SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
===================
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
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 July 31, 1996 there were 5,524,489 issued and outstanding shares of
the registrant's Common Stock.
SHORELINE FINANCIAL CORPORATION
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
June 30, 1996 and December 31, 1995 1-2
Condensed Consolidated Statements of Income,
Three Months and Six Months Ended June 30, 1996
and 1995 3
Condensed Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1996 and 1995 4-5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II. OTHER INFORMATION 15-16
Item 1. Legal Proceedings 15
Item 4. Submission to Matters to a Vote of
Security-Holders 15-16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 27,081,517 $ 29,810,198
Federal Funds Sold 14,850,000 12,950,000
Total Cash and Cash Equivalents 41,931,517 42,760,198
Securities Held to Maturity
(Fair values of $47,339,000 and
$45,875,132 on June 30, 1996 and
December 31, 1995, respectively) 46,869,941 44,465,217
Securities Available for Sale
(Carried at fair value) 93,177,326 102,870,733
Total Loans 496,569,737 465,995,264
Less Allowance for Loan Loss 6,718,702 6,600,119
Net Loans 489,851,035 459,395,145
Premises and Equipment-Net 10,558,260 10,143,851
Other Assets 12,633,163 11,537,594
Total Assets $695,021,242 $671,172,738
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non Interest-Bearing $ 70,698,516 $ 69,236,346
Interest-Bearing 534,758,009 523,063,666
Total Deposits 605,456,525 592,300,012
Securities Sold Under Agreements to Repurchase 4,600,402 4,690,818
Other Liabilities 3,548,451 4,822,065
Long-Term Debt 16,000,000 5,000,000
Total Liabilities 629,605,378 606,812,895
</TABLE>
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(unaudited)
<S> <C> <C>
Shareholders' Equity
Common Stock:
10,000,000 shares authorized;
5,524,489 and 5,251,018 shares issued
at June 30, 1996 and December 31, 1995,
respectively
Additional Paid-in Capital 54,724,312 50,147,966
Unrealized Gain on Securities
Available for Sale, Net of Tax Effect 512,942 2,160,403
Retained Earnings 10,178,610 12,051,474
Total Shareholders' Equity 65,415,864 64,359,843
Total Liabilities & Shareholders' Equity $695,021,242 $671,172,738
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $10,941,576 $10,328,320 $21,612,727 $20,094,804
Interest on Federal Funds Sold 211,587 317,697 344,766 610,183
Interest on Securities 2,408,231 2,411,842 4,827,292 4,613,828
Total Interest Income 13,561,394 13,057,859 26,784,785 25,318,815
INTEREST EXPENSE
Interest on Deposits 5,961,549 6,014,475 12,002,047 11,496,512
Other Interest Expense 228,506 94,476 359,743 181,240
Total Interest Expense 6,190,055 6,108,951 12,361,790 11,677,752
NET INTEREST INCOME 7,371,339 6,948,908 14,422,995 13,641,063
Provision for Loan Losses 150,000 200,000 300,000 400,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,221,339 6,748,908 14,122,995 13,241,063
OTHER INCOME
Service Charges on Deposit Accounts 449,003 458,824 866,735 916,108
Trust Income 407,201 357,320 779,889 689,887
Securities Gains/(Losses) 113,705 (33,743) 184,344 (64,599)
Other Operating Income 85,845 301,210 211,303 590,434
Total Other Income 1,055,754 1,083,611 2,042,271 2,131,830
OTHER EXPENSES
Personnel 2,641,053 2,507,810 5,282,615 4,958,295
Occupancy 327,767 287,821 677,439 592,635
Equipment 489,880 461,827 963,896 888,653
Other Operating Expenses 1,464,338 1,754,752 2,638,703 3,316,460
Total Other Expense 4,923,038 5,012,210 9,562,653 9,756,043
INCOME BEFORE INCOME TAXES 3,354,055 2,820,309 6,602,613 5,616,850
Federal Income Tax Expense 960,800 724,000 1,851,800 1,478,000
NET INCOME $ 2,393,255 $ 2,096,309 $ 4,750,813 $ 4,138,850
EARNINGS PER SHARE $ .43 $ .38 $ .86 $ .75
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,750,813 $ 4,138,850
Adjustments to Reconcile Net Income to Net Cash
from Operating Activities:
Depreciation and Amortization 744,647 712,390
Provision for Loan Losses 300,000 400,000
Net Amortization and Accretion on Securities 332,116 389,465
