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Previous: WILLIAM BLAIR FUNDS, 497, 2000-11-13 |
Next: SHORELINE FINANCIAL CORP, 10-Q, EX-15, 2000-11-13 |
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, 2000 |
|
|
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 |
|
|
823 Riverview Drive |
|
|
|
(616) 927-2251 |
||
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, 2000 there were 11,535,178 issued and outstanding shares of the Registrant's Common Stock.
SHORELINE FINANCIAL CORPORATION
FORM 10-Q
INDEX
|
Page |
||||
|
FORWARD-LOOKING STATEMENTS |
2 |
|||
|
PART I. FINANCIAL INFORMATION |
||||
|
Item 1. |
Financial Statements (Unaudited) |
|||
|
Report of Independent Accountants |
3 |
|||
|
Condensed Consolidated Balance Sheets, |
4 |
|||
|
Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2000 and 1999 |
5 |
|||
|
Condensed Consolidated Statements of Cash Flows, |
6 |
|||
|
Notes to Condensed Consolidated Financial Statements |
7-8 |
|||
|
Item 2 |
Management's Discussion and Analysis of |
9-11 |
||
|
Item 3 |
Quantitative and Qualitative Disclosures about Market Risk |
11 |
||
|
PART II. OTHER INFORMATION |
||||
|
Item 4 |
Exhibits and Reports on Form 8-K |
12 |
||
|
SIGNATURES |
13 |
|||
Forward-Looking Statements
This Form 10-Q Quarterly Report and the documents incorporated in this report by reference contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," " plans," "predicts," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. Management's judgment relating to and discussions of the provision and allowance for loan losses involve judgments as to future events and are inherently forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Future factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national economy. Shoreline undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
Shoreline Financial Corporation
Benton Harbor, Michigan
We have reviewed the condensed consolidated balance sheet of Shoreline Financial Corporation as of September 30, 2000, and the related condensed consolidated statements of income and comprehensive income for the quarter and year-to-date periods ended September 30, 2000 and 1999 and the condensed consolidated statements of cash flows for the year-to-date periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
South Bend, Indiana
November __, 2000
SHORELINE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
September 30, |
December 31, |
||||
|
Assets |
||||||
|
Cash and due from banks |
$ |
34,979,000 |
$ |
35,002,000 |
||
|
Interest-earning deposits |
500,000 |
11,125,000 |
||||
|
Federal funds sold |
|
14,900,000 |
|
9,600,000 |
||
|
Total cash and cash equivalents |
50,379,000 |
55,727,000 |
||||
|
Securities available for sale (carried at fair value) |
212,814,000 |
201,871,000 |
||||
|
Securities held to maturity (fair values of $21,795,000 |
||||||
|
and $17,871,000, respectively) |
21,542,000 |
17,716,000 |
||||
|
Loans: |
|
|||||
|
Commercial |
341,366,000 |
328,904,000 |
||||
|
Mortgage |
295,273,000 |
259,160,000 |
||||
|
Consumer |
|
123,301,000 |
|
114,489,000 |
||
|
Total loans |
759,940,000 |
702,553,000 |
