EX-99.1 2 v081870_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 Second Quarter Earnings


Easton, Maryland (07/24/2007)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported second quarter earnings of $3.4 million or $0.40 per diluted share, compared to $3.8 million or $0.45 per diluted share for the second quarter of 2006. Net income for the six-month period ended June 30, 2007 was $6.8 million or $0.81 per diluted share, compared to $7.3 million or $0.87 per diluted share for the first half of 2006.

“Notwithstanding the intensity of competition and the duration of the current rate cycle, we believe the Company’s results of operations for the first half of 2007 were solid. Our key performance ratios, such as the net interest margin and returns on assets and equity, have held up relatively well and continue to compare favorably to community banking industry averages,” said W. Moorhead Vermilye, President and Chief Executive Officer. “During the first half of 2007, we saw the normalization of insurance contingency fees, which were approximately $283,000 lower than reported for the first half of 2006. We made a major investment in new leadership at Centreville National Bank by appointing Win Trice as that bank’s new CEO. Reserves were prudently increased in step with loan growth at our Delaware bank subsidiary and we continued to invest in its new Wal-Mart branch near Dover, Delaware, which has exceeded expectations in terms of growth in new accounts.”

“As we move into the second half of 2007, we remain focused on longer-term objectives, such as the diversification of fee income, superior asset quality, conservative balance sheet management and solidifying our leadership throughout the Delmarva peninsula,” added Vermilye.

The Company’s return on average assets for the second quarter of 2007 was 1.43%, compared to 1.75% for the same period last year. The return on average stockholders’ equity was 11.69% for the quarter ended June 30, 2007, compared to 14.57% for the same quarter last year.

The Company’s return on average assets for the six months ended June 30, 2007 was 1.43%, compared to 1.70% for the six months ended June 30, 2006. The return on average stockholders’ equity was 11.89% for the six months ended June 30, 2007, compared to 13.93% for the same period last year.

At June 30, 2007, total assets were $940.8 million, total deposits were $764.7 million, and total stockholders’ equity was $114.9 million. Loan growth of approximately $31 million since December 31, 2006 was funded primarily by a reduction in cash balances. Total assets declined $4.9 million as a result of a $9.5 million decline in deposits concentrated in interest-bearing checking, money market and savings balances. Certificates of deposit increased $7.3 million during the six-month period ended June 30, 2007.

Review of Financial Results for the Quarter
Net interest income for the second quarter of 2007 was $10.2 million, an increase of 3.4% over the $9.9 million earned during the same period last year. The Company’s net interest margin was 4.66% for the second quarter of 2007, compared to 5.00% for the second quarter of 2006. The market for deposits remained competitive throughout the second quarter of 2007, resulting in higher rates paid for interest-bearing deposits. The cost of funds increased 79 basis points from 2.15% to 2.94% for the quarter ended June 30, 2007 when compared to the same quarter in 2006. The competitive environment for deposits was the primary cause of the increase in the cost of funds.

The provision for credit losses for the three-month periods ended June 30, 2007 and 2006 was $413,000 and $240,000, respectively. Net charge-offs were $34,000 and $95,000 for the three months ended June 30, 2007 and 2006, respectively. The increase in the provision for the second quarter of 2007 when compared to the same period last year reflects the continued growth of the Company’s loan portfolio as well as the anticipated losses inherent in nonperforming loans. Management believes that the provision for credit losses and the resulting allowance are adequate at June 30, 2007.

Noninterest income for the second quarter of 2007 declined $58,000 when compared to the second quarter of 2006. Increases in income from trust operations and secondary market mortgage commissions were offset by a decline in insurance commissions when compared to the second quarter of 2006. The Company also realized nonrecurring gains on life insurance policies in 2006 relating to a deferred compensation plan.

