8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 26, 2006

SHORE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland	0-22345	52-1974638
(State or other jurisdiction of	(Commission file number)	(IRS Employer
incorporation or organization)		Identification No.)

18 East Dover Street, Easton, Maryland 21601

(Address of principal executive offices) (Zip Code)

(410) 822-1400

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

࿳Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

࿳Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

࿳Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

࿳Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01.Entry Into a Material Definitive Agreement.

At the 2006 Annual Meeting of Stockholders of Shore Bancshares, Inc. (the “Company”) held on April 26, 2006, the Company’s stockholders approved the adoption of the Shore Bancshares, Inc. 2006 Stock and Incentive Compensation Plan (the “Plan”). The form of the Plan was approved by the Company’s Board of Directors on March 13, 2006, but was not effective unless and until it was also approved by stockholders. The effective date of the Plan is April 26, 2006. The material terms of the Plan were discussed in detail in “Proposal 2”, beginning on Page 16, of the Company’s 2006 definitive proxy statement filed with the Securities and Exchange Commission on March 24, 2006, which discussion is incorporated herein by reference.

ITEM 2.02.Results of Operation and Financial Condition.

Also on April 26, 2006, the Company issued a press release describing the Company’s financial results for the quarter ended March 31, 2006, a copy of which is furnished herewith as Exhibit 99.1.

The information contained in this Item 2.02 and in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01.Financial Statements and Exhibits.

(d)      Exhibits.
Exhibit 10.1.	Shore Bancshares, Inc. 2006 Stock and Incentive Compensation  Plan (incorporated by reference to Appendix A of the Company’s  2006 definitive proxy statement filed on March 24, 2006).
Exhibit 99.1	Press Release dated April 26, 2006 (furnished herewith).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHORE BANCSHARES, INC.
Dated: April 28, 2006	By:	/s/ W. Moorhead Vermilye
		W. Moorhead Vermilye
		President and CEO

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EXHIBIT INDEX

Exhibit
Number	Description
Exhibit 10.1.	Shore Bancshares, Inc. 2006 Stock and Incentive Compensation  Plan (incorporated by reference to Appendix A of the Company’s  2006 definitive proxy statement filed on March 24, 2006).
Exhibit 99.1	Press Release dated April 26, 2006 (furnished herewith).

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EX-99.1

Exhibit 99.1

Shore Bancshares, Inc.

18 E. Dover Street

Easton, Maryland 21601

Phone 410-822-1400

PRESS RELEASE

Shore Bancshares Reports 14.3 Percent Increase in First Quarter Earnings

Easton, Maryland (04/26/2006)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported first quarter earnings of $3.6 million or $0.64 per diluted share, an increase of 14.3% over the $3.1 million or $0.56 per diluted share for the first quarter of 2005.

“We are pleased with our financial performance for the first quarter. We continued to experience strong loan demand throughout the quarter. Despite a very competitive market for deposits, the combination of robust loan growth plus increased loan yields produced a net interest margin of 4.80%,” said W. Moorhead Vermilye, President and CEO of Shore Bancshares, Inc. “The local economy remains strong, and our performance is a direct result. Our efficiency ratio (GAAP-based) was 54.05% at the end of the quarter compared to 55.01% for the first quarter of 2005.”

“We have recently expanded our secondary market mortgage program with the recruitment of three proven producers who are well-known in our local market. Wye Mortgage, a division of Centreville National Bank, should now be able to cover a much larger geographic reach than is currently being served. We continue to focus efforts on the core banking business of the Company as we look for additional products and services to offer to our customers,” said Vermilye.

The Company’s return on average assets for the quarter ended March 31, 2006 was 1.67%, compared to 1.56% for the quarter ended March 31, 2005. The return on average stockholders’ equity was 13.7% for the quarter ended March 31, 2006, compared to 13.29% for the same quarter last year.

At March 31, 2006, total assets were $855.4 million, total deposits were $708.7 million, and total stockholders’ equity was $104.1 million. The increase in total assets of $3.8 million since December 31, 2005 was related to loan growth. Loans increased $14.4 million during the first quarter of 2006 totaling $641.9 million at March 31, 2006. Loan growth during the quarter was funded by a reduction in federal funds sold and interest bearing deposits of the Company and deposit growth of $3.8 million.

Financial Results for the Quarter

Net interest income for the first quarter of 2006 was $9.4 million, which represents an increase of 13.7 % over the $8.3 million earned during the same period last year. Higher loan yields resulted in an increase in the net interest margin from 4.51% in 2005 to 4.80% in 2006. The market for deposits remained competitive throughout the first quarter resulting in higher rates paid for interest bearing deposits.

The provision for credit losses for the three-month periods ended March 31, 2006 and 2005 was $311,000 and $180,000, respectively. Net charge-offs were $130,000 and $114,000 for the three months ended March 31, 2006 and 2005, respectively. The increase in the provision for the first quarter of 2006 when compared to the same period last year reflects the continued growth in the Company’s loan portfolio. Management believes that the provision for credit losses and the resulting allowance are adequate at March 31, 2006.

Noninterest income for the first quarter of 2006 increased $544,000 when compared to the first quarter of 2005. Increases in service charges, insurance agency commissions and other noninterest income all contributed to the growth.

Noninterest expense for the first quarter of 2006 increased $798,000 when compared to the first quarter of 2005. The increase is primarily the result of increased salaries and benefits costs of $489,000. Salary and benefit increases are the result of higher incentive compensation cost and increased staffing for a new branch and trust operations that began in July 2005. Other operating cost increases totaling $309,000 were related to overall growth of the Company.

