EX-99.1 2 v072562_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 First Quarter Earnings

Easton, Maryland (04/25/2007)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $3.4 million or $0.41 per diluted share for the first quarter of 2007, compared with $3.6 million or $0.43 per share for the first quarter of 2006.

“In a very challenging environment for all banks, we remain strategically focused on building relationships with individual households and small businesses throughout our markets on the Delmarva peninsula,” said W. Moorhead Vermilye, President and CEO of Shore Bancshares, Inc. "Our emphasis on cultivating these relationships continues to generate core loan and deposit growth, fee income and improved franchise value. Overall economic activity in our markets has been stable or growing over the past few quarters, although the real estate sector is clearly pacing slower.”

“The pay-off of several larger commercial loans had an impact on the level of our loans outstanding at quarter-end, but our loan pipeline and origination volume strengthened this quarter and we anticipate new growth in our portfolio. We experienced good growth in our transaction and demand deposit accounts, and even though rates paid are continuing to creep higher, we are working hard to contain the cost of our funding and further improve our deposit mix.”

“Our markets and operating environment remain highly competitive and challenging due to the persistent inverted yield curve, which is evident in the 33 basis-point decline in our net interest margin from quarter-end a year ago,” said Vermilye. “Importantly, however, we continue to manage with a longer-term perspective and believe that our ongoing investments in growth and expansion will produce above-average returns.”

The Company’s return on average assets for the quarter ended March 31, 2007 was 1.43%, compared to 1.67% for the quarter ended March 31, 2006. The return on average stockholders’ equity was 12.1% for the quarter ended March 31, 2007, compared to 13.7% for the same quarter last year.

At March 31, 2007, total assets were $960.3 million, total deposits were $778.4 million, and total stockholders’ equity was $113.4 million. The increase in total assets of $14.7 million since December 31, 2006 was related to growth in deposits and customer repurchase agreements, which were invested primarily in federal funds sold and interest bearing deposits. Loans declined $2.2 million during the first quarter of 2007 totaling $697.5 million at March 31, 2007. The decline in loans was the result of several large loan payoffs.

Financial Results for the Quarter
Net interest income for the first quarter of 2007 was $9.9 million, which represents an increase of 5.2 % over the $9.4 million earned during the same period last year. An increased volume of loans is the reason for the increase. Despite an increase in the yields of all categories of earning assets, the net interest margin declined from 4.80% in 2006 to 4.47% in 2007 as a result of the increased cost of funds. The rate paid for interest bearing deposits increased 97 basis points from 2.23% for the first quarter of 2006 to 3.2% for the same period of 2007. The market for deposits remains extremely competitive thus far in 2007 and higher rates is a primary factor in attracting customer deposits.

 
The provision for credit losses for the three-month periods ended March 31, 2007 and 2006 was $242,000 and $311,000, respectively. Net charge-offs were $36,000 and $130,000 for the three months ended March 31, 2007 and 2006, respectively. The decline in the provision for the first quarter of 2007 when compared to the same period last year reflects the current quality of the loan portfolio as well as a lack of growth during the period. Nonperforming assets declined $3.7 million since December 31, 2006 as a result of the payoff of one large nonaccrual loan. The Company did not incur any principal loss on the loan. Management believes that the provision for credit losses and the resulting allowance are adequate at March 31, 2007.

Noninterest income for the first quarter of 2007 declined $58,000 when compared to the first quarter of 2006. During the first quarter of 2007, income from service charges on deposit accounts declined $55,000 and insurance agency commissions declined $292,000. The decline in service charges is attributable primarily to a customer overdraft privilege program and the decrease in insurance agency commissions is attributable to contingency income from insurance companies which varies from year to year depending on a number of factors outside of the control of the Company. The Company received an unusually large amount of contingency income in 2006. Other noninterest income increased $289,000 relating to growth of the Company’s secondary market mortgage program operating as Wye Mortage Group and growth in revenue from the Company’s trust department operating as Wye Trust Services.

