Exhibit 99.1

 

18 E. Dover Street

Easton, Maryland 21601

Phone 410-763-7800

PRESS RELEASE

Shore Bancshares Reports Third Quarter and Nine-Month Financial Results

Easton, Maryland (10/28/2021) - Shore Bancshares, Inc. (NASDAQ - SHBI) (the “Company”) reported net income of $4.617 million or $0.39 per diluted common share for the third quarter of 2021, compared to net income of $4.031 million or $0.34 per diluted common share for the second quarter of 2021, and net income of $3.391 million or $0.27 per diluted common share for the third quarter of 2020. Net income for the first nine months of 2021 was $12.645 million or $1.08 per diluted common share, compared to net income for the first nine months of 2020 of $11.844 million or $0.95 per diluted common share. On March 3, 2021, the Company and Severn Bancorp, Inc. (“Severn”) announced that they had entered into a merger agreement pursuant to which Severn will be merged with and into the Company (the “Merger”). For the third quarter and the first nine months of 2021, the Company recorded $538 thousand and $915 thousand, respectively, in merger-related expenses and will continue to recognize additional merger-related expenses in future quarters as they are incurred. As previously reported, the Company has obtained all required regulatory approvals for the consummation of the Merger, the Company and Severn have received all required shareholder approvals and the Merger is presently expected to be consummated effective October 31, 2021.

When comparing net income for the third quarter of 2021 to the second quarter of 2021, net income increased $586 thousand, due to an increase in net interest income of $1.5 million and lower provision for credit losses of $360 thousand, which were partially offset by an increase in noninterest expense of $1.1 million. When comparing net income for the third quarter of 2021 to the third quarter of 2020, net income increased $1.2 million, primarily due to increases in net interest income of $2.3 million and noninterest income of $328 thousand, coupled with a decrease in the provision for credit losses of $1.2 million. These improvements to net income, were partially offset by an increase in almost all noninterest expense line items, adding $2.1 million in overall expenses.

“We are pleased to announce our third quarter earnings and our continuing growth trend in 2021.” said Lloyd L. “Scott” Beatty, Jr., President and Chief Executive Officer. “Excluding PPP lending, loan growth is up 9.2% for the first nine months of 2021, and loan demand is showing no signs of weakening. We continue to see growth among all lines of business, as well as deposits which continue to create excess liquidity and downward pressure on our net interest margin.”

“We are also pleased to have received the approval of our shareholders for our acquisition of Severn and the issuance of shares of our common stock to Severn’s shareholders in connection with our acquisition. Our teams have been working diligently on a successful transition with limited disruptions to operations. This acquisition is just one step to enhancing our franchise value, expand our markets and business lines and provide enhanced returns for our shareholders.”

Ongoing response to COVID-19

Employees

Many of our non-branch personnel have returned to our offices and continue to practice social distancing as the Company has implemented enhanced cleaning and disinfecting procedures across all locations. Due to vaccinations and low positivity rates for COVID within our markets, we have been able to resume in-person meetings at limited capacity. We continue to have some meetings through telephonic or video conferencing. We have resumed most of our business-related travel, public events, and meetings with outside parties. In addition, we have encouraged our employees to sign-up and receive the COVID vaccine in accordance with state and local guidelines.

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Banking Locations

All our branch locations remain open, with normal hours of operation. The drive-thru locations have expanded their capabilities to accommodate an array of transactions for our customers. We notified our customers of our changes in operations as well as promoted the use of online and mobile banking.

Customers

We thank our customers for their commitment and understanding as we continue to find ways to serve them as safely and securely as possible.

Loan Deferrals

As of September 30, 2021, the Company had no COVID related loan deferrals.

Small Business Administration’s Paycheck Protection Program (“PPP”)

We remain a SBA preferred lender and actively participated in the first and second PPP programs. The first round of PPP lending resulted in 1,495 loans for $129.0 million, of which 1,447 loans have been forgiven or paid down in the amount of $125.9 million as of September 30, 2021. The second round of PPP lending, which began in 2021, resulted in 959 loans for $67.3 million, of which 597 loans have been forgiven or paid down in the amount of $28.9 million. As of September 30, 2021, the Company had 410 PPP loans totaling $41.5 million that were outstanding, inclusive of loans issued during both the first and second rounds of PPP.

Share Repurchases

At the present time, all share repurchases have been suspended due to the current status of our merger with Severn. Once the merger is consummated, the Company intends to resume its current share buyback program in which $546 thousand remains available. The Board of Directors and management will re-evaluate the need for an additional stock repurchase program once the current plan is exhausted or expires.

Dividends

We currently expect to maintain our quarterly cash dividends based on our strong capital position.

Balance Sheet Review

Total assets were $2.261 billion at September 30, 2021, a $327.5 million, or 16.9%, increase when compared to $1.933 billion at the end of 2020. This growth was due to increases in both investment securities held to maturity and interest-bearing deposits with other banks of $184.8 million and $122.2 million, respectively. These increases were funded by an increase in deposits of $317.4 million.

Total deposits increased $317.4 million, or 18.7%, when compared to December 31, 2020. The increase in total deposits consisted of increases in the following categories: savings and money market accounts of $193.1 million, interest checking accounts of $69.6 million, noninterest-bearing deposits of $45.8 million and other time deposits of $8.9 million. The significant movement within deposit accounts continues to be impacted by direct government stimulus payments to our customers, new account openings and municipal deposit inflows.

Total stockholders’ equity increased $6.6 million, or 3.4%, when compared to December 31, 2020. At September 30, 2021, the ratio of total equity to total assets was 8.92% and the ratio of total tangible equity to total tangible assets was 8.15%.

Total assets at September 30, 2021 increased $432.6 million, or 23.7%, when compared to total assets at September 30, 2020, primarily the result of increases in total investment securities of $195.7 million, cash and cash equivalents of $154.4 million and loan growth of $70.9 million. In addition, other assets increased $11.6 million, primarily the result of purchasing bank owned life insurance contracts in the first quarter of 2021.

Total deposits at September 30, 2021 increased $423.9 million, or 26.6%, when compared to September 30, 2020. The increase in total deposits included growth within savings and money market accounts of $220.9 million, interest-bearing checking accounts of $104.1 million, noninterest-bearing deposits of $89.6 million and other time deposits of $9.4 million.