Noninterest expense for the second quarter of 2007 increased $700,000 when compared to the second quarter of 2006. The increase is primarily attributable to the increased cost of operating two additional bank branches as well as 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. The Company also incurred additional operating expense in conjunction with the search to fill the CEO position at The Centreville National Bank, following the retirement of the previous CEO on December 31, 2006. A portion of the increase in salaries and benefits costs of $320,000, as well as the increases in occupancy and equipment expense of $114,000, increased data processing cost $72,000 and increases in other operating expense of $194,000 relate to the overall growth of the Company in comparison to a year ago

Review of Six-Month Financial Results
Net interest income for the first six months of 2007 increased 4.3% or $824,000 when compared to the first six months of 2006. The increase is the result of growth in the loan portfolio. The Company experienced an increase in the overall cost of funds from 2.06% at June 30, 2006 to 2.92% at June 30, 2007, resulting in a decline in the net interest margin from 4.90% for the six months ended June 30, 2006 to 4.56% for the six months ended June 30, 2007.

The provisions for credit losses for the six-month periods ended June 30, 2007 and 2006 were $655,000 and $551,000, respectively. Net charge-offs were $70,000 and $225,000 for the six months ended June 30, 2007 and 2006, respectively. The increased provision in 2007 reflects the overall growth of the loan portfolio as well as the identification of losses inherent in nonperforming loans. Credit quality has improved since December 31, 2006, but the identification of several troubled loans during the second quarter of 2007 increased the nonperforming assets to total assets ratio from 0.09% to 0.24% at June 30, 2007. Annualized net charge-offs to total loans was 0.02% at June 30, 2007.

Noninterest income for the six months ended June 30, 2007 totaled $6.9 million, a decrease of 1.7% when compared to $7.0 million for the same period in 2006. The decline is primarily attributable to a decrease in insurance agency commissions relating to contingency income received, 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. During the first half of 2007, service charge income declined $52,000, insurance agency commissions, which includes contingency income, declined $391,000 and other noninterest income increased $326,000 when compared to the same six-month period in 2006. The increase in other noninterest income is primarily attributable to trust and investment management fee increases of approximately $144,000 due to growth in assets under management and increased commission income from mortgages originated for sale on the secondary market of $309,000.

Noninterest expense for the six months ended June 30, 2007 increased $1.5 million or 10.6% when compared to the same period in 2006. The increase is primarily attributable to the increased cost of operating two additional bank branches, increased commission expense related to the increased income from the trust and advisory services and secondary market mortgage programs, as well as additional cost associated with segregating the CEO positions at Shore Bancshares and The Talbot Bank of Easton, Maryland, and hiring a new CEO for The Talbot Bank in the third quarter of 2006. The Company also incurred additional operating expense in conjunction with the search to fill the CEO position at The Centreville National Bank, following the retirement of the previous CEO on December 31, 2006.

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
 
Six Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
June 30,
 
 
 
 
 
2007
 
2006
 
% Change
 
2007
 
2006
 
% Change
  
PROFITABILITY FOR THE PERIOD:
                          
Net interest income
  
$
10,242
  
$
9,909
    
3.4
%
$
20,147
  
$
19,323
    
4.3
%
Provision for loan and lease losses
    
413
    
240
    
72.1
%
  
655
    
551
    
18.9
%
Noninterest income
    
3,261
    
3,319
    
-1.7
%
  
6,909
    
7,025
    
-1.7
%
Noninterest expense
    
7,747
    
7,047
    
9.9
%
  
15,638
    
14,138
    
10.6
%
Income before income taxes
    
5,343
    
5,941
    
-10.1
%
  
10,763
    
11,659
    
-7.7
%
Income taxes
    
1,987
    
2,190
    
-9.3
%
  
4,004
    
4,357
    
-8.1
%
Net income
    
3,356
    
3,751
    
-10.5
%
  
6,759
    
7,302
    
-7.4
%
Return on average assets
    
1.43
%
  
1.75
%
  
-18.3
%
  
1.43
%
  
1.70
%
  
-16.0
%
Return on average equity
    
11.69
%
  
14.57
%
  
-19.8
%
  
11.89
%
  
13.93
%
  
-14.7
%
Net interest margin
    
4.66
%
  
5.00
%
  
-6.8
%
  
4.56
%
  
4.90
%
  
-6.9
%
Efficiency ratio - GAAP based
    
57.37
%
  
53.27
%
  
7.7
%
  
57.80
%
  
53.66
%
  
7.7
%
                                       
                                       
PER SHARE DATA:
                                      