||||
|
Less allowance for loan losses |
|
8,174,000 |
|
7,984,000 |
||
|
751,766,000 |
694,569,000 |
|||||
|
Premises and equipment, net |
16,606,000 |
15,238,000 |
||||
|
Intangible assets, net |
13,457,000 |
14,297,000 |
||||
|
Other assets |
|
12,521,000 |
|
13,818,000 |
||
|
Total Assets |
$ |
1,079,085,000 |
$ |
1,013,236,000 |
||
|
|
||||||
|
Liabilities and Shareholders' Equity |
|
|||||
|
Liabilities |
|
|||||
|
Deposits: |
||||||
|
Non-interest-bearing |
$ |
107,132,000 |
$ |
96,592,000 |
||
|
Interest-bearing |
|
737,898,000 |
|
696,362,000 |
||
|
Total deposits |
845,030,000 |
792,954,000 |
||||
|
Securities sold under agreements to repurchase |
28,636,000 |
20,879,000 |
||||
|
Federal Home Loan Bank (FHLB) Advances |
113,228,000 |
110,825,000 |
||||
|
Other liabilities |
|
6,726,000 |
|
8,761,000 |
||
|
Total Liabilities |
|
993,620,000 |
|
933,419,000 |
||
|
Shareholders' Equity |
||||||
|
Preferred stock, no par value; 1,000,000 shares authorized; |
||||||
|
none issued or outstanding |
0 |
0 |
||||
|
Common stock; 15,000,000 shares authorized; |
||||||
|
11,535,178 and 11,535,695 issued and outstanding |
||||||
|
at September 30, 2000 and December 31, 1999, respectively |
0 |
0 |
||||
|
Additional paid-in capital |
68,772,000 |
61,554,000 |
||||
|
Unearned stock incentive plan shares |
(567,000 |
) |
(723,000 |
) |
||
|
Accumulated other comprehensive loss |
(2,860,000 |
) |
(3,845,000 |
) |
||
|
Retained earnings |
|
20,120,000 |
|
22,831,000 |
||
|
Total Shareholders' Equity |
|
85,465,000 |
|
79,817,000 |
||
|
Total Liabilities and Shareholders' Equity |
$ |
1,079,085,000 |
$ |
1,013,236,000 |
||
|
See accompanying notes to condensed consolidated financial statements. |
||||||
SHORELINE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
|
Three Months Ended |
Nine Months Ended |
||||||||||
| |
2000 |
|
1999 |
|
2000 |
|
1999 |
||||
|
Interest Income |
|||||||||||
|
Loans, including fees |
$ |
16,032,000 |
$ |
13,835,000 |
$ |
45,966,000 |
$ |
40,405,000 |
|||
|
Securities: |
|||||||||||
|
Taxable |
3,632,000 |
3,191,000 |
10,473,000 |
|
9,160,000 |
||||||
|
Tax-exempt |
407,000 |
|
404,000 |
1,219,000 |
1,287,000 |
||||||
|
Federal funds sold |
399,000 |
96,000 |
916,000 |
290,000 |
|||||||
|
Deposits with banks |
|
144,000 |
|
260,000 |
|
444,000 |
|
750,000 |
|||
|
Total interest income |
|
20,614,000 |
|
17,786,000 |
|
59,018,000 |
|
51,892,000 |
|||
|
Interest Expense |
|||||||||||
|
Deposits |
8,914,000 |
7,143,000 |
25,113,000 |
21,348,000 |
|||||||
|
Short-term borrowings |
369,000 |
196,000 |
894,000 |
526,000 |
|||||||
|
FHLB advances |
|
1,850,000 |
|
1,122,000 |
|
4,728,000 |
|
2,758,000 |
|||
|
Total interest expense |
|
11,133,000 |
|
8,461,000 |
|
30,735,000 |
|
24,632,000 |
|||
|
Net Interest Income |
9,481,000 |
9,325,000 |
28,283,000 |
27,260,000 |
|||||||
|
Provision for loan losses |
|
150,000 |
|
120,000 |
|
450,000 |
|
360,000 |
|||
|
Net Interest Income After Provision |
|||||||||||
|
for Loan Losses |
|
9,331,000 |
|
9,205,000 |
|
27,833,000 |
|
26,900,000 |
|||
|
Other Income |
|||||||||||
|
Service charges on deposit accounts |
912,000 |