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Total stockholders’ equity increased $2.7 million, or 1.4%, when compared to September 30, 2020, primarily attributed to positive earnings, partially offset by stock buybacks in the third and fourth quarters of 2020 and unrealized losses on available-for-sale securities.

Review of Quarterly Financial Results

Net interest income was $15.6 million for the third quarter of 2021, compared to $14.1 million for the second quarter of 2021 and $13.3 million for the third quarter of 2020. The increase in net interest income when compared to the second quarter of 2021 was primarily due to increases in interest and fees on loans of $1.1 million and interest on taxable investment securities of $223 thousand, combined with a decrease in interest expense on interest-bearing deposits of $107 thousand. The improvement in interest and fees on loans was due to an increase in the average balance of loans of $42.6 million, or 2.9%, combined with an increase of 13bps in the average yield on loans. PPP loan forgiveness had a direct impact on the improved yield and increased fee income on total loans, due to the loans forgiven during the third quarter being replaced by higher yielding traditional loans and the automatic recognition of fees net of costs which had been previously deferred. The increase in interest on taxable investment securities was due to the continued purchase of held to maturity securities during the third quarter of 2021 and the improved yield on these securities of 5bps, which resulted in an increase in the average balance in taxable investment securities of $48.1 million, or 16.8%. Due to an excess liquidity position at the Bank, management continued to purchase these taxable investment securities as an alternative investment to low-yielding interest-bearing deposits with other banks. The decrease in interest expense on interest-bearing deposits was due to a 6bps decline on rates paid on these deposits, specifically time deposits that matured and renewed at lower rates than when they originated. The increase in net interest income when comparing the third quarter of 2021 to the third quarter of 2020 was the result of higher interest and fees on loans and income from investment securities, coupled with a decrease in interest expense. The increase in interest income on loans was driven by an increase of $80.6 million in the average volume of loans, which included PPP lending. The average balance of taxable investment securities increased $198.2 million, providing $588 thousand of additional income, despite a decrease in the average yield of 56bps. The decrease in interest expenses from the third quarter of 2020 was impacted by the decrease in the rates paid on interest-bearing deposits of 27bps, which reduced expense by $521 thousand, partially offset by the addition of subordinated debt in the third quarter of 2020 of $25.0 million, which resulted in $211 thousand of additional expense for the third quarter of 2021. The Company’s net interest margin increased to 2.99% for the third quarter of 2021 from 2.91% for the second quarter of 2021 and decreased from 3.17% for the third quarter of 2020. The increase in net interest margin in the third quarter of 2021 when compared to the second quarter of 2021, was primarily due to PPP loan forgiveness and higher average yields on taxable investment securities. The decrease in net interest margin when compared to the third quarter of 2020 was primarily due to excess liquidity, which has been partially invested in investment securities at lower yields. Absent excess liquidity of $200 million, we estimate our margin for the third quarter of 2021 would have been 3.31%.

The provision for credit losses was $290 thousand for the three months ended September 30, 2021. The comparable amounts were $650 thousand and $1.5 million for the three months ended June 30, 2021 and September 30, 2020, respectively. The ratio of the allowance for credit losses to period-end loans was 1.04% at September 30, 2021, compared to 1.02% at June 30, 2021 and 0.90% at September 30, 2020. Excluding PPP loans, these ratios were 1.07% at September 30, 2021, 1.09% at June 30, 2021 and 0.98% at September 30, 2020. The decreased percentage of the allowance to total loans, excluding PPP loans, as compared to June 30, 2021, was due to slightly reduced pandemic qualitative factors within the allowance model. The increased percentage of the allowance to total loans, excluding PPP loans, as compared to September 30, 2020, was primarily due to significant loan originations in segments which carry higher reserves and pandemic related allocations prior to the end of 2020, which as mentioned, were partially reduced during the quarter. The Company reported net recoveries of $147 thousand in the third quarter of 2021, compared to net recoveries of $125 thousand in the second quarter of 2021 and net recoveries of $187 thousand for the third quarter of 2020.

At September 30, 2021 and June 30, 2021, nonperforming assets were $4.4 million and $4.9 million, respectively. The balance of nonperforming assets decreased primarily due to a decrease in nonaccrual loans of $490 thousand, or 12.4%. Accruing troubled debt restructurings (“TDRs”) decreased $588 thousand, or 9.3%, over the same time period. Other real estate owned properties remained at $203 thousand for September 30, 2021 and June 30, 2021. When comparing September 30, 2021 to September 30, 2020, nonperforming assets decreased $4.0 million, or 47.4%, primarily due to decreases in nonaccrual loans of $3.5 million, or 50.4% and loans 90 days past due and still accruing of $625 thousand, or 45.5%. Accruing TDRs decreased $1.5 million, or 20.9%, and other real estate owned increased $165 thousand, or 434.2%, over the same time period. The ratio of nonperforming assets and accruing TDRs to total assets was 0.44%, 0.53% and 0.86% at September 30, 2021, June 30, 2021 and September 30, 2020, respectively. In addition, the ratio of accruing TDRs to total loans at September 30, 2021 was 0.38%, compared to 0.43% at June 30, 2021 and 0.51% at September 30, 2020.

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Total noninterest income for the third quarter of 2021 increased $6 thousand, or less than 1%, when compared to the second quarter of 2021 and increased $328 thousand, or 12.7%, when compared to the third quarter of 2020. The increase compared to the second quarter of 2021 was primarily due to higher deposit related fees, which was almost entirely offset by the absence of a debit card incentive received in the second quarter of 2021. The increase in noninterest income compared to the third quarter of 2020 was among all lines of business, but predominately service charges on deposit accounts, trust and investment fee income and other debit card interchange fees.

Total noninterest expense for the third quarter of 2021 increased $1.1 million, or 9.7%, when compared to the second quarter of 2021 and increased $2.1 million, or 21.4%, when compared to the third quarter of 2020. The increase in noninterest expense when compared to the second quarter of 2021 was primarily due to increases in salaries and wages, employee related benefits and legal and professional fees partially offset by lower merger-related costs. The increase in salaries and wages was due to the absence of deferred costs for originating PPP loans which occurred in the second quarter of 2021, as well as additional accruals related to incentive payouts and bonuses for employees. The increase in employee benefits was the result of higher supplemental executive retirement plan costs in the third quarter of 2021 as compared to the second quarter of 2021. The increase in noninterest expenses when compared to the third quarter of 2020 was primarily driven by salaries and wages, employee benefits, furniture and fixtures, FDIC insurance premiums and merger-related expenses. As previously mentioned, salaries and wages were impacted by originations of PPP loans in 2020 as well as incentive accruals for 2021. FDIC insurance premiums increased due to a higher assessment base and renovations of a couple branches incurred higher furniture and fixtures which were below our capitalization limit.

