EX-99.1 2 v048013_ex99-1.htm
Exhibit 99.1
Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-822-1400

PRESS RELEASE

Shore Bancshares Reports 7.1 Percent Increase
in Second Quarter Earnings

Easton, Maryland (07/20/2006)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported second quarter earnings of $3.8 million or $0.45 per diluted share, up 7.1% from $3.5 million or $0.42 per diluted share for the second quarter of 2005. Net income for the six-month period ended June 30, 2006 was $7.3 million or $0.87 per diluted share, a 10.5% increase over earnings of $6.6 million or $0.79 per diluted share for the first half of 2005.
 
“The Company continued to experience strong loan demand during the second quarter, which combined with increasing yields on assets produced consistent, improved results for the quarter,” said W. Moorhead Vermilye, President and Chief Executive Officer. “Net interest income growth was healthy during the quarter and we were able to improve the net interest margin to 5.00% at quarter-end from 4.69% a year ago. Credit quality remains excellent, as the local economies throughout our markets are enjoying good growth.”
 
“We were pleased to have been recently added to the current Russell 3000 Index as a result of the continuing growth and improved valuation of Shore Bancshares.  This development should improve our visibility with a variety of new investors and funds using quantitative strategies,” said Vermilye.
 
The Company’s return on average assets for the second quarter of 2006 was 1.75%, compared to 1.73% for the same period last year. The return on average stockholders’ equity was 14.57% for the quarter ended June 30, 2006, compared to 14.86% for the same quarter last year.
 
The Company’s return on average assets for the six-months ended June 30, 2006 was 1.70%, compared to 1.64% for the six-months ended June 30, 2005. The return on average stockholders’ equity was 13.93% for the six-months ended June 30, 2006, compared to 13.88% for the same period last year.
 
At June 30, 2006, total assets were $887.6 million, total deposits were $715.6 million, and total stockholders’ equity was $106.2 million. The increase in total assets of $36 million since December 31, 2005 was related to loan growth. Loans increased $48 million during the first six months of 2006, totaling $675.8 million at June 30, 2006. Loan growth was funded primarily by deposit growth of $10.6 million and an increase in borrowings from the Federal Home Loan Bank of $21 million.
 
Review of Financial Results for the Quarter
 
Net interest income for the second quarter of 2006 was $9.9 million, an increase of 13.5% over the $8.7 million earned during the same period last year. Higher loan yields resulted in an increase in the net interest margin from 4.69% for the second quarter of 2005 to 5.00% for the second quarter of 2006. The market for deposits remained competitive throughout the second quarter of 2006 resulting in higher rates paid for interest bearing deposits. The cost of funds increased 70 basis points from 1.82% to 2.52% for the quarter ended June 30, 2006 when compared to the same quarter in 2005. The competitive environment for deposits as well as an increase in long-term borrowings contributed to the overall increase in the cost of funds.
 
 
The provision for credit losses for the three-month periods ended June 30, 2006 and 2005 was $240,000 and $180,000, respectively. Net charge-offs were $95,000 and $78,000 for the three months ended June 30, 2006 and 2005, respectively. The increase in the provision for the second quarter of 2006 when compared to the same period last year reflects the continued growth of the Company’s loan portfolio. Management believes that the provision for credit losses and the resulting allowance are adequate at June 30, 2006.
 
Noninterest income for the second quarter of 2006 improved by $281,000 when compared to the second quarter of 2005. Increases in service charges, insurance agency commissions and other noninterest income all contributed to the growth.
 
Noninterest expense for the second quarter of 2006 increased $968,000 when compared to the second quarter of 2005. This was primarily attributable to increased salaries and benefits costs of $659,000 related to higher incentive compensation costs and increased staffing for a new branch, expansion of the secondary market mortgage division and trust operations that began in July 2005. Occupancy and equipment expense increased $71,000 and other operating cost increased $198,000 for the second quarter of 2006 when compared to the second quarter of 2005. These increases are an ongoing result of the overall growth of the Company.
 
Review of Six-Month Financial Results
 
Net interest income for the first six months of 2006 increased 13.6% or $2.3 million when compared to the first six months of 2005. The increase is the result of growth in the loan portfolio as well as an increase in the overall net interest margin driven by increased loan yields. Despite an increase in the overall cost of funds from 1.76% at June 30, 2005 to 2.41% at June 30, 2006, the Company’s net interest margin increased from 4.60% at June 30, 2005 to 4.90% for the six months ended June 30, 2006.
 
The provision for credit losses for the six-month periods ended June 30, 2006 and 2005 was $551,000 and $360,000, respectively. Net charge-offs were $225,000 and $192,000 for the six months ended June 30, 2006 and 2005, respectively. The increased provision reflects the overall growth of the loan portfolio. Credit quality remained strong at June 30, 2006, as evidenced by the nonperforming assets to total assets ratio of 0.09% and annualized net charge-offs to total loans of 0.06%.
 