697,000 |
2,583,000 |
1,966,000 |
|||||||
|
Trust fees |
643,000 |
598,000 |
1,912,000 |
1,735,000 |
|||||||
|
Net gain/(loss) on security sales |
0 |
47,000 |
(36,000 |
) |
305,000 |
||||||
|
Net gain on loan sales |
151,000 |
120,000 |
413,000 |
638,000 |
|||||||
|
Other |
|
426,000 |
|
511,000 |
|
1,264,000 |
|
1,509,000 |
|||
|
Total other income |
|
2,132,000 |
|
1,973,000 |
|
6,136,000 |
|
6,153,000 |
|||
|
Other Expenses |
|
|
|
|
|||||||
|
Salaries and employee benefits |
3,677,000 |
3,383,000 |
10,713,000 |
10,109,000 |
|||||||
|
Occupancy |
459,000 |
|
444,000 |
1,402,000 |
1,284,000 |
||||||
|
Equipment |
680,000 |
592,000 |
1,971,000 |
1,731,000 |
|||||||
|
Insurance |
84,000 |
76,000 |
236,000 |
190,000 |
|||||||
|
Advertising and public relations |
81,000 |
269,000 |
365,000 |
655,000 |
|||||||
|
Professional fees |
312,000 |
394,000 |
1,362,000 |
1,172,000 |
|||||||
|
Other taxes |
71,000 |
128,000 |
290,000 |
412,000 |
|||||||
|
Amortization of intangibles |
274,000 |
281,000 |
840,000 |
834,000 |
|||||||
|
Other |
|
997,000 |
|
869,000 |
|
2,928,000 |
|
2,587,000 |
|||
|
Total other expenses |
|
6,635,000 |
|
6,436,000 |
|
20,107,000 |
|
18,974,000 |
|||
|
Income Before Income Taxes |
4,828,000 |
4,742,000 |
13,862,000 |
14,079,000 |
|||||||
|
Federal income tax expense |
|
1,526,000 |
|
1,514,000 |
|
4,417,000 |
|
4,482,000 |
|||
|
Net Income |
$ |
3,302,000 |
$ |
3,228,000 |
$ |
9,445,000 |
$ |
9,597,000 |
|||
|
Comprehensive Income |
$ |
5,259,000 |
$ |
2,199,000 |
$ |
10,430,000 |
$ |
5,468,000 |
|||
|
|
|
||||||||||
|
Basic Earnings Per Share |
$ |
0.28 |
$ |
0.28 |
$ |
0.82 |
$ |
0.82 |
|||
|
Diluted Earnings Per Share |
$ |
0.28 |
$ |
0.28 |
$ |
0.82 |
$ |
0.82 |
|||
|
Dividends Declared |
$ |
0.15 |
$ |
0.14 |
$ |
0.44 |
$ |
0.42 |
|||
|
|
|
||||||||||
|
See accompanying notes to consolidated financial statements |
|||||||||||
SHORELINE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Nine Months Ended |
||||||
| |
2000 |
|
|
1999 |
||
|
Net cash from operating activities |
$ |
10,723,000 |
$ |
15,112,000 |
||
|
Cash flows from investing activities: |
||||||
|
Net increase in loans |
(57,647,000 |
) |
(44,820,000 |
) |
||
|
Securities available for sale: |
||||||
|
Purchase |
(27,544,000 |
) |
(60,385,000 |
) |
||
|
Proceeds from sales |
3,973,000 |
15,945,000 |
||||
|
Proceeds from maturities, calls and principal reductions |
11,936,000 |
28,604,000 |
||||
|
Securities held to maturity: |
||||||
|
Purchase |
(6,622,000 |
) |
0 |
|||
|
Proceeds from maturities, calls and principal reductions |
5,229,000 |
9,655,000 |
||||
|
Premises and equipment expenditures |
(2,699,000 |
) |
(2,151,000 |
) |
||
|
Net cash (paid)/received in acquisitions |
|
0 |
|
(45,000 |
) |
|
|
Net cash used in investing activities |
|
(73,374,000 |
) |
|
(53,587,000 |
) |
|
Cash flows from financing activities: |
||||||
|
Net increase (decrease) in deposits |
52,076,000 |
(524,000 |
) |
|||
|
Net increase in short-term borrowings |
7,757,000 |
2,531,000 |
||||
|
Proceeds from FHLB advances |
60,000,000 |
45,000,000 |
||||
|
Repayment of FHLB advances |
(57,597,000 |
) |
(3,406,000 |