Review of Nine-Month Financial Results

Net interest income for the first nine months of 2021 was $43.5 million, an increase of $4.7 million, or 12.0% when compared to the first nine months of 2020. The increase was due to higher total interest income of $3.6 million, specifically loans of $2.4 million and taxable investment securities of $1.3 million. Total interest expense decreased $1.1 million, due to the average rates paid on interest-bearing deposits which declined by 33bps, partially offset by the addition of subordinated debt in the third quarter of 2020 of $25 million, which increased interest expense by $827 thousand. The Company’s net interest margin decreased to 2.97% for the first nine-months of 2021, compared to 3.35% for the first nine-months of 2020. The primary factor impacting the net interest margin was the average yield on earnings assets which declined 55bps. Although the average yield on loans only declined 10bps, investment in taxable securities declined 66bps, while interest-bearing deposits with other banks declined 24bps. The Company believes this is a temporary liquidity issue as the Bank has experienced an increase of $423.9 million in deposits since September 30, 2020. The average cost of deposits has helped mitigate the declining net interest margin, due to lower average rates paid on core and time deposits and significant growth in noninterest-bearing deposits.

The provision for credit losses for the nine months ended September 30, 2021 and 2020 was $1.4 million and $2.9 million, respectively, while net recoveries were $272 thousand and net charge offs were $580 thousand, respectively. The decrease in provision for credit losses was the result of recoveries in 2021 compared to charge-offs in 2020 and increases in qualitative factors related to the pandemic in 2020. The ratio of allowance to total loans increased from 0.90% at September 30, 2020, to 1.04% at September 30, 2021. Excluding PPP loans, the ratio of the allowance for credit losses to period-end loans was 1.07% at September 30, 2021, higher than the 0.98% at September 30, 2020. The primary drivers for the increase in the percentage of allowance for credit losses to total loans were significant commercial real estate loan growth during 2021, as well as increases in pandemic related qualitative factors prior to the end of 2020. Management will continue to evaluate the adequacy of the allowance for credit losses as more economic data becomes available and as changes within the Company’s portfolio are known.

Total noninterest income for the nine months ended September 30, 2021 increased $667 thousand, or 8.7%, when compared to the same period in 2020. The increase in noninterest income primarily consisted of higher trust and investment fee income, deposit related fees and service charges on other bank services, partially offset by a gain on sale of securities of $347 thousand in 2020. The increase in deposit related fees and other bank service charges are mostly due to the local government-imposed shutdowns in 2020 and a return to a more normalized local economy and consumer demand for products and services in 2021.

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Total noninterest expense for the nine months ended September 30, 2021 increased $5.5 million, or 19.6%, when compared to the same period in 2020. The increase was mainly the result of lower PPP loan originations, which resulted in lower deferred loan origination costs in salaries for all instances and wages, higher data processing costs and FDIC insurance premiums due to significant increases in new and existing deposit accounts and higher occupancy costs due a new branch lease in Ocean City, Maryland which will open in 2022. In addition, as previously mentioned, during the first nine months of 2021 the Company recorded merger-related expenses of $915 thousand due to the pending acquisition of Severn.

Shore Bancshares Information

Shore Bancshares is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland's Eastern Shore. It is the parent company of Shore United Bank. Shore Bancshares engages in trust and wealth management services through Wye Financial Partners, a division of Shore United Bank.

Additional information is available at www.shorebancshares.com.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experience additional resolution costs.

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

For further information contact: Edward Allen, Executive Vice President and Chief Financial Officer, 410-763-7800

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Shore Bancshares, Inc.

Financial Highlights (Unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended									For the Nine Months Ended
	September 30,									September 30,
	2021			2020			Change			2021			2020			Change
PROFITABILITY FOR THE PERIOD
Net interest income	$	15,589		$	13,283			17.4	%	$	43,491		$	38,832			12.0	%
Provision for credit losses		290			1,500			(80.7	)		1,365			2,850			(52.1	)
Noninterest income		2,909			2,581			12.7			8,369			7,702			8.7
Noninterest expense		11,934			9,831			21.4			33,309			27,843			19.6
Income before income taxes		6,274			4,533			38.4			17,186			15,841			8.5
Income tax expense		1,657			1,142			45.1			4,541			3,997			13.6
Net income	$	4,617		$	3,391			36.2		$	12,645		$	11,844			6.8
Return on average assets		0.84	%		0.76	%		8	bp		0.81	%		0.96	%		(15	)bp
Return on average assets excluding merger expenses - Non-GAAP (2)		0.94			0.76			18			0.87			0.96			(9	)
Return on average equity		9.12			6.71			241			8.53			7.99			54
Return on average tangible equity - Non-GAAP (1), (2)		11.12			7.63			349			10.15			9.09			106
Net interest margin		2.99			3.17			(18	)		2.97			3.35			(38	)
Efficiency ratio - GAAP		64.52			61.97			255			64.23			59.83			440
Efficiency ratio - Non-GAAP (1), (2)		60.92			61.05			(13	)		61.66			59.26			240
PER SHARE DATA
Basic and diluted net income per common share	$	0.39		$	0.27			44.4	%	$	1.08		$	0.95			13.7	%
Dividends paid per common share	$	0.12		$	0.12			—		$	0.36		$	0.36			—
Book value per common share at period end		17.15			16.28			5.3
Tangible book value per common share at period end - Non-GAAP (1)		15.55			14.69			5.9
Market value at period end		17.73			10.98			61.5
Market range:
High		18.00			11.77			52.9			18.10			17.56			3.1
Low		16.35			9.14			78.9			12.99			7.63			70.2
AVERAGE BALANCE SHEET DATA
Loans	$	1,487,281		$	1,406,683			5.7	%	$	1,461,083		$	1,348,362			8.4	%
Investment securities		334,205			136,017			145.7			283,104			124,487			127.4
Earning assets		2,071,505			1,670,194			24.0			1,963,727			1,553,974			26.4
Assets		2,184,448			1,771,944			23.3			2,074,635			1,652,876			25.5
Deposits		1,943,225			1,548,072			25.5			1,836,748			1,434,515			28.0
Stockholders' equity		200,881			201,079			(0.1	)		198,087			198,095			(0.0	)

