<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________.
Commission File No. 0-16444
SHORELINE FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-2758932
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 RIVERVIEW DRIVE
BENTON HARBOR, MICHIGAN 49022
(Address of Principal Executive Offices) (Zip Code)
(616) 927-2251
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of October 31, 1996, there were 5,538,301 issued and outstanding shares
of the registrant's Common Stock.
<PAGE> 2
SHORELINE FINANCIAL CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
September 30, 1996, and December 31, 1995 . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Income,
Three Months and Nine Months Ended September 30, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . 6-7
Notes to Condensed Consolidated Financial Statements. . . . . . 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 11-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 40,290,201 $ 29,810,198
Federal Funds Sold 11,600,000 12,950,000
------------ ------------
Total Cash and Cash Equivalents 51,890,201 42,760,198
Securities Held to Maturity
(Fair values of $45,042,000 and
$45,875,000 on September 30, 1996, and
December 31, 1995, respectively) 44,413,120 44,465,217
Securities Available for Sale
(Carried at fair value) 96,778,877 102,870,733
Total Loans 499,448,405 465,995,264
Less Allowance for Loan Losses 6,869,936 6,600,119
------------ ------------
Net Loans 492,578,469 459,395,145
Premises and Equipment-Net 10,478,920 10,143,851
Other Assets 12,724,347 11,537,594
------------ ------------
Total Assets $708,863,934 $671,172,738
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-Interest-Bearing $ 72,625,396 $ 69,236,346
Interest-Bearing 542,018,636 523,063,666
------------ ------------
Total Deposits 614,644,032 592,300,012
Short-Term Borrowings 9,896,177 4,690,818
Other Liabilities 5,144,714 4,822,065
Long-Term Debt 12,000,000 5,000,000
------------ ------------
Total Liabilities 641,684,923 606,812,895
------------ ------------
</TABLE>
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<PAGE> 4
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
Shareholders' Equity
Common Stock:
10,000,000 shares authorized;
5,538,301 and 5,251,018 shares issued
at September 30, 1996, and December 31,
1995, respectively
Additional Paid-in Capital 54,960,513 50,147,966
Unrealized Gain on Securities
Available for Sale, Net of Tax Effect 810,043 2,160,403
Retained Earnings 11,408,455 12,051,474
------------ ------------
Total Shareholders' Equity 67,179,011 64,359,843
------------ ------------
Total Liabilities & Shareholders' Equity $708,863,934 $671,172,738
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $11,107,767 $10,240,885 $32,720,494 $30,335,689
Interest on Federal Funds Sold 181,344 165,248 526,110 775,431
Interest on Securities 2,478,463 2,512,190 7,305,755 7,126,018
----------- ----------- ----------- -----------
Total Interest Income 13,767,574 12,918,323 40,552,359 38,237,138
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on Deposits 6,056,129 5,956,162 18,058,176 17,452,674
Other Interest Expense 283,939 102,117 643,682 283,357
----------- ----------- ----------- -----------
Total Interest Expense 6,340,068 6,058,279 18,701,858 17,736,031
----------- ----------- ----------- -----------
NET INTEREST INCOME 7,427,506 6,860,044 21,850,501 20,501,107
Provision for Loan Losses 150,000 175,000 450,000 575,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,277,506 6,685,044 21,400,501 19,926,107
----------- ----------- ----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts 458,317 442,803 1,325,052 1,358,911
Trust Income 385,501 354,774 1,165,390 1,044,661
Securities Gains/(Losses) 6,316 40,050 190,660 (24,549)
Other Operating Income 293,662 92,507 504,965 682,941
----------- ----------- ----------- -----------
Total Other Income 1,143,796 930,134 3,186,067 3,061,964
----------- ----------- ----------- -----------
OTHER EXPENSES
Personnel 2,696,819 2,559,973 7,979,434 7,518,268
Occupancy 338,241 317,646 1,015,680 910,281
Equipment 470,810 427,112 1,434,706 1,315,765
Other Operating Expenses 1,661,088 1,114,241 4,299,791 4,430,701
----------- ----------- ----------- -----------
Total Other Expense 5,166,958 4,418,972 14,729,611 14,175,015
----------- ----------- ----------- -----------
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<PAGE> 6