Basic net income
  
$
0.40
  
$
0.45
    
-11.1
%
$
0.81
  
$
0.87
    
-6.9
%
Diluted net income
  
$
0.40
  
$
0.45
    
-11.1
%
$
0.81
  
$
0.87
    
-6.9
%
Dividends declared
  
$
0.16
  
$
0.15
    
6.7
%
$
0.32
  
$
0.29
    
10.3
%
Book Value
  
$
13.72
  
$
12.69
    
8.0
%
$
13.72
  
$
12.69
    
8.0
%
Tangible book value
  
$
12.12
  
$
11.06
    
9.6
%
$
12.12
  
$
11.06
    
9.6
%
Average fully diluted shares
    
8,393,302
   
8,393,253
   
0.0
%
  
8,394,797
   
8,389,552
   
0.1
%
                                       
AT PERIOD-END:
                                      
Assets
  
$
940,763
  
$
887,585
    
6.0
%
$
940,763
  
$
887,585
    
6.0
%
Deposits
  
$
764,728
  
$
715,562
    
6.9
%
$
764,728
  
$
715,562
    
6.9
%
Loans and leases
  
$
731,210
  
$
675,772
    
8.2
%
$
731,210
  
$
675,772
    
8.2
%
Securities
  
$
126,305
  
$
117,799
    
7.2
%
$
126,305
  
$
117,799
    
7.2
%
Stockholders' equity
  
$
114,930
  
$
106,231
    
8.2
%
$
114,930
  
$
106,231
    
8.2
%
 
                                      
CAPITAL AND CREDIT QUALITY RATIOS:
                              
Average equity to average assets
    
12.21
%
  
11.98
%
        
12.04
%
  
12.22
%
      
Allowance for loan and lease losses to loans and leases
    
0.94
%
  
0.82
%
        
0.94
%
  
0.82
%
      
Nonperforming assets to total assets
    
0.24
%
  
0.09
%
        
0.24
%
  
0.09
%
      
Annualized net (charge-offs) recoveries to average loan and leases
    
0.02
%
  
0.06
%
        
0.02
%
  
0.07
%
      
                                       
 

Consolidated Balance Sheets
          
(Dollars in thousands, except per share data)
          
               
               
   
June 30,
 
June 30,
 
December 31,
 
 
 
2007
 
2006
 
2006
  
ASSETS
              
Cash and due from banks
  
$
16,743
  
$
16,061
  
$
26,511
  
Federal funds sold
    
15,226
   
29,385
   
19,622
 
Interest-bearing deposits with banks
    
15,553
   
12,543
   
33,540
 
Investments available-for-sale (at fair value)
    
112,353
   
103,440
   
116,275
 
Investments held-to-maturity
   
13,952
   
14,359
   
13,971
 
                     
Total loans and leases
    
731,210
   
675,772
   
699,719
 
Less: allowance for loan and lease losses
    
(6,884
)
  
(5,562
)
  
(6,300
)
Net loans and leases
    
724,326
   
670,210
   
693,419
 
                     
Premises and equipment, net
    
15,965
   
15,946
   
15,974
 
Accrued interest receivable
    
5,065
   
4,270
   
4,892
 
Goodwill
    
11,939
   
11,939
   
11,939
 
Other intangible assets, net
    
1,421
   
1,737
   
1,569
 
Other assets
    
8,220
   
7,695
   
7,937
 
 
                    