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CREDIT QUALITY DATA
Net (recoveries) charge-offs	$	(147	)	$	(187	)	21.4	%	$	(272	)	$	580		(146.9	)%
Nonaccrual loans	$	3,457		$	6,966		(50.4	)
Loans 90 days past due and still accruing		748			1,373		(45.5	)
Other real estate owned		203			38		434.2
Total nonperforming assets		4,408			8,377		(47.4	)
Accruing troubled debt restructurings (TDRs)		5,750			7,267		(20.9	)
Total nonperforming assets and accruing TDRs	$	10,158		$	15,644		(35.1	)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.92	%		10.88	%	(196	)bp
Period-end tangible equity to tangible assets - Non-GAAP (1)		8.15			9.92		(177	)
Annualized net (recoveries) charge-offs to average loans		(0.04	)		(0.05	)	1			(0.02	)%		0.06	%	(8	)bp
Allowance for credit losses as a percent of:
Period-end loans (3)		1.04			0.90		14
Nonaccrual loans		449.09			183.42		266
Nonperforming assets		352.20			152.52		200
Accruing TDRs		270.00			175.82		94
Nonperforming assets and accruing TDRs		152.84			81.67		71
As a percent of total loans:
Nonaccrual loans		0.23			0.49		(26	)
Accruing TDRs		0.38			0.51		(13	)
Nonaccrual loans and accruing TDRs		0.62			1.00		(38	)
As a percent of total loans+other real estate owned:
Nonperforming assets		0.29			0.59		(30	)
Nonperforming assets and accruing TDRs		0.68			1.10		(42	)
As a percent of total assets:
Nonaccrual loans		0.15			0.38		(23	)
Nonperforming assets		0.19			0.46		(27	)
Accruing TDRs		0.25			0.40		(15	)
Nonperforming assets and accruing TDRs		0.44			0.86		(42	)

(1) See the reconciliation table that begins on page 15 of 16.

(2) This ratio excludes merger related expenses (Non-GAAP).

(3) As of September 30, 2021 and September 30, 2020, these ratios included PPP loans of $41.5 million and $126.7 million, respectively. Excluding these loans, the ratios were 1.07% and 0.98% for September 30, 2021 and September 30, 2020, respectively.

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Shore Bancshares, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

										September 30, 2021			September 30, 2021
	September 30,			December 31,			September 30,			compared to			compared to
	2021			2020			2020			December 31, 2020			September 30, 2020
ASSETS
Cash and due from banks	$	18,440		$	16,666		$	17,577			10.6	%		4.9	%
Interest-bearing deposits with other banks		292,412			170,251			138,885			71.8			110.5
Cash and cash equivalents		310,852			186,917			156,462			66.3			98.7
Investment securities available for sale (at fair value)		105,125			139,568			139,349			(24.7	)		(24.6	)
Investment securities held to maturity		250,501			65,706			20,174			281.2			1,141.7
Equity securities, at fair value		1,384			1,395			1,396			(0.8	)		(0.9	)
Restricted securities		3,189			3,626			3,626			(12.1	)		(12.1	)
Loans		1,494,897			1,454,256			1,423,965			2.8			5.0
Less: allowance for credit losses		(15,525	)		(13,888	)		(12,777	)		11.8			(21.5	)
Loans, net		1,479,372			1,440,368			1,411,188			2.7			4.8
Premises and equipment, net		27,011			24,924			24,679			8.4			9.4
Goodwill		17,518			17,518			17,518			—			—
Other intangible assets, net		1,365			1,719			1,844			(20.6	)		(26.0	)
Other real estate owned, net		203			—			38			—			434.2
Right of use assets, net		5,512			4,795			4,769			15.0			15.6
Other assets		58,742			46,779			47,129			25.6			24.6
Total assets	$	2,260,774		$	1,933,315		$	1,828,172			16.9			23.7
LIABILITIES
Noninterest-bearing deposits	$	554,902		$	509,091		$	465,304			9.0			19.3
Interest-bearing deposits		1,463,163			1,191,614			1,128,817			22.8			29.6
Total deposits		2,018,065			1,700,705			1,594,121			18.7			26.6
Securities sold under retail repurchase agreements		3,501			1,050			1,019			233.4			243.6
Subordinated debt		24,521			24,429			24,399			0.4			0.5
Total borrowings		28,022			25,479			25,418
Lease liabilities		5,686			4,874			4,840			16.7			17.5
Accrued expenses and other liabilities		7,394			7,238			4,912			2.2			50.5
Total liabilities		2,059,167			1,738,296			1,629,291			18.5			26.4
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized 35,000,000 shares		118			118			122			—			(3.3	)
Additional paid in capital		51,641			52,167			58,090			(1.0	)		(11.1	)
Retained earnings		149,620			141,205			138,765			6.0			7.8
Accumulated other comprehensive income		228			1,529			1,904			(85.1	)		(88.0	)
Total stockholders' equity		201,607			195,019			198,881			3.4			1.4
Total liabilities and stockholders' equity	$	2,260,774		$	1,933,315		$	1,828,172			16.9			23.7
Period-end common shares outstanding		11,752			11,783			12,218			(0.3	)		(3.8	)
Book value per common share	$	17.15		$	16.55		$	16.28			3.6			5.3