INCOME BEFORE INCOME TAXES 3,254,344 3,196,206 9,856,957 8,813,056
Federal Income Tax Expense 919,000 865,000 2,770,800 2,343,000
----------- ----------- ----------- -----------
NET INCOME $ 2,335,344 $ 2,331,206 $ 7,086,157 $ 6,470,056
=========== =========== =========== ===========
EARNINGS PER SHARE $0.42 $0.42 $1.28 $1.17
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 7
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 7,086,157 $ 6,470,056
------------ ------------
Adjustments to Reconcile Net Income to Net Cash
from Operating Activities:
Depreciation and Amortization 1,118,301 1,056,939
Provision for Loan Losses 450,000 575,000
Net Amortization and Accretion on Securities 441,912 574,274
Amortization of Goodwill and Related Core
Deposit Intangible 211,749 191,106
(Gains)Losses on Sales of Securities (190,660) 24,549
Increase in Other Assets (702,862) (1,052,418)
Increase in Other Liabilities 322,649 132,874
------------ ------------
Total Adjustments 1,651,089 1,052,324
------------ ------------
NET CASH FROM OPERATING ACTIVITIES 8,737,246 7,972,380
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans (33,633,324) (19,057,091)
Securities Available for Sale:
Purchase (17,657,433) (6,304,139)
Proceeds from Sale 7,859,399 5,629,808
Proceeds from Maturities, Calls and Principal
Reductions 13,730,504 5,453,800
Securities Held to Maturity:
Purchase (8,681,583) (30,277,271)
Proceeds from Sale 354,060 1,473,972
Proceeds from Maturities, Calls and Principal
Reductions 8,241,754 6,497,657
Premises and Equipment Expenditures (1,453,370) (1,264,616)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (31,239,993) (37,847,880)
------------ ------------
</TABLE>
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<PAGE> 8
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 22,344,020 15,275,399
Net Increase in Short-Term Borrowing 5,205,359 1,883,972
Net Increase in Long-Term Debt 7,000,000 0
Dividends Paid (3,259,396) (2,797,994)
Net Proceeds from Shares Issued 697,492 534,329
Payments to Retire Common Stock (354,725) (402,340)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES 31,632,750 14,493,366
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,130,003 (15,382,134)
Cash and Cash Equivalents at Beginning of Year 42,760,198 51,637,807
------------ ------------
Cash and Cash Equivalents at September 30 $ 51,890,201 $ 36,255,673
------------ ------------
CASH PAID DURING THE YEAR FOR:
Interest $ 18,627,922 $ 17,476,207
Income Taxes $ 2,809,000 $ 3,020,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
<PAGE> 9
SHORELINE FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements were prepared in accordance with Rule 10-01 of Regulation
S-X and the instructions for Form 10-Q and, therefore, do not include
all disclosures required by generally accepted accounting principles
for complete presentation of financial statements. In the opinion of
management, the condensed consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial condition of Shoreline
Financial Corporation as of September 30, 1996, and December 31, 1995,
and the results of its operations for the three and nine months ended
September 30, 1996 and 1995, and its cash flows for the nine months
then ended. The results of operations for the three and nine months
ended September 30, 1996, are not necessarily indicative of the
results to be expected for the full year.
On January 1, 1996, Shoreline adopted several new accounting
pronouncements. Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," establishes further guidelines 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. The effect of adopting these
standards was not material to the consolidated financial statements of
Shoreline Financial Corporation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of Shoreline Financial Corporation and its wholly owned
subsidiary, Shoreline Bank. All material intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Securities are classified into held to maturity, available
for sale, and trading categories. Held to maturity securities are
those which the Corporation has the positive intent and ability to
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<PAGE> 10
hold to maturity, and are reported at amortized cost. Available for
sale securities are those which the Corporation may decide to sell if
needed for liquidity, asset-liability management, or other reasons.