Total assets
  
$
940,763
  
$
887,585
  
$
945,649
  
                     
LIABILITIES
                    
Noninterest-bearing deposits
    
110,305
   
112,659
   
109,962
 
Interest-bearing deposits
    
654,423
   
602,903
   
664,220
 
                        
Total deposits
    
764,728
   
715,562
   
774,182
 
                     
Short-term borrowings
    
27,560
   
35,426
   
26,524
 
Other long-term borrowings
    
27,000
   
25,000
   
27,000
 
Accrued interest payable and other liabilities
    
6,545
   
5,366
   
6,616
 
                     
Total liabilities
    
825,833
   
781,354
   
834,322
 
                     
STOCKHOLDER'S EQUITY
                    
                     
Common stock
   
84
   
84
   
84
 
Additional paid in capital
    
29,487
   
29,423
   
29,688
 
Retained earnings
    
86,356
   
78,540
   
82,279
 
Accumulated other comprehensive income
    
(997
)
  
(1,816
)
  
(724
)
Total stockholder's equity
    
114,930
   
106,231
   
111,327
 
                     
Total liabilities and stockholder's equity
  
$
940,763
  
$
887,585
  
$
945,649
  
 

Consolidated Statements of Income
                  
(Dollars in thousands, except per share data)
                  
   
Three Months Ended
 
Six Months Ended
 
 
 
June 30,
 
June 30,
 
 
 
2007
 
2006
 
2007
 
2006
  
Interest Income:
                  
Interest and fees on loans and leases
  
$
14,210
  
$
12,481
  
$
27,834
  
$
23,936
  
Interest on deposits with banks
    
329
   
71
   
667
   
242
 
Interest and dividends on securities:
    
0
                   
Taxable
    
1,291
   
1,045
   
2,575
   
2,065
 
Exempt from federal income taxes
    
135
   
135
   
259
   
278
 
Interest on federal funds sold
    
290
   
211
   
810
   
487
 
Total interest income
    
16,255
   
13,943
   
32,145
   
27,008
 
                   
Interest expense:
                          
Interest on deposits
    
5,402
   
3,642
   
10,770
   
6,960
 
Interest on short-term borrowings
    
248
   
238
   
494
   
502
 
Interest on long-term borrowings
    
363
   
154
   
734
   
223
 
                         
Total interest expense
    
6,013
   
4,034
   
11,998
   
7,685
 
Net interest income
    
10,242
   
9,909
   
20,147
   
19,323
 
Provision for loan and lease losses
    
413
   
240
   
655
   
551
 
Net interest income after provision for loan and lease losses
    
9,829
   
9,669
   
19,492
   
18,772
 
                   
Noninterest income:
                          
Securities gains (losses)
    
1
   
0
   
1
   
0
 
Service charges on deposit accounts
    
782
   
779
   
1,471
   
1,523
 
Insurance agency commissions
    
1,562
   
1,661
   
3,601
   
3,992
 
Other income
    
916
   
879
   
1,836
   
1,510
 
Total noninterest income
    
3,261
   
3,319
   
6,909
   
7,025
 
Noninterest expenses:
                  
Salaries and employee benefits
    
4,715
   
4,395
   
9,648
   
8,863
 
Occupancy expense of premises
    
474
   
390
   
984
   
799
 
Equipment expenses
    
348
   
318
   
670
   
641
 
Data processing
    
467
   
395
   
899
   
772
 
Directors' fees
    
128
   
122
   
291
   
299
 
Amortization of intangible assets
    
64
   
84
   
147
   
168
 
Other expenses
    
1,551
   
1,343
   
2,999
   
2,596
 
Total noninterest expense
    
7,747
   
7,047
   
15,638
   
14,138
 
                           
Income before income taxes
    
5,343
   
5,941
   
10,763
   
11,659
 
Income tax expense
    
1,987
   
2,190
   
4,004
   
4,357
 
                         
Net income
  
$
3,356
  
$
3,751
  
$
6,759
  
$
7,302
  
                           
Basic net income per share
  
$
0.40
  
$
0.45
  
$
0.81
  
$
0.87
  
Diluted net income per share
  
$
0.40
  
$
0.45
  
$
0.81
  
$
0.87
  
Dividends declared per share
  
$
0.16
  
$
0.15
  
$
0.32
  
$
0.29