Page 9 of 16 

Shore Bancshares, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

	For the Three Months Ended							For the Nine Months Ended
	September 30,							September 30,
	2021		2020		% Change			2021		2020		% Change
INTEREST INCOME
Interest and fees on loans	$	15,484	$	14,139		9.5	%	$	44,231	$	41,879		5.6	%
Interest on investment securities:
Taxable		1,318		730		80.5			3,343		2,087		60.2
Interest on deposits with other banks		97		33		193.9			199		216		(7.9	)
Total interest income		16,899		14,902		13.4			47,773		44,182		8.1
INTEREST EXPENSE
Interest on deposits		949		1,470		(35.4	)		3,189		5,085		(37.3	)
Interest on short-term borrowings		2		1		100.0			5		4		25.0
Interest on long-term borrowings		359		148		142.6			1,088		261		—
Total interest expense		1,310		1,619		(19.1	)		4,282		5,350		(20.0	)
NET INTEREST INCOME		15,589		13,283		17.4			43,491		38,832		12.0
Provision for credit losses		290		1,500		(80.7	)		1,365		2,850		(52.1	)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		15,299		11,783		29.8			42,126		35,982		17.1
NONINTEREST INCOME
Service charges on deposit accounts		805		647		24.4			2,162		2,057		5.1
Trust and investment fee income		477		381		25.2			1,359		1,119		21.4
Gains on sales and calls of investment securities		2		—		—			2		347		—
Other noninterest income		1,625		1,553		4.6			4,846		4,179		16.0
Total noninterest income		2,909		2,581		12.7			8,369		7,702		8.7
NONINTEREST EXPENSE
Salaries and wages		5,091		4,143		22.9			13,495		10,569		27.7
Employee benefits		1,654		1,489		11.1			4,991		4,746		5.2
Occupancy expense		843		774		8.9			2,427		2,174		11.6
Furniture and equipment expense		449		294		52.7			1,168		858		36.1
Data processing		1,170		1,114		5.0			3,514		3,195		10.0
Directors' fees		147		132		11.4			450		386		16.6
Amortization of intangible assets		107		125		(14.4	)		353		407		(13.3	)
FDIC insurance premium expense		245		132		85.6			653		347		88.2
Other real estate owned expenses, net		4		—		—			6		18		(66.7	)
Legal and professional fees		428		447		(4.3	)		1,592		1,634		(2.6	)
Merger related expenses		538		—		—			915		—		—
Other noninterest expenses		1,258		1,181		6.5			3,745		3,509		6.7
Total noninterest expense		11,934		9,831		21.4			33,309		27,843		19.6
Income before income taxes		6,274		4,533		38.4			17,186		15,841		8.5
Income tax expense		1,657		1,142		45.1			4,541		3,997		13.6
NET INCOME	$	4,617	$	3,391		36.2		$	12,645	$	11,844		6.8
Weighted average shares outstanding - basic		11,752		12,483		(5.9	)		11,750		12,506		(6.0	)
Weighted average shares outstanding - diluted		11,752		12,483		(5.9	)		11,750		12,509		(6.1	)
Basic and diluted net income per common share	$	0.39	$	0.27		44.4		$	1.08	$	0.95		13.7
Dividends paid per common share		0.12		0.12		—			0.36		0.36		—

Page 10 of 16 

Shore Bancshares, Inc.

Consolidated Average Balance Sheets (Unaudited)

(Dollars in thousands)

	For the Three Months Ended										For the Nine Months Ended
	September 30,										September 30,
	2021					2020					2021					2020
	Average			Yield/		Average			Yield/		Average			Yield/		Average			Yield/
	balance			rate		balance			rate		balance			rate		balance			rate
Earning assets
Loans (1), (2), (3)	$	1,487,281		4.14	%	$	1,406,683		4.01	%	$	1,461,083		4.06	%	$	1,348,362		4.16	%
Investment securities
Taxable		334,205		1.58			136,017		2.14			283,104		1.58			124,487		2.24
Interest-bearing deposits		250,019		0.15			127,494		0.10			219,540		0.12			81,125		0.36
Total earning assets		2,071,505		3.24	%		1,670,194		3.56	%		1,963,727		3.26	%		1,553,974		3.81	%
Cash and due from banks		19,453					18,860					18,536					18,302
Other assets		108,989					94,755					107,174					91,642
Allowance for credit losses		(15,499	)				(11,865	)				(14,802	)				(11,042	)
Total assets	$	2,184,448				$	1,771,944				$	2,074,635				$	1,652,876
Interest-bearing liabilities
Demand deposits	$	462,950		0.14	%	$	370,922		0.19	%	$	435,678		0.14	%	$	318,083		0.30	%
Money market and savings deposits		644,330		0.18			442,322		0.21			591,959		0.18			426,570		0.29
Certificates of deposit $100,000 or more		136,059		0.71			127,983		1.68			134,080		1.00			129,319		1.78
Other time deposits		142,777		0.68			148,223		1.42			143,832		0.89			149,841		1.52
Interest-bearing deposits		1,386,116		0.27			1,089,450		0.54			1,305,549		0.33			1,023,813		0.66
Securities sold under retail repurchase
agreements and federal funds purchased		2,718		0.29			1,575		0.25			2,695		0.25			1,613		0.33
Advances from FHLB - long-term		—		—			—		—			—		—			5,255		2.87
Subordinated debt		24,504		5.81			9,859		5.97			24,474		5.94			3,310		5.97
Total interest-bearing liabilities		1,413,338		0.37	%		1,100,884		0.59	%		1,332,718		0.43	%		1,033,991		0.69	%
Noninterest-bearing deposits		557,109					458,622					531,199					410,702
Accrued expenses and other liabilities		13,120					11,359					12,631					10,088
Stockholders' equity		200,881					201,079					198,087					198,095
Total liabilities and stockholders' equity	$	2,184,448				$	1,771,944				$	2,074,635				$	1,652,876
Net interest spread				2.87	%				2.97	%				2.83	%				3.12	%
Net interest margin				2.99	%				3.17	%				2.97	%				3.35	%

(1)   All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(2)   Average loan balances include nonaccrual loans.

(3)    Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

Page 11 of 16 

Shore Bancshares, Inc.