Available for sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of equity,
net of tax. Trading securities are bought principally for sale in the
near term, and are reported at fair value with unrealized gains or
losses included in earnings. The Corporation did not hold any
securities in this category at any time during the third quarter of
1996.
Realized gains or losses are determined based on the
amortized cost of the specific security sold.
During the nine-month period ended September 30, 1996, the
proceeds from sales of available for sale securities were $7,859,399,
with gross realized gains of $156,041 and gross realized losses of
$19,545 from those sales. For this period, the change in net
unrealized holding gains on available for sale securities was a
decrease of $2,046,000. There were no transfers of securities
classified as held to maturity.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over
the net value of tangible assets acquired and related core deposit
intangibles identified in branch acquisitions. Goodwill is being
amortized on a straight-line basis for a period of ten years. The
related core deposit intangibles are amortized on an accelerated basis
over the estimated life of the deposits acquired. Goodwill totaled
$152,617 and $182,477 at September 30, 1996, and December 31, 1995,
respectively. Core deposit intangibles totaled $2,278,027 and
$2,459,916 at September 30, 1996, and December 31, 1995, respectively.
These amounts are included in Other Assets in the accompanying balance
sheet.
INCOME TAXES
Income tax expense for the quarter ended September 30, 1996
and 1995, is based upon the liability method, according to SFAS No.
109, "Accounting for Income Taxes." Certain income tax and expense
items are reported in different time periods for tax purposes.
Deferred or prepaid taxes are recorded in Other Assets in the balance
sheet for these temporary differences.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and common
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<PAGE> 11
equivalent shares with a dilutive effect. Common equivalent shares
are shares which may be issuable to employees upon exercise of
outstanding stock options. The average number of shares was 5,527,590
in the third quarter of 1996 and 5,524,051 in the third quarter of 1995.
The average number of shares was 5,518,173 in the nine months ended
September 30, 1996, and 5,513,504 in the nine months ended September 30,
1995.
NOTE 2 - INCOME TAXES
Components for the provision of federal income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Taxes currently payable $2,631,000
Deferred tax expense 140,000
----------
Income tax expense $2,771,000
==========
</TABLE>
The deferred income taxes are due primarily to the temporary
difference related to depreciation, bad debt deductions, mark-
to-market of securities held for sale and deferred loan fees.
The difference between the provision for income taxes shown on the
statement of income and amounts computed by applying the statutory
federal income tax rate to income before tax expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Income tax calculated at statutory federal rate of 34% $3,351,000
Increase (decrease) due to tax effect of
Tax-exempt income (703,000)
Nondeductible expense and other 123,000
----------
Income tax expense $2,771,000
==========
</TABLE>
-11-
<PAGE> 12
The components of the net deferred tax asset recorded in the balance
sheet as of September 30, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Total deferred tax liabilities $ (845,500)
Total deferred tax assets 3,623,000
Total valuation allowance 0
----------
Net deferred tax asset $2,777,500
==========
</TABLE>
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total deposits averaged $605.4 million during the third
quarter of 1996. This is an increase of $1.7 million over the previous
quarter's average of $603.7 million. A summary of quarterly averages
for deposits for the first three quarters of 1996 follows:
<TABLE>
<CAPTION>
AVG BAL AVG BAL AVG BAL
(000S) 3RD QTR 96 2ND QTR 96 1ST QTR 96
---------- ---------- ----------
<S> <C> <C> <C>
Non-Interest-Bearing Demand Deposits $ 70,355 $ 67,928 $ 65,158
Interest-Bearing Demand Deposits 86,145 84,727 82,067
Savings Deposits 164,817 176,004 178,755
Time Deposits 284,057 275,016 268,875
-------- -------- --------
Total $605,354 $603,675 $594,855
======== ======== ========
</TABLE>
Despite modest growth in total deposits during the third
quarter of 1996, there was considerable activity in the mix of
Shoreline's deposits. Growth in demand deposits, both interest-
bearing and non-interest-bearing, continued in the third quarter as
Shoreline continues to place emphasis on corporate and municipal
deposit relationships. This emphasis has resulted in a steady growth
trend in these deposit types during 1996. Conversely, during the
third quarter, Shoreline experienced a decline in its retail savings
balances, particularly in its money market and Capital Club savings
accounts. While the decline in money market balances has been a trend
in 1996, the majority of the decline in Capital Club savings resulted
from the transfer of a significant account relationship to time
deposits greater than $100,000, accounting for a significant portion
of the increase in that category.
