EX-99.1 2 v091011_ex99-1.htm

Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-822-1400

PRESS RELEASE

Shore Bancshares Reports Third Quarter Earnings

Easton, Maryland (10/18/2007)- Shore Bancshares, Inc. (NASDAQ - SHBI) reports third quarter earnings of $3.4 million or $0.40 per diluted share, compared to $3.2 million or $0.38 per diluted share for the third quarter of 2006. Net income for the nine-month period ended September 30, 2007 was $10.1 million or $1.20 per diluted share, compared to $10.5 million or $1.25 per diluted share for the first nine months of 2006.
 
“During a tough cycle for all community banks, we produced a satisfactory quarter marked by a 4.74% net interest margin that was ahead of both the second quarter of 2007 (4.66%) and the third quarter a year ago (4.62%),” said W. Moorhead Vermilye, President and CEO of Shore Bancshares, Inc. “Our fee-based revenue continued to grow and diversify. Credit quality across the various portfolios remains sound, with no material changes expected as we move through the balance of the year. On balance, we continued to expand and solidify our position as the leading independent banking organization headquartered on the Delmarva peninsula.”

The Company’s return on average assets for the third quarter of 2007 was 1.42%, compared to 1.40% for the same period last year. The return on average stockholders’ equity was 11.51% for the quarter ended September 30, 2007, compared to 11.84% for the same quarter last year.

The Company’s return on average assets for the nine months ended September 30, 2007 was 1.43%, compared to 1.60% for the nine months ended September 30, 2006. The return on average stockholders’ equity was 11.76% for the nine months ended September 30, 2007, compared to 13.22% for the same period last year.

At September 30, 2007, total assets were $940 million, total deposits were $760 million, and total stockholders’ equity was $118 million. Loan growth of approximately $51 million since December 31, 2006 was funded primarily by a reduction in cash balances. Total assets remained stable during the quarter despite a $4.6 million decline in deposits. Since December 31, 2006 total deposits have declined $14.1 million.

Review of Financial Results for the Quarter
 
Net interest income for the third quarter of 2007 was $10.5 million, an increase of 5.7% over the $9.9 million earned during the same period last year. The Company’s net interest margin was 4.74% for the third quarter of 2007, compared to 4.62% for the third quarter of 2006. The market for deposits remained competitive throughout the third quarter of 2007, resulting in higher rates paid for interest-bearing deposits. The cost of funds increased 22 basis points from 2.74% to 2.96% for the quarter ended September 30, 2007 when compared to the same quarter of 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 September 30, 2007 and 2006 was $604,000 and $416,000, respectively. Net charge-offs were $268,000 and $134,000 for the three months ended September 30, 2007 and 2006, respectively. The increase in the provision for the third 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 related to nonperforming loans. Management believes that the provision for credit losses and the resulting allowance are adequate at September 30, 2007.
 

Noninterest income for the third quarter of 2007 increased $167,000 when compared to the third quarter of 2006. A $289,000 increase in service charges and other fees was the primary reason for the increase.

Noninterest expense for the third quarter of 2007 increased $392,000 when compared to the third quarter of 2006. The increase is primarily attributable to an increase in overall salaries and benefits costs relating to the overall growth of the Company.

Review of Nine-Month Financial Results
 
Net interest income for the first nine months of 2007 increased 4.7% or $1,385,000 when compared to the first nine 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 2.30% at September 30, 2006 to 2.93% at September 30, 2007, resulting in a decline in the net interest margin from 4.80% for the nine months ended September 30, 2006 to 4.62% for the nine months ended September 30, 2007.

The provisions for credit losses for the nine-month periods ended September 30, 2007 and 2006 were $1,259,000 and $967,000, respectively. Net charge-offs were $338,000 and $360,000 for the nine months ended September 30, 2007 and 2006, respectively. The increased provision in 2007 reflects the overall growth of the loan portfolio as well as the identification of anticipated losses related to nonperforming loans. Overall credit quality has improved since December 31, 2006, although the identification of several troubled loans during the third quarter of 2007 increased nonperforming assets by $2,194,000 to $4,451,000 or 0.47% of total assets at September 30, 2007. The ratio of annualized net charge-offs to total loans was 0.06% at September 30, 2007.

Noninterest income for the nine months ended September 30, 2007 totaled $9,964,000, an increase of $51,000 when compared to the same period in 2006. The increase is primarily attributable to increased service charges and fees offset by a decrease in contingency income received by the Company’s insurance subsidiaries. Contingency income 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. Service charges on deposit accounts increased $98,000 and other noninterest income increased $366,000 when compared to the same nine-month period in 2006. The primary reasons for the growth in other noninterest income were a $209,000 increase in trust and investment management fees due to growth in assets under management and a $296,000 increase in commission income from mortgages originated for sale on the secondary market.