Financial Highlights By Quarter (Unaudited)

(Dollars in thousands, except per share data)

	3rd Quarter			2nd Quarter			1st Quarter			4th Quarter			3rd Quarter			Q3 2021		Q3 2021
	2021			2021			2021			2020			2020			compared to		compared to
	Q3 2021			Q2 2021			Q1 2021			Q4 2020			Q3 2020			Q2 2021		Q3 2020
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income	$	15,623		$	14,141		$	13,836		$	13,799		$	13,317		10.5	%	17.3	%
Less: Taxable-equivalent adjustment		34			38			36			34			34		(10.5	)	—
Net interest income		15,589			14,103			13,800			13,765			13,283		10.5		17.4
Provision for credit losses		290			650			425			1,050			1,500		(55.4	)	(80.7	)
Noninterest income		2,909			2,903			2,557			3,047			2,581		0.2		12.7
Noninterest expense		11,934			10,876			10,499			10,556			9,831		9.7		21.4
Income before income taxes		6,274			5,480			5,433			5,206			4,533		14.5		38.4
Income tax expense		1,657			1,449			1,435			1,320			1,142		14.4		45.1
Net income	$	4,617		$	4,031		$	3,998		$	3,886		$	3,391		14.5		36.2
Return on average assets		0.84	%		0.78	%		0.82	%		0.82	%		0.76	%	6	bp	8	bp
Return on average assets excluding merger expenses - Non-GAAP (2)		0.94			0.86			0.82			0.82			0.76		8		18
Return on average equity		9.12			8.19			8.28			7.82			6.71		93		241
Return on average tangible equity - Non-GAAP(1)		11.12			9.89			9.40			8.88			7.63		123		349
Net interest margin		2.99			2.91			3.00			3.08			3.17		8		(18	)
Efficiency ratio - GAAP		64.52			63.95			64.19			62.79			61.97		57		255
Efficiency ratio - Non-GAAP (1), (2)		60.92			60.90			63.28			61.91			61.05		2		(13	)
PER SHARE DATA
Basic and diluted net income per common share	$	0.39		$	0.34		$	0.34		$	0.32		$	0.27		14.7	%	44.4	%
Dividends paid per common share		0.12			0.12			0.12			0.12			0.12		—		—
Book value per common share at period end		17.15			16.91			16.69			16.55			16.28		1.4		5.3
Tangible book value per common share at period end - Non-GAAP (1)		15.55			15.29			15.06			14.92			14.69		1.7		5.9
Market value at period end		17.73			16.75			17.02			14.60			10.98		5.9		61.5
Market range:
High		18.00			18.01			18.10			15.12			11.77		(0.1	)	52.9
Low		16.35			16.10			12.99			10.25			9.14		1.6		78.9

Page 12 of 16 

AVERAGE BALANCE SHEET DATA
Loans	$	1,487,281		$	1,444,684		$	1,450,883		$	1,430,013		$	1,406,683		2.9	%	5.7	%
Investment securities		334,205			286,121			227,816			179,801			136,017		16.8		145.7
Earning assets		2,071,505			1,949,509			1,867,930			1,780,854			1,670,194		6.3		24.0
Assets		2,184,448			2,061,214			1,975,951			1,880,449			1,771,944		6.0		23.3
Deposits		1,943,225			1,822,148			1,742,666			1,646,980			1,548,072		6.6		25.5
Stockholders' equity		200,881			197,532			195,791			197,591			201,079		1.7		(0.1	)
CREDIT QUALITY DATA
Net (recoveries) charge-offs	$	(147	)	$	(125	)	$	—		$	(61	)	$	(187	)	(17.6	)%	21.4	%
Nonaccrual loans	$	3,457		$	3,947		$	4,880		$	5,455		$	6,966		(12.4	)	(50.4	)
Loans 90 days past due and still accruing		748			752			1,188			804			1,373		(0.5	)	(45.5	)
Other real estate owned		203			203			205			—			38		—		434.2
Total nonperforming assets	$	4,408		$	4,902		$	6,273		$	6,259		$	8,377		(10.1	)	(47.4	)
Accruing troubled debt restructurings (TDRs)	$	5,750		$	6,338		$	6,456		$	6,997		$	7,267		(9.3	)	(20.9	)
Total nonperforming assets and accruing TDRs	$	10,158		$	11,240		$	12,729		$	13,256		$	15,644		(9.6	)	(35.1	)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.92	%		9.37	%		9.61	%		10.09	%		10.88	%	(45	)bp	(196	)bp
Period-end tangible equity to tangible assets - Non-GAAP (1)		8.15			8.55			8.76			9.18			9.92		(40	)	(177	)
Annualized net (recoveries) charge-offs to average loans		(0.04	)		(0.03	)		—			(0.02	)		(0.05	)	(1	)	1
Allowance for credit losses as a percent of:
Period-end loans (3)		1.04			1.02			0.98			0.95			0.90		2		14
Nonaccrual loans		449.09			382.27			293.30			254.59			183.42		6,682		266
Nonperforming assets		352.20			307.79			228.17			221.89			152.52		4,441		200
Accruing TDRs		270.00			238.06			221.70			198.49			175.82		3,194		94
Nonperforming assets and accruing TDRs		152.84			134.23			112.44			104.77			81.67		1,861		71
As a percent of total loans:
Nonaccrual loans		0.23			0.27			0.33			0.38			0.49		(4	)	(26	)
Accruing TDRs		0.38			0.43			0.44			0.48			0.51		(5	)	(13	)
Nonaccrual loans and accruing TDRs		0.62			0.70			0.78			0.86			1.00		(8	)	(38	)
As a percent of total loans+other real estate owned:
Nonperforming assets		0.29			0.33			0.43			0.43			0.59		(4	)	(30	)
Nonperforming assets and accruing TDRs		0.68			0.76			0.87			0.91			1.10		(8	)	(42	)
As a percent of total assets:
Nonaccrual loans		0.15			0.19			0.24			0.28			0.38		(4	)	(23	)
Nonperforming assets		0.19			0.23			0.31			0.32			0.46		(4	)	(27	)
Accruing TDRs		0.25			0.30			0.32			0.36			0.40		(5	)	(15	)
Nonperforming assets and accruing TDRs		0.44			0.53			0.63			0.68			0.86		(9	)	(42	)

(1) See the reconciliation table that begins on page 15 of 16.

(2) This ratio excludes merger related expenses (Non-GAAP).

(3) Includes PPP loan balances for all periods shown. As of September 30, 2021, December 31, 2020, and September 30, 2020, these ratios included PPP loans of $41.5 million, $122.8 million and $126.7 million, respectively. Excluding these loans, the ratios were 1.07%, 1.04%, and 0.98% for September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

Page 13 of 16 

Shore Bancshares, Inc.