As a member of the Federal Home Loan Bank of Indianapolis,
("FHLB") Shoreline has the ability to access up to approximately $50
million of borrowings. On September 30, 1996, Shoreline had $16
million of borrowings with the FHLB, which was no change from the
previous quarter ended June 30,1996.
Total loans averaged $498.7 million during the third quarter
of 1996. This compares to the second quarter's average of $490.1
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<PAGE> 14
million, an increase of $8.6 million. On September 30, 1996, total
loans amounted to $499.4 million, which is an increase of $33.5
million or 7.2% over total loans at December 31, 1995. All three of
Shoreline's loan portfolios continued to contribute to the growth in
total loans. Average commercial loans increased $4.1 million over the
previous quarter while average mortgage and consumer loans increased
$3.5 million and $1.0 million, respectively. The growth in
Shoreline's loan portfolio has contributed toward the increase in net
interest income in 1996.
Total investments averaged $156.0 million during the third
quarter of 1996, a decline of $1.8 million from the previous quarter.
Declines in federal funds sold and municipal securities were offset by
increased investments in U.S. Government and Treasury securities.
Federal funds sold continued to average approximately 2% of
Shoreline's total assets during the third quarter.
Shoreline's non-performing assets increased slightly during
the third quarter of 1996. On September 30, 1996, total non-performing
assets amounted to $2.1 million, which represented .41% of Shoreline's
total loan portfolio on that date. Increased mortgage loans greater
than 90 days past due accounted for the majority of the increase in
the third quarter. On June 30, 1996, non-performing assets totaled
$1.4 million and represented .29% of the Company's total loans at that
date. Non-performing assets include loans that are classified for
regulatory purposes as contractually past due 90 days or more, on
non-accrual status or "troubled debt restructurings" and other real
estate owned.
Shoreline had net recoveries of $1,234 during the third
quarter of 1996. This activity helped to reduce the company's year-
to-date net charge-offs to $180,183, which represented only .04% of
Shoreline's average loan portfolio through the third quarter. At
September 30, 1996, the allowance for loan losses was $6,869,936, which
provided a coverage of over 3.3 times the level of non-performing
assets on the same date. As a percentage of total loans, the
allowance for loan losses was 1.38% at September 30, 1996, a slight
increase from the previous quarter end. At December 31, 1995, the
ratio of the allowance for loan losses to total loans was 1.42%.
FUTURE TRANSACTIONS
On November 7, 1996, Shoreline Financial Corporation and SJS
Bancorp, Inc., ("SJS") announced they had signed a plan of merger under
which SJS would merge with and into Shoreline. SJS is a holding
company with assets of approximately $150 million. It is the parent
company of SJS Federal Savings Bank, which provides banking services
through its main office and branch in St. Joseph, Michigan, and
branches in South Haven and Stevensville, Michigan. The merger is
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<PAGE> 15
subject to approval by SJS shareholders, regulatory approval and other
customary conditions. The transaction is expected to be completed
during the first half of 1997. SJS shareholders would receive $27 in
cash for each of their shares of SJS stock. The total value of the
transaction is approximately $25.4 million.