Amortization of Goodwill and Related Core
Deposit Intangible 141,165 127,404
(Gains) Loss on Sales and Calls of Securities (184,344) 64,599
Increase in Other Assets (388,042) (248,324)
Decrease in Other Liabilities (1,273,614) (24,841)
Total Adjustments (328,072) 1,420,693
NET CASH FROM OPERATING ACTIVITIES 4,422,741 5,559,543
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans (30,755,890) (4,731,065)
Securities Available for Sale:
Purchase (11,183,902) (5,307,576)
Proceeds from Sale 6,870,805 3,181,131
Proceeds from Maturities, Calls and Principal
Reductions 11,478,113 3,425,002
Securities Held to Maturity:
Purchase (8,681,583) (21,444,608)
Proceeds from Sale 0 0
Proceeds from Maturities, Calls and Principal
Reductions 6,161,325 2,970,785
Premises and Equipment Expenditures (1,159,056) (867,255)
NET CASH FROM INVESTING ACTIVITIES (27,270,188) (22,773,586)
</TABLE>
-4-
<TABLE>
SHORELINE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 13,156,513 741,143
Net Increase/(Decrease) in Short-Term Borrowing (90,416) 31,541
Net Increase in Long-Term Debt 11,000,000 0
Dividends Paid (2,153,897) (1,850,360)
Net Proceeds from Shares Issued 461,291 328,509
Payments to Retire Common Stock (354,725) 0
NET CASH FROM FINANCING ACTIVITIES 22,018,766 (749,167)
NET CHANGE IN CASH AND CASH EQUIVALENTS (828,681) (17,963,210)
Cash and Cash Equivalents at Beginning of Year 42,760,198 51,637,807
Cash and Cash Equivalents at June 30 $41,931,517 $33,674,597
CASH PAID DURING THE YEAR FOR:
Interest $12,441,797 $11,566,878
Income Taxes $ 2,459,000 $ 1,330,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
-5-
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 June 30, 1996 and December 31, 1995, and
the results of its operations for the three and six months ended June
30, 1996 and 1995, and its cash flows for the six months then ended.
The results of operations for the six months ended June 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. 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
hold to maturity, and are reported at amortized cost. Available for
-6-
sale securities are those which the Corporation may decide to sell if
needed for liquidity, asset-liability management or other reasons.
Available for sale securities are reported at fair value, with
unrealized gains or losses included as a separate component of equity,
net of tax. Trading securities are bought principally for sale in the
near term, and are reported at fair value with unrealized gains or
losses included in earnings. The Corporation did not hold any
securities considered for this category at any time during the second
quarter of 1996.
Realized gains or losses are determined based on the
amortized cost of the specific security sold.
During the six-month period ended June 30, 1996, the
proceeds from sales of available for sale securities were $6,870,805,
with gross realized gains of $156,041 and gross realized losses of
$9,596 from those sales. For this period, the change in net
unrealized holding gains on available for sale securities was a
decrease of $2,496,000. There were no sales or transfers of
securities classified as held to maturity.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over
the net value of tangible assets acquired and related core deposit
intangibles identified in branch acquisitions. Goodwill is being
amortized on a straight-line basis for a period of ten years. The
related core deposit intangibles are amortized on an accelerated basis
over the estimated life of the deposits acquired. Goodwill totaled
$162,571 and $182,477 at June 30, 1996 and December 31, 1995,
respectively. Core deposit intangibles totaled $2,338,657 and
$2,459,916 at June 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 June 30, 1996 and
1995 is based upon the liability method, according to Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes."
Certain income tax and expense items are reported in different time
periods for tax purposes. Deferred or prepaid taxes are recorded in
the balance sheet for these temporary differences.