Consolidated Statements of Income By Quarter (Unaudited)

(In thousands, except per share data)

											Q3 2021			Q3 2021
											compared to			compared to
	Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020		Q2 2021			Q3 2020
INTEREST INCOME
Interest and fees on loans	$	15,484	$	14,381	$	14,366	$	14,541	$	14,139		7.7	%		9.5	%
Interest on investment securities:
Taxable		1,318		1,095		931		910		730		20.4			80.5
Interest on deposits with other banks		97		55		47		44		33		76.4			193.9
Total interest income		16,899		15,531		15,344		15,495		14,902		8.8			13.4
INTEREST EXPENSE
Interest on deposits		949		1,056		1,184		1,355		1,470		(10.1	)		(35.4	)
Interest on short-term borrowings		2		2		1		1		1		—			100.0
Interest on long-term borrowings		359		370		359		374		148		(3.0	)		142.6
Total interest expense		1,310		1,428		1,544		1,730		1,619		(8.3	)		(19.1	)
NET INTEREST INCOME		15,589		14,103		13,800		13,765		13,283		10.5			17.4
Provision for credit losses		290		650		425		1,050		1,500		(55.4	)		(80.7	)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		15,299		13,453		13,375		12,715		11,783		13.7			29.8
NONINTEREST INCOME
Service charges on deposit accounts		805		683		674		782		647		17.9			24.4
Trust and investment fee income		477		475		407		439		381		0.4			25.2
Gains on sales and calls of investment securities		2		—		—		—		—		—			—
Other noninterest income		1,625		1,745		1,476		1,826		1,553		(6.9	)		4.6
Total noninterest income		2,909		2,903		2,557		3,047		2,581		0.2			12.7
NONINTEREST EXPENSE
Salaries and wages		5,091		4,262		4,142		4,366		4,143		19.5			22.9
Employee benefits		1,654		1,493		1,844		1,715		1,489		10.8			11.1
Occupancy expense		843		770		814		745		774		9.5			8.9
Furniture and equipment expense		449		412		307		366		294		9.0			52.7
Data processing		1,170		1,217		1,127		1,093		1,114		(3.9	)		5.0
Directors' fees		147		154		149		118		132		(4.5	)		11.4
Amortization of intangible assets		107		120		126		126		125		(10.8	)		(14.4	)
FDIC insurance premium expense		245		223		185		138		132		9.9			85.6
Other real estate owned expenses, net		4		1		1		38		—		300.0			—
Legal and professional fees		428		648		516		662		447		(34.0	)		(4.3	)
Merger related expenses		538		377		—		—		—		42.7			—
Other noninterest expenses		1,258		1,199		1,288		1,189		1,181		4.9			6.5
Total noninterest expense		11,934		10,876		10,499		10,556		9,831		9.7			21.4
Income before income taxes		6,274		5,480		5,433		5,206		4,533		14.5			38.4
Income tax expense		1,657		1,449		1,435		1,320		1,142		14.4			45.1
NET INCOME	$	4,617	$	4,031	$	3,998	$	3,886	$	3,391		14.5			36.2
Weighted average shares outstanding - basic		11,752		11,752		11,745		12,004		12,483		—			(5.9	)
Weighted average shares outstanding - diluted		11,752		11,754		11,747		12,005		12,483		(0.0	)		(5.9	)
Basic and diluted net income per common share	$	0.39	$	0.34	$	0.34	$	0.32	$	0.27		14.7			44.4
Dividends paid per common share		0.12		0.12		0.12		0.12		0.12		—			—

Page 14 of 16 

Shore Bancshares, Inc.

Consolidated Average Balance Sheets By Quarter (Unaudited)

(Dollars in thousands)

																										Average balance
																										Q3 2021		Q3 2021
																										compared to		compared to
	Q3 2021					Q2 2021					Q1 2021					Q4 2020					Q3 2020					Q2 2021		Q3 2020
	Average			Yield/		Average			Yield/		Average			Yield/		Average			Yield/		Average			Yield/
	balance			rate		balance			rate		balance			rate		balance			rate		balance			rate
Earning assets
Loans (1), (2), (3)	$	1,487,281		4.14	%	$	1,444,684		4.00	%	$	1,450,883		4.03	%	$	1,430,013		4.05	%	$	1,406,683		4.01	%	2.9	%	5.7	%
Investment securities
Taxable		334,205		1.58			286,121		1.53			227,816		1.63			179,801		2.02			136,017		2.14		16.8		145.7
Interest-bearing deposits		250,019		0.15			218,704		0.10			189,231		0.10			171,040		0.10			127,494		0.10		14.3		96.1
Total earning assets		2,071,505		3.24	%		1,949,509		3.20	%		1,867,930		3.34	%		1,780,854		3.47	%		1,670,194		3.56	%	6.3		24.0
Cash and due from banks		19,453					16,908					19,245					17,268					18,860				15.1		3.1
Other assets		108,989					109,457					103,010					95,684					94,755				(0.4	)	15.0
Allowance for credit losses		(15,499	)				(14,660	)				(14,234	)				(13,357	)				(11,865	)			5.7		30.6
Total assets	$	2,184,448				$	2,061,214				$	1,975,951				$	1,880,449				$	1,771,944				6.0		23.3
Interest-bearing liabilities
Demand deposits	$	462,950		0.14	%	$	405,473		0.13	%	$	438,340		0.14	%	$	420,582		0.18	%	$	370,922		0.19	%	14.2		24.8
Money market and savings deposits		644,330		0.18			605,202		0.17			510,881		0.18			459,237		0.20			442,322		0.21		6.5		45.7
Certificates of deposit $100,000 or more		136,059		0.71			135,376		1.04			130,745		1.26			128,642		1.45			127,983		1.68		0.5		6.3
Other time deposits		142,777		0.68			143,821		0.90			144,919		1.10			145,795		1.27			148,223		1.42		(0.7	)	(3.7	)
Interest-bearing deposits		1,386,116		0.27			1,289,872		0.33			1,224,885		0.39			1,154,256		0.47			1,089,450		0.54		7.5		27.2
Securities sold under retail repurchase agreements
and federal funds purchased		2,718		0.29			3,123		0.26			2,238		0.18			1,101		0.36			1,575		0.25		(13.0	)	72.6
Subordinated debt		24,504		5.81			24,474		6.06			24,443		5.96			24,420		6.09			9,859		5.97		0.1		148.5
Total interest-bearing liabilities		1,413,338		0.37	%		1,317,469		0.43	%		1,251,566		0.50	%		1,179,777		0.58	%		1,100,884		0.59	%	7.3		28.4
Noninterest-bearing deposits		557,109					532,276					517,781					492,724					458,622				4.7		21.5
Accrued expenses and other liabilities		13,120					13,937					10,813					10,357					11,359				(5.9	)	15.5
Stockholders' equity		200,881					197,532					195,791					197,591					201,079				1.7		(0.1	)
Total liabilities and stockholders' equity	$	2,184,448				$	2,061,214				$	1,975,951				$	1,880,449				$	1,771,944				6.0		23.3
Net interest spread				2.87	%				2.77	%				2.84	%				2.89	%				2.97	%
Net interest margin				2.99	%				2.91	%				3.00	%				3.08	%				3.17	%

(1)   All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(2)   Average loan balances include nonaccrual loans.