LIQUIDITY AND RATE SENSITIVITY
Loan growth continued to outpace the increase in deposits
during the third quarter and increased Shoreline's loan to deposit
ratio to 82.4% from 81.2% in the previous quarter. Shoreline
maintained its level of federal funds sold at approximately 2% of
total assets despite this increase in loans. On September 30, 1996,
federal funds sold totaled $11.6 million. As previously stated,
Shoreline is able to access up to approximately $50 million of
borrowings from the FHLB to fund future loan growth. Approximately
$97 million of Shoreline's $141 million securities portfolio was
classified as available for sale on September 30, 1996, containing an
unrealized gain, net of tax, of $810,000. At the end of the third
quarter, there was approximately $1.1 million of loans classified as
held for sale. On September 30, 1996, Shoreline had commitments to
make or purchase loans, including the unused portions of lines of
credit, totaling $102 million.
On September 30, 1996, the cumulative funding gaps of
interest-earning assets and interest-bearing liabilities for selected
maturity periods are illustrated as follows:
<TABLE>
<CAPTION>
REPRICEABLE OR MATURING WITHIN:
0 TO 3 0 TO 12 0 TO 5
(000S) MONTHS MONTHS YEARS
------ ------- ------
<S> <C> <C> <C>
Interest-earning assets
Loans $ 164,291 $ 249,613 $ 446,729
Securities 10,928 31,601 113,368
Federal funds sold 11,600 11,600 11,600
--------- --------- ---------
Total $ 186,819 $ 292,814 $ 571,697
========= ========= =========
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<PAGE> 16
Interest-bearing liabilities
Time deposits $ 75,702 $ 190,655 $ 286,164
Demand deposits 95,547 95,547 95,547
Savings deposits 158,158 158,158 158,158
Other borrowings 13,896 18,896 21,896
--------- --------- ---------
Total $ 343,303 $ 463,256 $ 561,765
========= ========= =========
Asset/(Liability) Gap $(156,484) $(170,442) $ 9,932
========= ========= =========
</TABLE>
This table indicates that total liabilities maturing or
repricing within one year exceed assets maturing or repricing within
one year by $170.4 million. The same presentation as of December 31,
1995, produced a liability gap of $156.6 million for the same time
period. Competitive pressures and other influences may cause certain
assets and liabilities to mature or reprice in other periods or at
different volumes than indicated above. Specifically, all demand and
savings accounts are presented as repricing in the 0-3 month period.
Management believes that these types of accounts are not as sensitive
to changes in interest rates in the short term as this presentation
would indicate and that the positive funding gap in the 0-5 year
period is more reflective of Shoreline's experience.
CAPITAL RESOURCES
Total shareholders' equity was $67.2 million on September
30, 1996. Included in this total are net unrealized gains on
securities available for sale totaling $810,043. Net unrealized gains
on securities available for sale increased approximately $297,000 from
June 30, 1996. During the third quarter, Shoreline's Board of
Directors approved a cash dividend of $.20 per share. A summary of
Shoreline's capital position follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Equity to assets 9.48% 9.59%
Tier I leverage 9.06% 8.91%
Risk-based:
Tier I Capital 14.80% 14.56%
Total Capital 16.05% 15.81%
</TABLE>
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<PAGE> 17
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1996, was
$2,335,344, an increase of only $4,138 over the same period in 1995.
Third quarter earnings were adversely impacted by a non-recurring
charge of $199,000, net of tax, assed upon financial institutions
with deposits insured by the Savings Association Insurance Fund
("SAIF") to recapitalize the SAIF. Without this one-time charge,
Shoreline's net income for the third quarter would have been
approximately $2,535,000, representing an increase of 8.7% over the
same period in 1995. Increased net interest income and non-interest
income helped to produce these results. The following table
illustrates the effect that changes in rates and volumes of earning
assets and interest-bearing liabilities had on net interest income
for the three months ended September 30, 1996 and 1995:
<TABLE>
THREE MONTHS ENDED SEPTEMBER 30
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
(000S)
Interest Income (taxable equivalent) $ 14,075 $ 13,330
Interest Expense 6,340 6,058
-------- --------
Net Interest Income $ 7,735 $ 7,272
======== ========
Average Volume:
Interest-Earning Assets $654,693 $608,686
Interest-Bearing Liabilities 557,376 516,427
-------- --------
Net Differential $ 97,317 $ 92,259
======== ========
Average Yields/Rates:
Yield on Earning Assets 8.55% 8.69%
Rate Paid on Liabilities 4.53% 4.65%
----- -----
Interest Spread 4.02% 4.04%
----- -----
Net Interest Margin 4.70% 4.74%
===== =====
</TABLE>
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<PAGE> 18
The change in net interest income (in thousands) is
attributable to the following:
<TABLE>
<CAPTION>
VOLUME RATE INC/(DEC)
------ ---- ---------
<S> <C> <C> <C>
Interest-Earning Assets $967 $(222) $745
Interest-Bearing Liabilities 448 (166) 282
---- ----- ----
Net Interest Income $519 $ (56) $463
==== ===== ====
</TABLE>
Net income for the nine months ended September 30, 1996, was
$7,086,157, an increase of 9.5% over the same period in 1995. Again,
improved net interest income provided the majority of this increase.