-7-
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and common
equivalent shares with a dilutive effect. Common equivalent shares
are shares which may be issuable to employees upon exercise of
outstanding stock options. The average number of shares was 5,514,322
in the six months ended June 30, 1996 and 5,470,364 in the six months
ended June 30, 1995.
NOTE 2 - INCOME TAXES
Components for the provision of federal income taxes are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
<S> <C>
Taxes currently payable $1,700,000
Deferred tax expense 151,800
Income Tax Expense 1,851,800
</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>
JUNE 30, 1996
<S> <C>
Income tax calculated at statutory
federal rate of 34% $2,245,000
Increase (decrease) due to tax effect of
Tax-exempt income (477,000)
Nondeductible expense and other 83,800
Income Tax Expense $1,851,800
</TABLE>
-8-
The components of the net deferred tax asset recorded in the
balance sheet as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Total deferred tax liabilities $ (701,000)
Total deferred tax assets 3,619,000
Total valuation allowance 0
Net Deferred Tax Asset $2,918,000
</TABLE>
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total deposits averaged $603.7 million during the second
quarter of 1996. This is an increase of $8.8 million or 1.5% over the
first quarter's average of $594.9 million. The majority of the second
quarter's growth was provided by increased time deposits. A
comparison of the quarterly averages for the past three quarters
follows:
<TABLE>
<CAPTION>
AVG BAL AVG BAL AVG BAL
2ND QTR 96 1ST QTR 96 4TH QTR 95
(000s)
<S> <C> <C> <C>
Non-Interest Bearing Demand Deposits $ 67,928 $ 65,158 $ 68,666
Interest-Bearing Demand Deposits 84,727 82,067 72,627
Savings Deposits 176,004 178,755 177,587
Time Deposits 275,016 268,875 259,528
Total $603,675 $594,855 $578,408
</TABLE>
Growth in interest-bearing demand deposits continued to be
provided by municipal depositors in Shoreline's Super Public Fund NOW
account while the majority of the growth in time deposits during the
second quarter was in time deposits greater than $100,000. At June
30, 1996, deposits totaled $605.5 million, which represents an
increase of $13.2 million or 2.2% over year end 1995's total of $592.3
million. Time and interest-bearing demand deposits provided the
majority of the growth during the first half of 1996.
As a member of the Federal Home Loan Bank of Indianapolis,
Shoreline can access up to approximately $50 million of borrowings.
During the first half of 1996, Shoreline increased its borrowings from
the FHLB by $11 million, and at June 30, 1996, had $16 million of
borrowings outstanding.
Total loans averaged $490.1 million during the second
quarter of 1996. This compares to the first quarter's average of
$473.7 million, an increase of $16.4 million or 3.5%. All three of
Shoreline's loan portfolios contributed to the second quarter's growth
in loans. Mortgage loan production remained strong, accounting for
-10-
$7.5 million of the second quarter's increase. Increased activity in
the commercial loan area contributed an additional $6.1 million while
consumer loan volume increased $2.8 million. At June 30, 1996, loans
totaled $496.6 million which is an increase of $6.6 million from
December 31, 1995.
Total investments averaged $157.8 million in the second
quarter, a slight decline from the previous quarter's average of
$159.2 million. Increased dollars held in federal funds sold were
offset by declines in US Government and municipal securities. Federal
funds sold averaged $16.1 million during the second quarter,
representing 2.3% of total average assets. Tax-exempt municipal
securities have gradually declined from approximately $46 million in
mid-1995 to $37 million in June of 1996. Liquidity needs and lack of
attractive replacements of maturing securities have caused this
decline.