Noninterest expense for the nine months ended September 30, 2007 increased $1,892,000 or 8.9% 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 or Maryland, 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
 
410-822-1400
 
 
Financial Highlights (unaudited)
                          
           
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
(Dollars in thousands, except per share data)
  
2007
  
2006
  
% Change
  
2007
  
2006
  
% Change
  
PROFITABILITY FOR THE PERIOD:
                          
Net interest income
  
$
10,463
  
$
9,902
    
5.7
%
$
30,610
  
$
29,225
    
4.7
%
Provision for loan and lease losses
  
$
604
  
$
416
    
45.2
%
$
1,259
  
$
967
    
30.2
%
Noninterest income
  
$
3,055
  
$
2,888
    
5.8
%
$
9,964
  
$
9,913
    
0.5
%
Noninterest expense
  
$
7,599
  
$
7,207
    
5.4
%
$
23,237
  
$
21,345
    
8.9
%
Income before income taxes
  
$
5,315
  
$
5,167
    
2.9
%
$
16,078
  
$
16,826
    
-4.4
%
Inocme taxes
  
$
1,964
  
$
1,968
    
-0.2
%
$
5,968
  
$
6,325
    
-5.6
%
Net income
  
$
3,351
  
$
3,199
    
4.8
%
$
10,110
  
$
10,501
    
-3.7
%
Return on average assets
    
1.42
%
  
1.40
%
  
1.3
%
  
1.43
%
  
1.60
%
  
-10.7
%
Return on average equity
    
11.51
%
  
11.84
%
  
-2.8
%
  
11.76
%
  
13.22
%
  
-11.0
%
Net interest margin
    
4.74
%
  
4.62
%
  
2.6
%
  
4.62
%
  
4.80
%
  
-3.8
%
Efficiency ratio - GAAP based
    
56.21
%
  
56.35
%
  
-0.2
%
  
57.27
%
  
54.54
%
  
5.0
%
                                       
PER SHARE DATA:
                                      
Basic net income
  
$
0.40
  
$
0.38
    
5.3
%
$
1.21
  
$
1.26
    
-4.00
%
Diluted net income
  
$
0.40
  
$
0.38
    
5.3
%
$
1.20
  
$
1.25
    
-4.00
%
Dividends declared
  
$
0.16
  
$
0.15
    
6.7
%
$
0.48
  
$
0.44
    
9.1
%
Book Value
  
$
14.05
  
$
13.04
    
7.8
%
$
14.05
  
$
13.04
    
7.8
%
Tangible book value
  
$
12.46
  
$
11.41
    
9.2
%
$
12.46
  
$
11.41
    
9.2
%
                                       
Average fully diluted shares
    
8,392,157
   
8,396,437
   
-0.1
%
  
8,394,081
   
8,391,545
   
0.0
%
                                       
AT PERIOD-END:
                                      
Assets
  
$
939,877
  
$
934,337
    
0.6
%
$
939,877
  
$
934,337
    
0.6
%
Deposits
  
$
760,123
  
$
766,940
    
-0.9
%
$
760,123
  
$
766,940
    
-0.9
%
Loans and leases
  
$
750,457
  
$
685,659
    
9.5
%
$
750,457
  
$
685,659
    
9.5
%
Securities
  
$
122,773
  
$
125,391
    
-2.1
%
$
122,773
  
$
125,391
    
-2.1
%
Stockholders' equity
  
$
117,736
  
$
109,207
    
7.8
%
$
117,736
  
$
109,207
    
7.8
%
                                       
CAPITAL AND CREDIT QUALITY RATIOS:
                              
Average equity to average assets
    
12.30
%
  
11.81
%
        
12.13
%
  
12.08
%
      
Allowance for loan and lease losses to loans and leases
    
0.96
%
  
0.85
%
        
0.99
%
  
0.85
%
      
Nonperforming assets to total assets
    
0.47
%
  
0.39
%
        
0.47
%
  
0.39
%
      
Annualized net (charge-offs) recoveries to average loan and leases
    
0.06
%
  
0.08
%
        
0.06
%
  
0.07
%
      
 
 
Consolidated Balance Sheets (unaudited)
              
(Dollars in thousands)
              
               
   
September 30,
  
September 30,
  
December 31,
  
 
  
2007
  
2006
  
2006
  
ASSETS
              
Cash and due from banks
  
$
19,972
  
$
19,170
  
$
26,511
  
Federal funds sold
    
7,039
   
46,423
   
19,622
 
Interest-bearing deposits with banks
    
3,642
   
21,482
   
33,540
 
Investments available-for-sale (at fair value)
    
109,873
   
111,400
   
116,275
 
Investments held-to-maturity
    
12,900
   
13,991
   
13,971
 
                     
Total loans and leases
    
750,457
   
685,659
   
699,719
 
Less: allowance for loan and lease losses
    
(7,221
)
  
(5,843
)
  