The following table illustrates the effect that changes in rates and
volumes of earning assets and interest-bearing liabilities had on net
interest income for the nine months ended September 30, 1996 and 1995:
<TABLE>
NINE MONTHS ENDED SEPTEMBER 30
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
(000S)
Interest Income (taxable equivalent) $ 41,359 $ 39,271
Interest Expense 18,702 17,736
-------- --------
Net Interest Income $ 22,657 $ 21,535
======== ========
Average Volume:
Interest-Earning Assets $645,290 $603,604
Interest-Bearing Liabilities 550,952 515,971
-------- --------
Net Differential $ 94,338 $ 87,633
======== ========
Average Yields/Rates:
Yield on Earning Assets 8.56% 8.70%
Rate Paid on Liabilities 4.53% 4.60%
----- -----
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<PAGE> 19
Interest Spread 4.03% 4.10%
----- -----
Net Interest Margin 4.69% 4.77%
===== =====
</TABLE>
The change in net interest income (in thousands) is
attributable to the following:
<TABLE>
<CAPTION>
VOLUME RATE INC/(DEC)
------ ---- ---------
<S> <C> <C> <C>
Interest-Earning Assets $2,720 $(632) $2,088
Interest-Bearing Liabilities 1,231 (265) 966
------ ----- ------
Net Interest Income $1,489 $(367) $1,122
====== ===== ======
</TABLE>
Shoreline expensed $150,000 for the provision for loan
losses in the third quarter of 1996, unchanged from the previous
quarter. The provision for loan losses is based upon loan loss
experience and other factors which, in management's judgment,
deserve current recognition in maintaining an adequate allowance for
loan losses.
In the third quarter of 1996, total other income was
$1,143,796, an increase of $88,042 from the previous quarter.
Increased income from the sale of mortgage loans accounted for this
increase. In comparison to the third quarter of 1995, total other
income increased $213,662. Increased trust and service charge income
as well as increased gains from the sale of mortgage loans and credit
card fee income accounted for the increase in this comparison. For
the nine months ended September 30, 1996, other income totaled
$3,186,067, an increase of $124,103 or 4.1% over the same time period
in 1995. This increase was produced by greater trust income and gains
from the sale of securities offset by declines in credit card fee
income and mortgage loan sales income.
Total other expense was $5,166,958 during the third quarter
of 1996. This compares to the previous quarter's total of $4,923,038.
As previously noted, Shoreline incurred a one-time assessment of
$302,000 on its approximately $57 million of deposits insured by the
SAIF. This non-recurring charge was a result of legislation enacted
-19-
<PAGE> 20
to recapitalize the SAIF deposit insurance fund. Without this charge,
other expense would have totaled $4,865,000, an actual decrease from
the previous quarter of $58,000. Reduced personnel expense in the
third quarter was the primary contributor toward this actual decline.