) |
||
|
Dividends paid |
(4,980,000 |
) |
(4,884,000 |
) |
||
|
Proceeds from shares issued |
960,000 |
1,022,000 |
||||
|
Payments to retire common stock |
|
(913,000 |
) |
|
(8,691,000 |
) |
|
Net cash from financing activities |
|
57,303,000 |
|
31,048,000 |
||
|
Net change in cash and cash equivalents |
(5,348,000 |
) |
(7,427,000 |
) |
||
|
Cash and cash equivalents at beginning of year |
|
55,727,000 |
|
71,889,000 |
||
|
Cash and cash equivalents at September 30 |
$ |
50,379,000 |
$ |
64,462,000 |
||
|
Cash paid during the year for: |
||||||
|
Interest |
$ |
30,340,000 |
$ |
24,938,000 |
||
|
Income Taxes |
$ |
4,097,000 |
$ |
2,050,000 |
||
|
See accompanying notes to condensed consolidated financial statements |
||||||
SHORELINE FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Shoreline Financial Corporation and its wholly owned subsidiary, Shoreline Bank. In the opinion of management, all adjustments, consisting only of recurring accruals, considered necessary for a fair presentation of the Corporation's consolidated financial position, results of operations and cash flows have been included.
Certain information and note disclosures normally included with financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by the Securities and Exchange Commission's interim reporting rules and regulations. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Shoreline's Annual Report on Form 10-K for the year ended December 31, 1999.
Note 2 -- Non-Performing Assets
|
September 30, |
||||||
| |
|
2000 |
|
|
1999 |
|
|
Non-accrual loans |
$ |
6,248,000 |
$ |
1,296,000 |
||
|
Restructured loans |
0 |
0 |
||||
|
Other real estate owned |
|
295,000 |
|
157,000 |
||
|
Total non-performing loans |
$ |
6,543,000 |
$ |
1,453,000 |
||
Note 3 -- Allowance for Loan Losses
|
September 30, |
||||||
| |
|
2000 |
|
|
1999 |
|
|
Beginning balance |
$ |
7,984,000 |
$ |
7,883,000 |
||
|
Provision charged against income |
450,000 |
360,000 |
||||
|
Recoveries |
298,000 |
194,000 |
||||
|
Loans charged off |
|
(558,000 |
) |
|
(544,000 |
) |
|
Balance, end of period |
$ |
8,174,000 |
$ |
7,893,000 |
||
At September 30, 2000, total loans considered impaired were $5,300,000 with an average for the quarter of approximately $5,841,000. At September 30, 1999, total loans considered impaired were $1,824,000 with an average for the quarter of approximately $2,378,000. The allowance for impaired loans was $1,304,000 and $912,000 at September 30, 2000 and 1999, respectively.
During the second quarter of 2000, one commercial loan relationship then totaling $5.4 million became impaired and was placed on non-accrual status. Subsequent payments reduced the balance to $4.9 million at September 30, 2000. After analyzing the various components of the relationship and evaluating the fair value of the underlying collateral, it was determined that the $1.2 million identified portion of the allowance for loan losses covering this loan was sufficient.
The process of measuring impaired loans, however, requires judgment and estimation, therefore, the eventual outcome may differ from the estimates used on this loan.
