory agencies.
-54-
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, 1995 and 1994 and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for the years ended December 31, 1995, 1994 and
1993. 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, 1995 and 1994, and
the results of its operations and its cash flows for the years ended
December 31, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, Shoreline Financial
Corporation changed its method of accounting for securities in 1994 and
for impaired loans in 1995 to comply with new accounting guidance.
/S/ CROWE, CHIZEK AND COMPANY LLP
South Bend, Indiana
February 7, 1996
-55-
DIRECTORS
SHORELINE FINANCIAL CORPORATION
BOARD OF DIRECTORS
LOUIS A. DESENBERG, Attorney, Desenberg & Colip
MERLIN J. HANSON, Chairman, Hanson Group
THOMAS T. HUFF, Attorney, Varnum, Riddering, Schmidt and Howlett
RONALD F. KINNEY, Chairman, All-Phase Electric Supply Co., Inc.
JAMES E. LEBLANC, Chairman, President and CEO, Whirlpool Financial Corp.
L. RICHARD MARZKE, President, Pri-Mar Petroleum
JAMES F. MURPHY, Retired Chairman and CEO
DAN L. SMITH, Chairman of the Board, President and CEO
ROBERT L. STARKS, President, Kerley & Starks Funeral Homes, Inc.
JEFFERY H. TOBIAN, President, Tobian Metals, Inc.
HARRY C. VORYS, Retired Executive Vice President and Treasurer
HYMAN WARSHAWSKY, President, Shellbea Company
RONALD L. ZILE, Retired Vice Chairman
SHORELINE BANK
BOARD OF DIRECTORS
ARTHUR J. BOLT, Retired President, Quality Refuse Service, Inc.
DONALD G. BRASCHLER, Chairman, Golden Brown Bakery, Inc.
JAMES D. CHRISTENSON, Retired President, Saugatuck Drug Co.
LOUIS A. DESENBERG, Attorney, Desenberg & Colip
RICHARD J. DOUGHERTY, Retired Educator
MERLIN J. HANSON, Chairman, Hanson Group
RONALD L. HARTGERINK, President, Wyckoff Chemical Company
THOMAS T. HUFF, Attorney, Varnum, Riddering, Schmidt and Howlett
-56-
JAMES E. LEBLANC, Chairman, President and CEO, Whirlpool Financial Corp.
L. RICHARD MARZKE, President, Pri-Mar Petroleum
JAMES F. MURPHY, Retired Chairman and CEO, Shoreline Financial Corp.
DR. GLADYS PEEPLES-BURKS, Retired School Administrator
DAN L. SMITH, Chairman, President and CEO
ROBERT L. STARKS, President, Kerley & Starks Funeral Homes, Inc.
RONALD L. ZILE, Retired Vice Chairman
-57-
OFFICERS
SHORELINE FINANCIAL CORPORATION OFFICERS
DAN L. SMITH, Chairman of the Board, President and CEO
WAYNE R. KOEBEL, Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
JAMES R. MILROY, Senior Vice President and Controller
STEVEN G. GETZFRID, Vice President and Auditor
SHORELINE BANK OFFICERS
DAN L. SMITH, Chairman of the Board, President and CEO
WAYNE R. KOEBEL, Executive Vice President and Chief Financial Officer
ROBERT K. BURCH, Executive Vice President-Retail Banking
RICHARD D. BAILEY II, Senior Vice President-Corporate Banking
JAMES R. MILROY, Senior Vice President, Controller and Cashier
JOSEPH S. CALVARUSO, Senior Vice President-Loan Administration
DAVID DAUGHERTY, Senior Vice President-Commercial Loans
GARY A. DOLEZAN, Senior Vice President and CRA Officer
JERRY GLOBENSKY, Senior Vice President-Commercial Loans
WILLIAM L. ROCKHOLD, Senior Vice President and Trust Officer
RONALD D. SONNEMAN, Senior Vice President and Trust Officer
HILDA L. BANYON, First Vice President and Director of Personnel
HAROLD E. BORLIK, Vice President-Trust Investments
STEVE BRINKS, Vice President-Facilities
JEFFREY CURRY, Vice President-Commercial Services
MICHAEL G. DOHERTY, Vice President-Commercial Loans
DAVID C. EIFLER, Vice President-Commercial Loans
-58-
STEVEN G. GETZFRID, Vice President and Auditor
KENNETH W. JOHNSON, Vice President and North Regional Manager
MARK KEECH, Vice President-Data Processing
GARRY P. KEMPKER, Vice President and Trust Officer
JAMES LODGE, Vice President and Branch Manager, Buchanan
TIMOTHY B. MERKER, Vice President-Agriculture Loans
ALAN NEWCOMB, Vice President-Operations
ANTHONY J. NOWAKOWSKI, Vice President-Consumer Loans
JENNIFER POSTELLO, Vice President-Mortgages
BARBARA J. STELTER, Vice President and Central Regional Manager
ROBERT D. SYKORA, Vice President-Commercial Loans
CATHRYN A. THALER, Vice President-Director of Marketing
EILEEN M. TONEY, Vice President and South Regional Manager
DAVID VAN STRIEN, Vice President and Mortgage Originator
FRED D. WAGNER, Vice President-Commercial Loans
LEONARDO A. AMAT, Assistant Vice President-Commercial Loans
JANE KOLBERG, Assistant Vice President and Secretary to the Board
TIMOTHY O. PURO, Assistant Vice President-New Business
Development (Trust)
CHERYL A. STIEVE, Assistant Vice President-Training
JANET A. DICKERSON, Assistant Vice President and Branch
Manager, Bloomingdale
MICHAEL J. GRIFFIN, Assistant Vice President and Branch
Manager, Paw Paw
SCOTT E. JOHNSON, Assistant Vice President and Trust Officer