In comparison to the third quarter of 1995, total other expense
increased $748,000. Increased FDIC expense due to the SAIF assessment
was also the largest contributor to this increase. In addition,
personnel, professional fees and advertising expense also contributed to
the overall increase. For the nine months ended September 30, 1996,
total other expense was $14,729,611, an increase of $554,596 from the
previous year. Increased personnel, equipment and professional fee
expenses were partially offset by a decline in FDIC insurance expense
to cause this net increase.
For the nine months ended September 30, 1996, Shoreline's
ratio of total other expense to average assets was 2.85%. This is an
improvement over the prior year's ratio of 2.93%. Over the same
period of time, Shoreline's efficiency ratio has remained steady at
approximately 57%.
In summary, Shoreline's net income of $2,335,344 in the
third quarter of 1996 produced a return on average shareholders'
equity of 13.90% and a return on average assets of 1.33%. Without the
one-time SAIF assessment, these ratios would have been approximately
15.08% and 1.44%, respectively. These compare to 1995's third quarter
results of 15.20% and 1.42%, respectively. On a year-to-date basis,
return on average shareholders' equity stands at 14.30% and return on
average assets at 1.37% which compare to 1995 ratios of 14.48% and
1.34%, respectively. Earnings per share through September 30, 1996,
was $1.28 and dividends per share was $.59. These compare to earnings
per share and dividends per share through September 30, 1995, of $1.17
and $.50, respectively.
-20-
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Shoreline Bank is a party, as plaintiff or defendant, to a
number of legal proceedings, none of which is considered material, and
all of which arose in the normal course of its operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following documents are filed as exhibits
to this report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
3.1 Restated Articles of Incorporation. Previously filed as
Exhibit 1(a) to the registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1994. Here
incorporated by reference.
3.2 Bylaws. Previously filed as Exhibit 3(b) to the
registrant's Form S-1 Registration Statement filed March
23, 1990. Here incorporated by reference.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed
during the quarter covered by this report.
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SHORELINE FINANCIAL CORPORATION
(Registrant)
Date November 14, 1996 /S/ DAN L. SMITH
Dan L. Smith
Chairman, President and Chief Executive
Officer
Date November 14, 1996 /S/ WAYNE R. KOEBEL
Wayne R. Koebel
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial and Accounting
Officer)
-22-
<PAGE> 23
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3.1 Restated Articles of Incorporation. Previously filed
as Exhibit 1(a) to the registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1994.
Here incorporated by reference.
3.2 Bylaws. Previously filed as Exhibit 3(b) to the
registrant's Form S-1 Registration Statement filed
March 23, 1990. Here incorporated by reference.
27 Financial Data Schedule.
-23-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SHORELINE
FINANCIAL CORPORATION FOR THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 40,248
<INT-BEARING-DEPOSITS> 42
<FED-FUNDS-SOLD> 11,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 96,779
<INVESTMENTS-CARRYING> 44,413
<INVESTMENTS-MARKET> 45,042
<LOANS> 499,448
<ALLOWANCE> 6,870
<TOTAL-ASSETS> 708,864
<DEPOSITS> 614,644
<SHORT-TERM> 5,896
<LIABILITIES-OTHER> 5,145
<LONG-TERM> 16,000
<COMMON> 0
0
0
<OTHER-SE> 67,179
<TOTAL-LIABILITIES-AND-EQUITY> 708,864
<INTEREST-LOAN> 32,720
<INTEREST-INVEST> 7,306
<INTEREST-OTHER> 526
<INTEREST-TOTAL> 40,552
<INTEREST-DEPOSIT> 18,058
<INTEREST-EXPENSE> 644
<INTEREST-INCOME-NET> 21,850
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 191
<EXPENSE-OTHER> 14,730
<INCOME-PRETAX> 9,857
<INCOME-PRE-EXTRAORDINARY> 9,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,086
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 3.81
<LOANS-NON> 272
<LOANS-PAST> 1,628
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,293
<ALLOWANCE-OPEN> 6,600
<CHARGE-OFFS> 397
<RECOVERIES> 217
<ALLOWANCE-CLOSE> 6,870
<ALLOWANCE-DOMESTIC> 3,883
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,987
</TABLE>