Note 4 -- Common Stock and Earnings Per Share
A reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per share computations is presented below.
|
Three Months Ended |
Nine Months Ended |
|||||||||||
| |
2000 |
|
|
1999 |
|
2000 |
|
|
1999 |
|||
|
Basic earnings per share: |
||||||||||||
|
Net income available to common shareholders |
$ |
3,302,000 |
$ |
3,228,000 |
$ |
9,445,000 |
$ |
9,597,000 |
||||
|
Weighted average common shares outstanding |
11,515,625 |
11,625,690 |
11,500,631 |
11,729,963 |
||||||||
|
Less: Non-vested stock incentive plan shares |
|
(30,710 |
) |
|
(45,493 |
) |
|
(30,710 |
) |
|
(45,493 |
) |
|
Weighted-average common shares outstanding |
||||||||||||
|
for basic earnings per share |
|
11,484,915 |
|
11,580,197 |
|
11,469,921 |
|
11,684,470 |
||||
|
Basic earnings per share |
$ |
0.28 |
$ |
0.28 |
$ |
0.82 |
$ |
0.82 |
||||
|
Diluted earnings per share: |
||||||||||||
|
Net income available to common shareholders |
$ |
3,302,000 |
$ |
3,228,000 |
$ |
9,445,000 |
$ |
9,597,000 |
||||
|
Weighted-average common shares outstanding |
||||||||||||
|
for basic earnings per share |
11,484,915 |
11,580,197 |
11,469,921 |
11,684,470 |
||||||||
|
Add: Dilutive effect of assumed exercise of |
||||||||||||
|
Stock options |
15,003 |
47,266 |
15,003 |
47,266 |
||||||||
|
Add: Dilutive effect of non-vested stock |
|
|
||||||||||
|
Incentive plan shares |
|
1,925 |
|
10,397 |
|
1,925 |
|
10,397 |
||||
|
Weighted-average common and potentially |
||||||||||||
|
dilutive common shares outstanding |
|
11,501,843 |
|
11,637,860 |
|
11,486,849 |
|
11,742,133 |
||||
|
Diluted earnings per share |
$ |
0.28 |
$ |
0.28 |
$ |
0.82 |
$ |
0.82 |
||||
On May 4, 2000, the Board of Directors declared a five-percent stock dividend for shareholders of record July 3, 2000. Distribution occurred on July 17, 2000. All per share information was restated to reflect the above-mentioned stock dividend.
Note 5- - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the FASB) issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS 133), subsequently amended by SFAS No. 137 and 138, which the company is required to adopt effective January 1, 2001. SFAS 133 will require the company to record all derivatives on the balance sheet at fair value. Changes in derivative fair value will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as a component of other stockholders' equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. The impact of SFAS 133 on the company's financial statements will depend on a variety of factors, including future interpretative guidance from the FASB, the future level of forecasted and actual foreign currency transactions, the extent of the company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, the company does not believe the effect of adopting SFAS 133 will be material to its financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant factors which have affected Shoreline's financial condition and results of operations during the periods specified in the condensed consolidated financial statements included earlier in this filing.
Results of Operations
Third quarter net income was $3,302,000, up 2.3% from the $3,228,000 earned during the same quarter last year. Diluted earnings per share were $.28 the same as the prior year quarter. For the first half of 2000, net income was $9,445,000, compared with $9,597,000 for 1999. Diluted earnings per share were $.82 for the first nine months of 2000, level with the first nine months of 1999.
The Corporation's return on equity ratio for the third quarters of 2000 and 1999 were 15.81% and 15.48%, respectively, and for the nine month periods of 2000 and 1999 were 15.64% and 15.06%. The return on equity ratio increase was due in part to the repurchase of 132,000 shares of common stock since October 1, 1999. The return on average assets ratio for the third quarter of 2000 was 1.21%, compared with last year's third quarter ratio of 1.30%, and for the nine months was 1.20% and 1.33%, respectively.