Asset quality continued strong during the second quarter of
1996. Total non-performing assets at June 30, 1996 were $1.4 million,
which represents .29% of Shoreline's total loan portfolio at that
date. This compares to the previous two quarter-end ratios of .31% at
March 31, 1996 and .35% at December 31, 1995. 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 charge-offs of $118,623 during the second
quarter of 1996, which represents .02% of total average loans. This
compares with the first quarter's charge-off experience of $62,794 or
.01% of total average loans. For the six months ended June 30, 1996,
net charge-offs totaled $181,417, which represents only .04% of total
average loans. At June 30, 1996, the allowance for loan losses stood
at $6,718,702 which provides a coverage of over 4.5 times the level of
non-performing assets on the same date. As a percentage of total
loans, the allowance for loan losses was 1.35% at June 30, 1996. At
December 31, 1995, the ratio of the allowance for loan losses to total
loans was 1.42%.
LIQUIDITY AND RATE SENSITIVITY
The loan growth experienced during the second quarter of
1996 increased Shoreline's loan to deposit ratio to 81.2% from 79.6%
in the previous quarter. Shoreline increased its average level of
federal funds sold during the quarter to $16.1 million or 2.3% of
total average assets. On June 30, 1996, federal funds sold totaled
$14.8 million. Approximately $93 million of Shoreline's $140 million
securities portfolio was classified as available for sale on June 30,
1996 containing an unrealized gain, net of tax, of $513,000. At the
end of the second quarter, there was approximately $814,000 of loans
-11-
classified as held for sale. On June 30, 1996, Shoreline had
commitments to make or purchase loans, including the unused portion of
lines of credit, totaling $105 million.
On June 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 $ 167,461 $ 251,848 $467,166
Securities 9,858 29,915 114,516
Federal funds sold 14,850 14,850 14,850
Total $ 192,169 $ 296,613 $596,532
Interest-bearing liabilities
Time deposits $ 67,778 $ 186,691 $277,892
Demand deposits 82,088 82,088 82,088
Savings deposits 173,506 173,506 173,506
Other borrowings 4,600 8,600 16,600
Total $ 327,972 $ 450,885 $550,086
Asset/(Liability) Gap $(135,803) $(154,272) $ 46,446
</TABLE>
This table indicates that total liabilities maturing or
repricing within one year exceed assets maturing or repricing within
one year by $154.3 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.
-12-
CAPITAL RESOURCES
Total shareholders' equity amounted to $65.4 million on June
30, 1996. Included in this total are net unrealized gains on
securities available for sale totaling $513,000. During the second
quarter, rising interest rates caused net unrealized gains on
securities available for sale to decline by approximately $1 million
from March 31, 1996. On May 1, Shoreline's Board of Directors
approved a 5% stock dividend payable May 28, 1996 and also approved a
cash dividend payable June 14, 1996. A summary of Shoreline's capital
position follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Equity to assets 9.41% 9.59%
Tier I leverage 9.01% 8.91%
Risk-based:
Tier I Capital 14.52% 14.56%
Total Capital 15.77% 15.81%
</TABLE>
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1996 was
$2,393,255, an increase of 14.2% over the same period in 1995.
Increased net interest income and reduced other expenses helped to
produce this increase. Second quarter 1996 earnings of $2,393,255 is
an increase of $35,697 over the previous quarter's earnings of
$2,357,558. The following table illustrates the effect that changes
in rates and volumes of earning assets and interest-bearing
liabilities had on net interest income:
-13-
<TABLE>
THREE MONTHS ENDED JUNE 30
<CAPTION>
1996 1995
(000S)
<S> <C> <C>
Interest Income (taxable equivalent) $ 13,810 $ 13,414
Interest Expense 6,190 6,109
Net Interest Income $ 7,620 $ 7,305
Average Volume:
Interest-Earning Assets $647,917 $606,249
Interest-Bearing Liabilities 553,903 518,003
Net Differential $ 94,014 $ 88,246
Average Yields/Rates:
Yield on earning assets 8.57% 8.85%
Rate paid on liabilities 4.49% 4.72%
Interest Spread 4.08% 4.13%
Net Interest Margin 4.73% 4.82%
</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 $849 $(453) $396
Interest-Bearing Liabilities 395 (314) 81
Net Interest Income $454 $(139) $315
Net income for the six months ended June 30, 1996, was
$4,750,813, an increase of 14.8% over the same period in 1995.
Increased 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 six months ended June 30, 1996, and 1995.