(3)    Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

Page 15 of 16 

Shore Bancshares, Inc.

Reconciliation of Generally Accepted Accounting Principles (GAAP)

and Non-GAAP Measures (Unaudited)

(In thousands, except per share data)

																YTD			YTD
	Q3 2021			Q2 2021			Q1 2021			Q4 2020			Q3 2020			9/30/2021			9/30/2020
The following reconciles return on average equity and return on average tangible equity (Note 1):
Net Income	$	4,617		$	4,031		$	3,998		$	3,886		$	3,391		$	12,645		$	11,844
Net Income - annualized (A)	$	18,317		$	16,168		$	16,214		$	15,460		$	13,490		$	16,906		$	15,821
Net income, excluding net amortization of intangible assets
and merger releated expenses	$	5,098		$	4,402		$	4,092		$	3,980		$	3,484		$	13,591		$	12,148
Net income, excluding net amortization of intangible assets - annualized (B)	$	20,226		$	17,656		$	16,595		$	15,833		$	13,860		$	18,171		$	16,227
Average stockholders' equity (C)	$	200,881		$	197,532		$	195,791		$	197,591		$	201,079		$	198,087		$	198,095
Less:  Average goodwill and other intangible assets		(18,942	)		(19,053	)		(19,178	)		(19,304	)		(19,430	)		(19,057	)		(19,564	)
Average tangible equity (D)	$	181,939		$	178,479		$	176,613		$	178,287		$	181,649		$	179,030		$	178,531
Return on average equity (GAAP)  (A)/(C)		9.12	%		8.19	%		8.28	%		7.82	%		6.71	%		8.53	%		7.99	%
Return on average tangible equity (Non-GAAP)  (B)/(D)		11.12	%		9.89	%		9.40	%		8.88	%		7.63	%		10.15	%		9.09	%
The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2):
Noninterest expense (E)	$	11,934		$	10,876		$	10,499		$	10,556		$	9,831		$	33,309		$	27,843
Less:  Amortization of intangible assets		(107	)		(120	)		(126	)		(126	)		(125	)		(353	)		(407	)
Merger Expenses		(538	)		(377	)		—			—			—			(915	)		—
Adjusted noninterest expense (F)	$	11,289		$	10,379		$	10,373		$	10,430		$	9,706		$	32,041		$	27,436
Net interest income (G)		15,589			14,103			13,800			13,765			13,283			43,491			38,832
Add:  Taxable-equivalent adjustment		34			38			36			34			34			108			107
Taxable-equivalent net interest income (H)	$	15,623		$	14,141		$	13,836		$	13,799		$	13,317		$	43,599		$	38,939
Noninterest income (I)	$	2,909		$	2,903		$	2,557		$	3,047		$	2,581		$	8,369			7,702
Less:  Investment securities (gains)		(2	)		—			—			—			—			(2	)		(347	)
Adjusted noninterest income (J)	$	2,907		$	2,903		$	2,557		$	3,047		$	2,581		$	8,367		$	7,355
Efficiency ratio (GAAP)  (E)/(G)+(I)		64.52	%		63.95	%		64.19	%		62.79	%		61.97	%		64.23	%		59.83	%
Efficiency ratio (Non-GAAP)  (F)/(H)+(J)		60.92	%		60.90	%		63.28	%		61.91	%		61.05	%		61.66	%		59.26	%

Page 16 of 16 

The following reconciles book value per common share and tangible book value per common share (Note 1):
Stockholders' equity (L)	$	201,607		$	198,682		$	196,104		$	195,019		$	198,881
Less:  Goodwill and other intangible assets		(18,883	)		(18,991	)		(19,111	)		(19,237	)		(19,362	)
Tangible equity (M)	$	182,724		$	179,691		$	176,993		$	175,782		$	179,519
Shares outstanding (N)		11,752			11,752			11,752			11,783			12,218
Book value per common share (GAAP)  (L)/(N)	$	17.15		$	16.91		$	16.69		$	16.55		$	16.28
Tangible book value per common share (Non-GAAP) (M)/(N)	$	15.55		$	15.29		$	15.06		$	14.92		$	14.69
The following reconciles equity to assets and tangible equity to tangible assets (Note 1):
Stockholders' equity (O)	$	201,607		$	198,682		$	196,104		$	195,019		$	198,881
Less:  Goodwill and other intangible assets		(18,883	)		(18,991	)		(19,111	)		(19,237	)		(19,362	)
Tangible equity (P)	$	182,724		$	179,691		$	176,993		$	175,782		$	179,519
Assets (Q)	$	2,260,774		$	2,120,260		$	2,039,631		$	1,933,315		$	1,828,172
Less:  Goodwill and other intangible assets		(18,883	)		(18,991	)		(19,111	)		(19,237	)		(19,362	)
Tangible assets (R)	$	2,241,891		$	2,101,269		$	2,020,520		$	1,914,078		$	1,808,810
Period-end equity/assets (GAAP)  (O)/(Q)		8.92	%		9.37	%		9.61	%		10.09	%		10.88	%
Period-end tangible equity/tangible assets (Non-GAAP)  (P)/(R)		8.15	%		8.55	%		8.76	%		9.18	%		9.92	%

Note 1:   Management believes that reporting tangible equity and tangible assets more closely approximates the adequacy of capital for regulatory purposes.

Note 2:   Management believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling cash-based operating activities.