Noninterest expense for the first quarter of 2007 increased $801,000 when compared to the first quarter of 2006. The increase is primarily the result of increased salaries and benefits costs of $465,000. Increases in salary and benefit are the result of higher incentive compensation cost and increased staffing for expansion of the Wye Mortgage Group, two new bank branches opened since the first quarter of 2006, and the additional cost associated with segregating the CEO positions at Shore Bancshares and The Talbot Bank of Easton, Maryland, the Company’s largest subsidiary, and hiring a new CEO for The Talbot Bank in the third quarter of 2006. Other operating cost increases totaling $336,000 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. Forward-looking 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 the periodic reports that Shore Bancshares, Inc. files with the Securities and Exchange Commission.


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


 
Financial Highlights
              
(Dollars in thousands, except per share data)
  
Three Months Ended
  
   
March 31,
 
 
  
2007
  
2006
  
% Change
  
PROFITABILITY FOR THE PERIOD:
                    
Net interest income
  
$
9,905
  
$
9,414
    
5.2
%
Provision for loan and lease losses
    
242
    
311
    
-22.2
%
Noninterest income
    
3,648
    
3,706
    
-1.6
%
Noninterest expense
    
7,891
    
7,091
    
11.3
%
Income before income taxes
    
5,420
    
5,718
    
-5.2
%
Income tax expense
    
2,017
    
2,167
    
-6.9
%
Net income
    
3,403
    
3,551
    
-4.2
%
Return on average assets
    
1.43
%
  
1.67
%
  
-13.9
%
Return on average equity
    
12.09
%
  
13.70
%
  
-11.8
%
Net interest margin
    
4.47
%
  
4.80
%
  
-6.9
%
Efficiency ratio - GAAP based
    
57.61
%
  
53.41
%
  
7.9
%
                     
PER SHARE DATA: (1)
                    
Basic net income
  
$
0.41
  
$
0.43
    
-4.7
%
Diluted net income
  
$
0.41
  
$
0.43
    
-4.7
%
Dividends declared
  
$
0.16
  
$
0.14
    
14.3
%
Book Value
  
$
13.54
  
$
12.45
    
8.8
%
Tangible book value
  
$
11.94
  
$
10.80
    
10.5
%
Average fully diluted shares
    
8,396,252
   
8,344,576
   
0.6
%
                     
AT PERIOD-END:
                    
Assets
  
$
960,350
  
$
855,422
    
12.3
%
Deposits
  
$
778,359
  
$
708,723
    
9.8
%
Loans and leases
  
$
697,466
  
$
641,913
    
8.7
%
Securities
  
$
129,557
  
$
123,270
    
5.1
%
Stockholders' equity
  
$
113,382
  
$
104,125
    
8.9
%
                     
CAPITAL AND CREDIT QUALITY RATIOS:
            
Average equity to average assets
    
11.87
%
  
12.16
%
      
Allowance for loan and lease losses to loans and leases
    
0.93
%
  
0.84
%
      
Nonperforming assets to total assets
    
0.46
%
  
0.12
%
      
Annualized net (charge-offs) recoveries to average loan and leases
    
0.02
%
  
0.08
%
      

(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)
              
   
March 31,
  
March 31,
  
December 31,
  
 
  
2007
  
2006
  
2006
  
ASSETS
                    
Cash and due from banks
  
$
16,334
  
$
27,231
  
$
26,511
  
Federal funds sold
    
51,394
   
21,908
   
19,622
 
Interest-bearing deposits with banks
    
29,423
   
5,501
   
33,540
 
Investments available-for-sale (at fair value)
    
115,595
   
108,391
   
116,275
 
Investments held-to-maturity
   
13,962
   
14,879
   
13,971
 
                     
Total loans and leases
    
697,466
   
641,913
   
699,719
 
Less: allowance for loan and lease losses
    
(6,506
)
  