-14-
</TABLE>
<TABLE>
SIX MONTHS ENDED JUNE 30
<CAPTION>
1996 1995
(000S)
<S> <C> <C>
Interest Income (taxable equivalent) $ 27,299 $ 26,053
Interest Expense 12,362 11,678
Net Interest Income $ 14,937 $ 14,375
Average Volume:
Interest-Earning Assets $640,455 $597,719
Interest-Bearing Liabilities 547,693 512,916
Net Differential $ 92,762 $ 84,803
Average Yields/Rates:
Yield on earning assets 8.56% 8.72%
Rate paid on liabilities 4.53% 4.55%
Interest Spread 4.03% 4.17%
Net Interest Margin 4.69% 4.81%
</TABLE>
The change in net interest income (in thousands) is
attributable to the following:
<TABLE>
<CAPTION>
VOLUME RATE INC/(DEC)
<S> <C> <C> <C>
Interest-Earning Assets $1,748 $(502) $1,246
Interest-Bearing Liabilities 738 (54) 684
Net Interest Income $1,010 $(448) $ 562
</TABLE>
Shoreline expensed $150,000 for the provision for loan
losses in the second quarter of 1996, unchanged from the previous
quarter. The provision for loan losses is based upon loan loss
experience and such other factors which, in management's judgment,
deserve current recognition in maintaining an adequate allowance for
loan losses.
In the second quarter of 1996, total other income amounted
to $1,055,754, an increase of $69,237 from the previous quarter.
Increased income from trust services, deposit service charges and
securities transactions was offset by increased losses from the sale
of mortgage loans. In comparison to the second quarter of 1995,
total other income declined by approximately $28,000. Again,
increased trust and securities gains income was more than offset by
increased losses from the sale of mortgage loans. For the six months
-15-
ended June 30, 1996, other income totaled $2,042,271, a decline of
$89,500 or 4.2% from the same time period in 1995. In comparing the
first six months of 1996 to the first six months of 1995, trust
income increased 13.0% or $90,000. Gains from the sale of securities
produced additional income of $248,943 over the prior year. However,
two significant items more than offset these increases. First,
credit card fee income was $143,500 less than the prior year in the
same period. Shoreline previously decided to discontinue the majority
of its credit card operations, thereby creating this discrepancy.
Second, in the first half of 1996, Shoreline incurred $185,000 of
losses from the sale of mortgage loans. This compares to gains of
$25,000 in the first half of 1995, creating a variance of $210,000.
Total other expense amounted to $4,923,038 during the second
quarter of 1996. This compares to the previous quarter's total of
$4,639,615, or an increase of $283,423. Increased professional fee
expense related to departmental sales training and branch system
review projects, along with increased advertising expense accounted
for the majority of the increase in expense during the second quarter.
In comparison to the second quarter of 1995, total other expense
actually declined by $89,000. FDIC insurance expense declined by
$281,500 in comparison to the prior year's quarter as a result of
revised FDIC assessment rates. This reduction in FDIC expense helped
to offset increases in personnel, occupancy and equipment expense.
For the six months ended June 30, 1996, total other expense amounted
to $9,562,653, a decline of $193,390 from the previous year. Again,
reduced FDIC assessment rates produced a decline in expense of over
$578,000 and helped to offset increases in other areas of expense.
Disregarding FDIC insurance expense, total other expense increased
4.2% over the prior year for the six months ended June 30, 1996.
Shoreline's ratio of total other expense to total average
assets was 2.86% during the second quarter of 1996. This is an
increase from the first quarter's ratio of 2.76%. For the six months
ended June 30, 1996, Shoreline's overhead ratio was 2.81%. This
compares to the prior year's ratio of 3.06%. Over the same period of
time, Shoreline's efficiency ratio has improved from 58.39% in 1995 to
56.56% in 1996.