MARGARET A. THORNTON, Assistant Vice President and Branch
Manager, Berrien Springs
-59-
SUSANNE K. TREACY, Assistant Vice President and Mortgage Loan Originator
LAURA WATKINS, Assistant Vice President and Branch Manager,
Orchards Mall
JOHN S. WILK, Assistant Vice President and Branch Manager, Baroda
KATHLEEN M. BRINKS, Manager-Computer Operations
BRIAN C. BROWN, Consumer Loan Officer
PAMELA J. DOLEZAN, Trust Officer
PATRICK G. DUFFY, Assistant Controller and Compliance Officer
SHARON GILLETTE, Branch Manager, Allegan
JACQUIE AMICARELLI-GODUSH, Branch Manager, Lakeshore
NATALIE HOLLOMON, Consumer Loan Officer
JANE HOPE, Assistant Branch Administrator
TROY A. IGNELZI, Branch Manager, Suburban
LYNN M. KERBER, Manager-Credit Department
ALICE C. KONKEY, Manager-Loan Operations
JETHROW D. KYLES, SR., Community Development Officer/CRA Coordinator
STEPHEN R. LISON, Branch Manager, Eau Claire
AL LOPEZ, Commercial Loan Officer
ANNETTE L. MAKLEY, Audit Officer
PATRICIA L. MILLER, Branch Manager, Fairplain
JANEECE MINOTT, Security Officer
LAWRENCE P. MORROW, Branch Manager, South St. Joe
PEGGY A. ROBERTS, Mortgage Loan Officer
PEGGY SANTORO, Branch Manager, Hartford
RONALD T. SCHRAMM, Mortgage Loan Officer
-60-
MARTHA SPEER, Consumer Loan Officer
DIANA L. SWARTZ, Branch Manager, Three Oaks
FRANCES K. TERRY, Branch Manager, Galien
LORI A. WALLACE, Manager-Deposit Operations
RODGER A. YOUNG, Branch Manager, Oak Street
[SHORELINE FINANCIAL CORPORATION LOGO]
-61-
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference and use of our report,
dated February 7, 1996, on the consolidated financial statements of
Shoreline Financial Corporation which appears on page 34 of Shoreline
Financial Corporation's Annual Report to Shareholders for the year ended
December 31, 1995, 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 LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
March 26, 1996
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
February 20th, 1996 S/ LOUIS A. DESENBERG
Louis A. Desenberg
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
3/5/96 S/ MERLIN HANSON
Merlin Hanson
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
Feb. 21, 1996 S/ THOMAS T. HUFF
Thomas T. Huff
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
March 6, 1996 S/ RONALD F. KINNEY
Ronald F. Kinney
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
February 26, 1996 S/ JAMES E. LEBLANC
James E. LeBlanc
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
Feb. 22, 1996 S/ L. RICHARD MARZKE
L. Richard Marzke
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
2-20, 1996 S/ JAMES F. MURPHY
James F. Murphy
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
2/21/96 S/ ROBERT L. STARKS
Robert L. Starks
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
2-22-96 S/ JEFF TOBIAN
Jeff Tobian
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
Feb. 18, 1996 S/ HARRY C. VORYS
Harry C. Vorys
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
March 1, 1996 S/ HYMAN WARSHAWSKY
Hyman Warshawsky
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Shoreline Financial Corporation, does
hereby appoint DAN L. SMITH and WAYNE R. KOEBEL, and each of them
severally, his or her attorneys or attorney to execute in his or her name,
place and stead an Annual Report of Shoreline Financial Corporation on Form
10-K for its fiscal year ended December 31, 1995, and any and all
amendments thereto, and to file it with the Securities and Exchange
Commission.
DATE SIGNATURE
Feb. 21, 1996 S/ RONALD L. ZILE
Ronald L. Zile
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF
INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS, OF SHORELINE
FINANCIAL CORPORATION AND ITS SUBSIDIARY AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 29,810
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,871
<INVESTMENTS-CARRYING> 44,465
<INVESTMENTS-MARKET> 45,875
<LOANS> 465,995
<ALLOWANCE> 6,600
<TOTAL-ASSETS> 671,173
<DEPOSITS> 592,300
<SHORT-TERM> 4,691
<LIABILITIES-OTHER> 4,822
<LONG-TERM> 5,000
<COMMON> 0
0
0
<OTHER-SE> 64,860
<TOTAL-LIABILITIES-AND-EQUITY> 671,173
<INTEREST-LOAN> 40,585
<INTEREST-INVEST> 9,599
<INTEREST-OTHER> 892
<INTEREST-TOTAL> 51,076
<INTEREST-DEPOSIT> 23,451
<INTEREST-EXPENSE> 23,847
<INTEREST-INCOME-NET> 27,230
<LOAN-LOSSES> 750
<SECURITIES-GAINS> (36)
<EXPENSE-OTHER> 18,720
<INCOME-PRETAX> 11,738
<INCOME-PRE-EXTRAORDINARY> 11,738
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,607
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 3.81
<LOANS-NON> 235
<LOANS-PAST> 1,204
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,952
<CHARGE-OFFS> 492
<RECOVERIES> 390
<ALLOWANCE-CLOSE> 6,600
<ALLOWANCE-DOMESTIC> 4,277
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,323
</TABLE>