(5,417
)
  
(6,300
)
Net loans and leases
    
690,960
   
636,496
   
693,419
 
                     
Premises and equipment, net
    
15,897
   
15,560
   
15,974
 
Accrued interest receivable
    
5,083
   
4,109
   
4,892
 
Goodwill
    
11,939
   
11,939
   
11,939
 
Other intangible assets, net
    
1,486
   
1,821
   
1,569
 
Other assets
    
8,277
   
7,587
   
7,937
 
                     
Total assets
  
$
960,350
  
$
855,422
  
$
945,649
  
                     
LIABILITIES
                    
Noninterest-bearing deposits
    
103,780
   
110,748
   
109,962
 
Interest-bearing deposits
    
674,579
   
597,975
   
664,220
 
                        
Total deposits
    
778,359
   
708,723
   
774,182
 
                     
Short-term borrowings
    
32,815
   
27,281
   
26,524
 
Other long-term borrowings
    
27,000
   
9,000
   
27,000
 
Accrued interest payable and other liabilities
    
8,794
   
6,293
   
6,616
 
                        
Total liabilities
    
846,968
   
751,297
   
834,322
 
                     
STOCKHOLDER'S EQUITY
                    
Common stock
   
84
   
56
   
84
 
Additional paid in capital
    
29,462
   
29,411
   
29,688
 
Retained earnings
    
84,341
   
76,025
   
82,279
 
Accumulated other comprehensive income
    
(505
)
  
(1,367
)
  
(724
)
Total stockholder's equity
    
113,382
   
104,125
   
111,327
 
                     
Total liabilities and stockholder's equity
  
$
960,350
  
$
855,422
  
$
945,649
  


Consolidated Statements of Income
          
(Dollars in thousands, except per share data)
          
   
Three Months Ended
  
   
March 31,
  
 
  
2007
  
2006
  
Interest Income:
              
Interest and fees on loans and leases
  
$
13,624
  
$
11,455
  
Interest on deposits with banks
    
338
   
171
 
Interest and dividends on securities:
              
Taxable
    
1,284
   
1,020
 
Exempt from federal income taxes
    
124
   
143
 
Interest on federal funds sold
    
520
   
276
 
Total interest income
    
15,890
   
13,065
 
           
Interest expense:
              
Interest on deposits
    
5,368
   
3,318
 
Interest on short-term borrowings
    
246
   
264
 
Interest on long-term borrowings
    
371
   
69
 
               
Total interest expense
    
5,985
   
3,651
 
Net interest income
    
9,905
   
9,414
 
Provision for loan and lease losses
    
242
   
311
 
Net interest income after provision for loan and lease losses
    
9,663
   
9,103
 
           
Noninterest income:
              
Securities gains (losses)
    
0
   
0
 
Service charges on deposit accounts
    
689
   
744
 
Insurance agency commissions
    
2,039
   
2,331
 
Other income
    
920
   
631
 
Total noninterest income
    
3,648
   
3,706
 
Noninterest expenses:
          
Salaries and employee benefits
    
4,933
   
4,468
 
Occupancy expense of premises
    
510
   
409
 
Equipment expenses
    
322
   
323
 
Data processing
    
432
   
377
 
Directors' fees
    
163
   
177
 
Amortization of intangible assets
    
83
   
84
 
Other expenses
    
1,448
   
1,253
 
Total noninterest expense
    
7,891
   
7,091
 
               
Income before income taxes
    
5,420
   
5,718
 
Income tax expense
    
2,017
   
2,167
 
               
Net income
  
$
3,403
  
$
3,551
  
               
Basic net income per share (1)
  
$
0.41
  
$
0.43
  
Diluted net income per share (1)
  
$
0.41
  
$
0.43
  
Dividends declared per share (1)
  
$
0.16
  
$
0.14
  

(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.