In summary, Shoreline's net income of $2,393,255 in the
second quarter of 1996 produced a return on average shareholders'
equity of 14.61% and a return on average assets of 1.39%. This
compares to 1995's second quarter results of 14.14% and 1.30%,
respectively. On a year-to-date basis, return on average
shareholders' equity stands at 14.53% and return on average assets at
1.39% which favorably compares to 1995 ratios of 14.18% and 1.30%,
respectively. Earnings per share through June 30, 1996 was $.86 and
dividends per share was $.39. This compares to earnings per share and
dividends per share through June 30, 1995 of $.75 and $.33,
respectively.
-16-
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The annual meeting of shareholders of Shoreline Financial
Corporation was held on May 1, 1996. The purpose of the meeting was
to elect directors, consider and approve the Stock Incentive Plan of
1996, and to transact any other business that may properly come before
the meeting.
(a) The name of each director elected (along with the
number of votes cast for or authority withheld) and the name of each
other director whose term of office as a director continued after the
meeting follows:
<TABLE>
<CAPTION>
VOTES CAST
AUTHORITY
FOR WITHHELD
ELECTED DIRECTORS
<S> <C> <C>
James F. Murphy 4,401,987 32,307
James E. LeBlanc 4,415,626 18,668
Robert L. Starks 4,397,067 37,227
</TABLE>
<TABLE>
DIRECTORS WHO CONTINUE TO SERVE
<CAPTION>
<S> <C>
Louis A. Desenberg Merlin J. Hanson
Thomas T. Huff L. Richard Marzke
Dan L. Smith Jeffrey H. Tobian
Ronald L. Zile Ronald F. Kinney
Harry C. Vorys
</TABLE>
(b) For the resolution to approve the Stock Incentive Plan of
1996, the numbers of votes are as follows:
-17-
<TABLE>
<CAPTION>
VOTES CAST
BROKER
FOR AGAINST ABSTAIN NON-VOTES
<S> <C> <C> <C> <C>
4,097,346 248,813 88,135 0
</TABLE>
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.
10.1 Stock Incentive Plan of 1996. Previously filed as
an Appendix to the registrant's Definitive Proxy
Statement in connection with its annual meeting of
shareholders held on May 1, 1996. Here incorporated
by reference.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter covered
by this report.
-18-
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 Aug. 14, 1996 S/DAN L. SMITH
Dan L. Smith
Chairman, President and Chief Executive
Officer
Date Aug. 14, 1996 S/WAYNE R. KOEBEL
Wayne R. Koebel
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
-19-
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.
10.1 Stock Incentive Plan of 1996. Previously filed as an
Appendix to the registrant's Definitive Proxy Statement
in connection with its annual meeting of shareholders
held on May 1, 1996. Here incorporated by reference.
27 Financial Data Schedule
-20-
<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 JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,082
<INT-BEARING-DEPOSITS> 97
<FED-FUNDS-SOLD> 14,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,177
<INVESTMENTS-CARRYING> 46,870
<INVESTMENTS-MARKET> 47,339
<LOANS> 496,570
<ALLOWANCE> 6,719
<TOTAL-ASSETS> 695,021
<DEPOSITS> 605,457
<SHORT-TERM> 4,600
<LIABILITIES-OTHER> 3,548
<LONG-TERM> 16,000
<COMMON> 0
0
0
<OTHER-SE> 65,416
<TOTAL-LIABILITIES-AND-EQUITY> 695,021
<INTEREST-LOAN> 21,613
<INTEREST-INVEST> 4,827
<INTEREST-OTHER> 345
<INTEREST-TOTAL> 26,785
<INTEREST-DEPOSIT> 12,002
<INTEREST-EXPENSE> 360
<INTEREST-INCOME-NET> 14,423
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 184
<EXPENSE-OTHER> 9,563
<INCOME-PRETAX> 6,603
<INCOME-PRE-EXTRAORDINARY> 6,603
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,751
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
<YIELD-ACTUAL> 3.48
<LOANS-NON> 185
<LOANS-PAST> 1,197
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,511
<ALLOWANCE-OPEN> 6,600
<CHARGE-OFFS> 326
<RECOVERIES> 145
<ALLOWANCE-CLOSE> 6,719
<ALLOWANCE-DOMESTIC> 3,358
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,361
</TABLE>