Shoreline's net interest income on a fully taxable equivalent basis was $9.8 million, a 2.1% increase over the $9.6 million recorded for the third quarter of 1999. The net interest margin, annualized, was 3.86% for the third quarter of 2000 and 4.19% for the same quarter of 1999. Year to date, net interest income on a fully taxable equivalent basis was up 3.6% to $29.1 million and the net interest margin was 3.96%, down from last year's margin of 4.19%. Shoreline is liability sensitive and as a result as interest rates rise, the rates paid on many of the Corporation's deposit products rise as well. The yields earned on earning assets, however, increase at a slower pace due to contractual re-pricing. Since October 1, 1999, the federal funds rate increased 125 basis points to 6.50%. As a result, Shoreline's cost of interest-bearing liabilities increased 56 basis points for the first nine months of 2000 over the prior period. The yields earned on earning assets, however, increased only 29 basis points over the same period resulting in the lower overall net interest margin.
Asset quality remained strong as demonstrated by the .05% annualized net charge-offs to average loans ratio reported for the first nine months of 2000 compared with the .07% reported for the same period of 1999. However, non-performing loans as a percent of total loans increased to 1.01% at September 30, 2000 from .27% at September 30, 1999 due to the necessary reclassification of one large commercial credit in June 2000. Additional information on non-performing assets and impaired loans is presented in Notes 2 and 3 of the Notes to Condensed Consolidated Financial Statements presented earlier in this report. The allowance for loan losses to period end loans ratio declined to 1.08% from the 1.16% reported on September 30, 1999, due in part to growth in the loan portfolio, which was up 11.8%. During the first nine months of 2000, the provision for loan losses was increased 25.0% to ensure adequate allowance for the increased loan balances.
Non-interest income for the third quarter of 2000 increased 8.2% over the year ago quarter, to $2,132,000, as service charges on deposit accounts and gains on the sale of mortgages were up 30.7% and 25.8%, respectively. Year to date, service charges on deposits and trust income were up 31.3% and 10.2%. The increase in service charge income was primarily due to a 5.4% increase in average deposits, an increase in the fee levels charged, and a reduction to the number of waived service charges during the period. The increase in trust revenue was due to a larger client base aided by a corporate-wide internal referral program.
Non-interest expense was up 3.1% for the quarter to quarter comparison. Year to date, non-interest expense was up 6.0% largely as a result of the Corporation's fourth quarter 1999 expansion activities into the Sister Lakes, Byron Center and Kalamazoo/Portage markets. Also contributing to the higher expense level were the Corporation's ongoing investments in technology. Total salary and benefits, the largest category within non-interest expense was up 8.7% over last year's third quarter. Year to date, salary and benefits was up 6.0%. The increase in salary and benefits was due to normal merit increases and the additional staff needed to support the aforementioned expansion efforts.
Balance Sheet Changes
Total earning assets at September 30, 2000 were up $66.8 million from year-end as loans were up $57.4 million and investment securities were up $14.8 million. The increase in loans was mainly due to an additional $36.1 million in mortgage loans, the result of $22 million in bulk loan purchases during the second and third quarters and new production. Commercial loans and consumer loans increased $12.6 million and $8.8 million, respectively.
Total deposits were up $52.1 million from year-end as a result of growth in Super NOW Deposits (+$19.1 million), Time Deposits greater than $100,000 (+$17.2 million), Time Deposits less than or equal to $100,000 (+$13.4 million) and Demand Deposits (+$10.5 million).
Other borrowed funds increased $10.1 million as commercial repurchase agreements increased $7.7 million while Federal Home Loan Bank borrowings were up $2.4 million.
Liquidity and Capital Resources
The maintenance of an adequate level of liquidity is necessary to ensure sufficient funds are available to meet customers' loan demand and deposit withdrawals. Shoreline's liquidity sources consist of securities available for sale, maturing loans and short term investments. Shoreline's liquidity is also supported by its core deposit base.
At September 30, 2000, shareholders' equity was $85.5 million compared with the $79.8 million recorded on December 31, 1999. The increase in shareholders' equity was mainly the result of net earnings retention.
The table below represents Shoreline's consolidated regulatory capital position as of September 30, 2000.