Noninterest income for the six months ended June 30, 2006 totaled $7.0 million, an increase of 13.3% when compared to $6.2 million for the same period in 2005. Service charge income increased $234,000, insurance agency commissions increased $204,000 and other noninterest income increased $445,000 when compared to the same six-month period in 2005. The increase in other noninterest income is primarily attributable to trust and investment management fee increases of approximately $108,000 due to growth in assets under management, increased commission income from mortgages originated for the secondary market of $45,000, letter of credit fee increases of approximately $61,000 and gains on life insurance policies of approximately $174,000 relating to a deferred compensation plan. We began trust operations in the third quarter of 2005.
 
Noninterest expense for the six months ended June 30, 2006 increased $1.8 million or 14.3% when compared to the same period in 2005. The majority of the increase relates to salary and benefit increases that resulted from the expansion of services and new branch locations. Other noninterest expenses increased $420,000, also as a result of overall growth.
 
 
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
 
 
 
Financial Highlights 
                  
(Dollars in thousands, except per share data) 
                  
   
  Three Months Ended
  Six Months Ended
     
 June 30,
    
 June 30,
   
 2006
 2005
 % Change
  
 2006
  
 2005
% Change
PROFITABILITY FOR THE PERIOD: 
                  
Net interest income 
    $9,909  $8,730  13.5%    $19,323    $17,007  13.6%
Provision for credit losses
  
240
180
32.8%
  
551
  
360
53.1%
Noninterest income
  
3,319
3,038
9.2%
  
7,025
  
6,200
13.3%
Noninterest expense
  
7,047
6,079
15.9%
  
14,138
  
12,372
14.3%
Income before income taxes
  
5,941
5,509
7.8%
  
11,659
  
10,475
11.3%
Income taxes
  
2,190
2,008
9.1%
  
4,357
  
3,868
12.6%
Net income
  
3,751
3,501
7.1%
  
7,302
  
6,607
10.5%
Return on average assets
  
1.75%
1.73%
1.2%
  
1.70%
  
1.64%
3.8%
Return on average equity
  
14.57%
14.86%
-1.9%
  
13.93%
  
13.88%
0.4%
Net interest margin
  
5.00%
4.69%
6.6%
  
4.90%
  
4.60%
6.5%
Efficiency ratio
 
53.28%
51.66%
3.1%
  
53.66%
  
53.31%
0.7%
 
                  
                   
PER SHARE DATA (1)
                  
Basic net income
  
$0.45
$0.42
7.1%
  
$0.87
  
$0.80
8.7%
Diluted net income
  
$0.45
$0.42
7.1%
  
$0.87
  
$0.79
10.1%
Dividends declared
  
$0.15
$0.13
15.4%
  
$0.29
  
$0.25
16.0%
Book value
  
$12.69
$11.78
7.8%
  
$12.69
  
$11.78
7.8%
Tangible book value
  
$11.06
$10.10
9.6%
  
$11.06
  
$10.10
9.6%
Average fully diluted shares
  
8,393,253
8,349,630
0.5%
  
8,389,552
 
8,344,293
0.5%
                   
AT PERIOD-END:
                  
Assets
  
$887,585
$819,795
8.3%
  
$887,585
  
$819,795
8.3%
Deposits
  
$715,562
$683,414
4.7%
  
$715,562
  
$683,414
4.7%
Loans receivable
  
$675,772
$615,834
9.7%
  
$675,772
  
$615,834
9.7%
Securities
  
$117,799
$120,709
-2.4%
  
$117,799
  
$120,709
-2.4%
Stockholders' equity
  
$106,231
$97,928
8.5%
  
$106,231
  
$97,928
8.5%
                   
CAPITAL AND CREDIT QUALITY RATIOS:
              
Average equity to average assets
  
11.98%
11.61%
    
12.22%
  
11.82%
  
Allowance for credit losses to total
loans receivable
  
0.82%
0.77%
    
0.80%
  
0.77%
  
Nonperforming assets to total assets
  
0.09%
0.16%
    
0.09%
  
0.16%
  
                   
Annualized net (charge-offs) 
                  
recoveries to average loans receivable 
    0.06%  0.05%      0.07%    0.06%  
 
(1) All per share data has been adjusted to give retroactive effect of a 3 for 2 stock split in the form of a stock dividend declared on May 4, 2006.
 