(6,300
)
Net loans and leases
    
743,236
   
679,816
   
693,419
 
                     
Premises and equipment, net
    
15,651
   
15,945
   
15,974
 
Accrued interest receivable
    
5,840
   
5,225
   
4,892
 
Goodwill
    
11,939
   
11,939
   
11,939
 
Other intangible assets, net
    
1,366
   
1,653
   
1,569
 
Other assets
    
8,419
   
7,293
   
7,937
 
                     
Total assets
  
$
939,877
  
$
934,337
  
$
945,649
  
                     
LIABILITIES
                    
Noninterest-bearing deposits
  
$
110,496
  
$
115,785
  
$
109,962
  
Interest-bearing deposits
    
649,627
   
651,155
   
664,220
 
     
 
   
 
   
 
 
Total deposits
    
760,123
   
766,940
   
774,182
 
                     
Short-term borrowings
    
39,389
   
27,314
   
28,524
 
Other long-term borrowings
    
16,000
   
25,000
   
25,000
 
Accrued interest payable and other liabilities
    
6,629
   
5,876
   
6,616
 
     
 
   
 
   
 
 
Total liabilities
    
822,141
   
825,130
   
834,322
 
                     
STOCKHOLDER'S EQUITY
                    
Common stock
    
84
   
84
   
84
 
Additional paid in capital
    
29,518
   
29,560
   
29,688
 
Retained earnings
    
88,367
   
80,483
   
82,279
 
Accumulated other comprehensive income
    
(233
)
  
(920
)
  
(724
)
Total stockholder's equity
    
117,736
   
109,207
   
111,327
 
                     
Total liabilities and stockholder's equity
  
$
939,877
  
$
934,337
  
$
945,649
  

 
 
Consolidated Statements of Income (unaudited)
                  
(Dollars in thousands except per share data)
                  
           
   
Three Months Ended
  
Nine Months Ended
  
   
September 30,
  
September 30,
  
 
  
2007
  
2006
  
2007
  
2006
  
Interest Income:
                  
Interest and fees on loans and leases
  
$
14,732
  
$
13,375
  
$
42,566
  
$
37,311
  
Interest on deposits with banks
    
180
   
252
   
847
   
494
 
Interest and dividends on securities:
    
 
                    
Taxable
    
1,325
   
1,160
   
3,900
   
3,225
 
Exempt from federal income taxes
    
128
   
138
   
387
   
416
 
Interest on federal funds sold
    
178
   
443
   
988
   
930
 
Total interest income
    
16,543
   
15,368
   
48,688
   
42,376
 
                   
Interest expense:
                          
Interest on deposits
    
5,493
   
4,858
   
16,263
   
11,818
 
Interest on short-term borrowings
    
249
   
267
   
743
   
769
 
Interest on long-term borrowings
    
338
   
341
   
1,072
   
564
 
                         
Total interest expense
    
6,080
   
5,466
   
18,078
   
13,151
 
Net interest income
    
10,463
   
9,902
   
30,610
   
29,225
 
Provision for loan and lease losses
    
604
   
416
   
1,259
   
967
 
Net interest income after provision for loan and lease losses
    
9,859
   
9,486
   
29,351
   
28,258
 
                   
Noninterest income:
                          
Securities gains (losses)
    
-
   
3
   
1
   
3
 
Service charges on deposit accounts
    
949
   
799
   
2,420
   
2,322
 
Insurance agency commissions
    
1,403
   
1,423
   
5,004
   
5,415
 
Other income
    
703
   
663
   
2,539
   
2,173
 
Total noninterest income
    
3,055
   
2,888
   
9,964
   
9,913
 
Noninterest expenses:
                  
Salaries and employee benefits
    
4,823
   
4,466
   
14,471
   
13,329
 
Occupancy expense of premises
    
460
   
435
   
1,444
   
1,234
 
Equipment expenses
    
318
   
367
   
988
   
1,008
 
Data processing
    
454
   
401
   
1,353
   
1,173
 
Directors' fees
    
136
   
108
   
427
   
407
 
Amortization of intangible assets
    
56
   
85
   
203
   
253
 
Other expenses
    
1,352
   
1,345
   
4,351
   
3,941
 
Total noninterest expense
    
7,599
   
7,207
   
23,237
   
21,345
 
                           
Income before income taxes
    
5,315
   
5,167
   
16,078
   
16,826
 
Income tax expense
    
1,964
   
1,968
   
5,968
   
6,325
 
                         
Net income
  
$
3,351
  
$
3,199
  
$
10,110
  
$
10,501
  
                           
Basic net income per share
  
$
0.40
  
$
0.38
  
$
1.21
  
$
1.26
  
Diluted net income per share
  
$
0.40
  
$
0.38
  
$
1.20
  
$
1.25
  
Dividends declared per share
  
$
0.16
  
$
0.15
  
$
0.48
  
$
0.44