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Regulatory |
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Risk based: |
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Tier 1 capital |
4.00 |
% |
6.00 |
% |
11.15 |
% |
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Total capital |
8.00 |
% |
10.00 |
% |
12.37 |
% |
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Tier 1 leverage |
3.00 |
% |
5.00 |
% |
6.99 |
% |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information concerning quantitative and qualitative disclosures about market risk contained in Shoreline's Form 10-K Annual Report for its fiscal year ended December 31, 1999, is incorporated herein by reference
Shoreline faces market risk to the extent that both earnings and the values of its financial instruments are affected by changes in interest rates. Shoreline manages this risk through simulation modeling. Throughout the first nine months of 2000, the modeling results were within Shoreline's policy guidelines. Shoreline does not believe that there has been a material change in the nature of Shoreline's primary market risk exposures, including the categories of market risk to which Shoreline is exposed and the particular markets that present the primary risk of loss to Shoreline. As of the date of this Form 10-Q Quarterly Report, Shoreline does not know of or expect there to be any material change in the general nature of its primary market risk exposure in the near term.
The methods used by Shoreline to manage its primary market risk exposures, as described in the sections of its annual report incorporated herein by reference in response to this item, have not changed materially during the current year. As of the date of this Form 10-Q Quarterly Report, Shoreline does not expect to change its methods used to manage its market risk exposures in the near term. However, Shoreline may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
Shoreline's market risk exposure is mainly comprised of its vulnerability to interest rate risk. Prevailing interest rates and interest rate relationships in the future will be primarily determined by market factors that are outside of Shoreline's control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" at the beginning of this document for a discussion of the limitations on Shoreline's responsibility for such statements.
PART II. OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K
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(a) |
Exhibits. The following documents are filed as exhibits to this report on Form 10 |
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Exhibit |
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3.1 |
Restated Articles of Incorporation. Previously filed as Exhibit 3.1 to Shoreline's Quarterly Report on Form 10-Q for the period ended June 30, 1998. Herein incorporated by reference. |
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3.2 |
By-laws. Previously filed as Exhibit 3(b) to Shoreline's Form S-1 Registration Statement filed March 23, 1990. Herein incorporated by reference. |
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4 |
Long term debt. Shoreline has outstanding long term debt, which at the time of this report does not exceed 10% of Shoreline's total consolidated assets. Shoreline 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. |
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11 |
Statement Regarding Computation of Earnings per Common Share. The computation of earnings per share is described in Note 4 of the Notes to the Condensed Consolidated Financial Statements. |
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15 |
Awareness Letter Regarding Unaudited Interim Financial Information. |
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27 |
Financial Data Schedule for the Nine Months Ended September 30, 2000. |
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(b) |
Reports on Form 8-K. |
Date of event reported |
Items reported |
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August 21, 2000 |
5, 7 |
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.
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SHORELINE FINANCIAL CORPORATION |
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Date |
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/s/ Dan L. Smith |
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Dan L. Smith |
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Date |
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/s/ Wayne R. Koebel |
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Wayne R. Koebel |
EXHIBIT INDEX
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Exhibit |
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3.1 |
Restated Articles of Incorporation. Previously filed as Exhibit 3.1 to Shoreline's Quarterly Report on Form 10-Q for the period ended June 30, 1998. Herein incorporated by reference. |
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3.2 |
By-laws. Previously filed as Exhibit 3(b) to Shoreline's Form S-1 Registration Statement filed March 23, 1990. Herein incorporated by reference. |
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4 |
Long term debt. Shoreline has outstanding long term debt, which at the time of this report does not exceed 10% of Shoreline's total consolidated assets. Shoreline 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. |
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11 |
Statement Regarding Computation of Earnings per Common Share. The computation of earnings per share is described in Note 5 of the Notes to the Condensed Consolidated Financial Statements. |
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15 |
Awareness Letter Regarding Unaudited Interim Financial Information |
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27 |
Financial Data Schedule for the Nine Months Ended September 30, 2000. |
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