 
Consolidated Balance Sheets
          
(Dollars in thousands, except per share data)
          
 
June 30,
  
June 30,
  
December 31,
 
2006
 
2005
 
2005
ASSETS
          
Cash and due from banks
$16,061
 
$25,202
 
$28,990
Federal funds sold
29,385
 
22,630
 
25,401
Interest-bearing deposits with banks
12,543
 
848
 
13,068
Investments available-for-sale (at fair value)
103,440
 
105,838
 
106,160
Investments held-to-maturity
14,359
 
14,871
 
14,911
           
Total loans
675,772
 
615,834
 
627,463
Less: allowance for credit losses
(5,562)
  
(4,860)
  
(5,236)
Net loans
670,210
 
610,974
 
622,227
           
Premises and equipment, net
15,946
 
14,310
 
15,187
Accrued interest receivable
4,270
 
3,599
 
3,897
Goodwill
11,939
 
11,939
 
11,939
Other intangible assets, net
1,737
 
2,074
 
1,906
Other assets
7,695
 
7,510
 
7,952
           
Total assets
$887,585
  
$819,795
  
$851,638
           
LIABILITIES
          
Noninterest-bearing deposits
112,659
 
104,831
 
113,244
Interest-bearing deposits
602,903
 
578,583
 
591,714
 
 
  
 
  
 
Total deposits
715,562
 
683,414
 
704,958
           
Short-term borrowings
35,426
 
28,757
 
35,848
Other long-term borrowings
25,000
 
5,000
 
4,000
Accrued interest payable and other liabilities
5,366
 
4,696
 
5,384
 
 
  
 
  
 
Total liabilities
781,354
 
721,867
 
750,190
           
STOCKHOLDER'S EQUITY
          
Common stock -- par value $0.01; shares authorized
35,000,000; shares issued and outstanding 8,367,974
84
 
55
 
56
Additional paid in capital
29,423
 
28,689
 
29,013
Retained earnings
78,540
 
69,690
 
73,642
Accumulated other comprehensive income
(1,816)
  
(506)
  
(1,263)
Total stockholder's equity
106,231
 
97,928
 
101,448
           
Total liabilities and stockholder's equity
$887,585
 
$819,795
 
$851,638
           
 
 

Consolidated Statements of Income
              
(Dollars in thousands, except per share data)
              
 
Three Months Ended
  
Six Months Ended
 
June 30,
  
June 30,
 
2006
 
2005
 
2006
 
2005
Interest Income:
              
Interest and fees on loans and leases
$12,481
 
$10,195
 
$23,936
 
$19,794
Interest on deposits with banks
71
 
6
 
242
 
11
Interest and dividends on securities:
              
Taxable
1,045
 
939
 
2,065
 
1,809
Exempt from federal income taxes
135
 
144
 
278
 
293
Interest on federal funds sold
211
 
206
 
487
 
390
Total interest income
13,943
 
11,490
 
27,008
 
22,297
 
 
  
 
 
 
  
 
Interest expense:
              
Interest on deposits
3,642
 
2,579
 
6,960
 
4,958
Interest on short-term borrowings
238
 
119
 
502
 
207
Interest on long-term borrowings
154
 
62
 
223
 
125
 
              
Total interest expense
4,034
 
2,760
 
7,685
 
5,290
Net interest income
9,909
 
8,730
 
19,323
 
17,007
Provision for credit losses
240
 
180
 
551
 
360
Net interest income after provision for credit losses
9,669
 
8,550
 
18,772
 
16,647
 
 
  
 
 
 
  
 
Noninterest income:
              
Securities gains (losses)
0
 
0
 
0
 
58
Service charges on deposit accounts
779
 
727
 
1,523
 
1,289
Insurance agency commissions
1,661
 
1,704
 
3,992
 
3,788
Other income
879
 
607
 
1,510
 
1,065
Total noninterest income
3,319
 
3,038
 
7,025
 
6,200
Noninterest expenses:
 
  
 
 
 
  
 
Salaries and employee benefits
4,395
 
3,736
 
8,863
 
7,715
Occupancy expense of premises
390
 
371
 
799
 
771
Equipment expenses
318
 
266
 
641
 
521
Data processing
395
 
348
 
772
 
702
Directors' fees
122
 
129
 
299
 
319
Amortization of intangible assets
84
 
84
 
168
 
168
Other expenses
1,343
 
1,145
 
2,596
 
2,176
Total noninterest expense
7,047
 
6,079
 
14,138
 
12,372
               
Income before income taxes
5,941
 
5,509
 
11,659
 
10,475
Income tax expense
2,190
 
2,008
 
4,357
 
3,868
               
Net income
$3,751
 
$3,501
 
$7,302
 
$6,607
               
Basic net income per share (1)
$0.45
 
$0.42
 
$0.87
 
$0.80
Diluted net income per share (1)
$0.45
 
$0.42
 
$0.87
 
$0.79
Dividends declared per share (1)
$0.15
 
$0.13
 
$0.29
 
$0.25
 
(1) All per share data has been adjusted to give retroactive effect of a 3 for 2 stock split in the form of a stock dividend declared on May 4, 2006.