Shore Bancshares Information

Shore Bancshares, Inc. 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 three banks, The Talbot Bank of Easton, Maryland, The Centreville National Bank of Maryland, and The Felton Bank; two insurance producer firms, The Avon-Dixon Agency, LLC and Elliott Wilson Insurance, LLC; an insurance premium finance company, Mubell Finance, LLC; and a registered investment adviser firm, Wye Financial Services, LLC.

Forward-Looking Statements

This press release may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but statements about management’s beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objections. 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 Risk Factors contained in Item 1A of Part I of the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2005.

For further information contact: W. Moorhead Vermilye, President and CEO

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Financial Highlights
(dollars in thousands, except per share data)	Three Months Ended
	March 31,
	2006			2005			% Change
	(unaudited)
PROFITABILITY FOR THE PERIOD:
Net interest income	$	9,414		$	8,277			13.7	%
Provision for loan and lease losses		311			180			72.8	%
Noninterest income		3,706			3,162			17.2	%
Noninterest expense		7,091			6,293			12.7	%
Income before income taxes		5,718			4,966			15.1	%
Net income		2,167			1,860			16.5	%
		3,551			3,106			14.3	%
Return on average assets		1.67	%		1.56	%		6.8	%
Return on average equity		13.70	%		13.29	%		3.1	%
Net interest margin		4.80	%		4.51	%		6.2	%
Efficiency ratio - GAAP based		54.05	%		55.01	%		-1.8	%
PER SHARE DATA:
Basic net income	$	0.64		$	0.56			14.3	%
Diluted net income	$	0.64		$	0.56			14.3	%
Dividends declared	$	0.21		$	0.19			10.5	%
Book Value	$	18.67		$	17.12			9.0	%
Tangible book value	$	16.20		$	14.57			11.2	%
Average outstanding fully diluted shares		5,563,051			5,569,664			-0.1	%
AT PERIOD-END:
Assets	$	855,422		$	812,491			5.3	%
Deposits	$	708,723		$	678,782			4.4	%
Loans and leases	$	641,913		$	596,267			7.7	%
Securities	$	123,270		$	123,890			-0.5	%
Stockholders' equity	$	104,125		$	94,640			10.0	%
CAPITAL AND CREDIT QUALITY RATIOS:
Average equity to average assets		12.16	%		11.73	%
Allowance for loan and lease losses to loans and leases		0.84	%		0.80	%
Nonperforming assets to total assets		0.12	%		0.19	%
Annualized net (charge-offs) recoveries to average loan and leases		0.08	%		0.08	%

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Consolidated Balance Sheets
(dollars in thousands, except per share data)				March 31,
		2006				2005
	(unaudited)
ASSETS
Cash and due from banks	$	27,231			$	22,495
Federal funds sold		21,908				34,939
Interest-bearing deposits with banks		5,501				898
Investments available-for-sale, at fair value		108,391				108,499
Investments held-to-maturity, at amortized cost - (fair value of $14,798 and $15,374, respectively)		14,879				15,391
Total loans and leases		641,913				596,267
Less: allowance for loan and lease losses		(5,417	)			(4,758	)
Net loans and leases		636,496				591,509
Premises and equipment, net		15,560				13,595
Accrued interest receivable		4,109				3,561
Goodwill		11,939				11,939
Other intangible assets, net		1,821				2,158
Other assets		7,587				7,507
Total assets	$	855,422			$	812,491
LIABILITIES
Noninterest-bearing deposits		110,748				103,414
Interest-bearing deposits		597,975				575,368
Total deposits		708,723				678,782
Short-term borrowings		27,281				28,331
Other long-term borrowings		9,000				5,000
Accrued interest payable and other liabilities		6,293				5,738
Total liabilities		751,297				717,851
STOCKHOLDER'S EQUITY
Common stock -- par value $.01; shares authorized 35,000,000; shares issued and outstanding 5,577,435 and 5,527,120, respectively;		56				55
Additional paid in capital		29,411				28,426
Retained earnings		76,025				67,240
Accumulated other comprehensive income		(1,367	)			(1,081	)
Total stockholder's equity		104,125				94,640
Total liabilities and stockholders’ equity	$	855,422			$	812,491

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Consolidated Statements of Income
(dollars in thousands, except per share data)	Three Months Ended
	March 31,
		2006		2005
	(unaudited)
Interest Income:
Interest and fees on loans and leases	$	11,455	$	9,599
Interest on deposits with banks		171		5
Interest and dividends on securities:
Taxable		1,020		870
Exempt from federal income taxes		143		149
Interest on federal funds sold		276		184
Total interest income		13,065		10,807
Interest expense:
Interest on deposits		3,318		2,379
Interest on short-term borrowings		264		88
Interest on long-term borrowings		69		63
Total interest expense		3,651		2,530
Net interest income		9,414		8,277
Provision for loan and lease losses		311		180
Net interest income after provision for loan and lease losses		9,103		8,097
Noninterest income:
Securities gains (losses)		0		58
Service charges on deposit accounts		744		562
Insurance agency commissions		2,331		2,084
Other income		631		458
Total noninterest income		3,706		3,162
Noninterest expenses:
Salaries and employee benefits		4,468		3,979
Occupancy expense of premises		409		400
Equipment expenses		323		255
Data processing		377		354
Directors' fees		177		190
Amortization of intangible assets		84		84
Other expenses		1,253		1,031
Total noninterest expense		7,091		6,293
Income before income taxes		5,718		4,966
Income tax expense		2,167		1,860
Net income	$	3,551	$	3,106
Basic net income per share	$	0.64	$	0.56
Diluted net income per share	$	0.64	$	0.56
Dividends declared per share	$	0.21	$	0.19

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