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): January 30, 2008

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)

Registrant’s telephone number, including area code: (410) 822-1400

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:

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

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

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

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

ITEM 2.02.Results of Operation and Financial Condition.

On January 30, 2008, Shore Bancshares, Inc. issued a press release describing its financial results for the three months and year ended December 31, 2007. A copy of the press release 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 99.1Press release dated January 30, 2008 (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: January 31, 2008	By:	/s/ W. Moorhead Vermilye
		W. Moorhead Vermilye
		President and CEO

- 2 -

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated January 30, 2008 (furnished herewith).

- 3 -

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 Earnings for 2007

Easton, Maryland (01/30/2008) - Shore Bancshares, Inc. (NASDAQ: SHBI) reported 2007 earnings of $13.45 million or $1.60 per diluted share, compared to $13.55 million or $1.61 per diluted share for 2006. Fourth quarter earnings were $3.34 million or $0.40 per diluted share, compared to $3.05 million or $0.36 per diluted share for the fourth quarter of 2006.

“Net income and earnings per share for the fourth quarter of 2007 improved over the fourth quarter of 2006, and the revenue numbers were essentially flat for the full year of 2007 when compared to 2006,” said W. Moorhead Vermilye, President and Chief Executive Officer. “Loan growth was solid throughout the final quarter and the year, loan demand continues to be very good, and we believe our pipelines remain full of high-quality lending opportunities. Deposit gathering has been challenging as pricing in all of our markets is very competitive, and we expect there will be continuing pressure on our margins as a result of ongoing interest rate cuts by the Federal Reserve Board. The Company’s various fee-based businesses are performing healthily and should provide an expanded noninterest revenue stream in 2008, especially as our two most recent insurance acquisitions ramp up.”

“We believe the underlying local Delmarva economy, including the residential and commercial real estate markets, continues to be both vibrant and resilient. While transaction volume has declined somewhat, real estate values across our region have held up quite well. The Company’s outstanding credit quality at year-end is attributable to the strength of our markets, our careful underwriting, our effective risk management and our historical ability to rapidly identify and mitigate potential problems that could affect our businesses. As we closed out the year we were pleased with the reduction in nonperforming assets. Our capital strength continues to be substantial.”

“At this point during a tough banking industry cycle, we believe we are now very well positioned to deliver further consistent growth and diversification as the leading publicly-traded financial institution on the Delmarva Peninsula,” Vermilye said.

The Company’s return on average assets for the year ended December 31, 2007 was 1.42%, compared to 1.52% for the same period last year. The return on average stockholders’ equity was 11.79% for the year ended December 31, 2007, compared to 12.66% for the year ended December 31, 2006.

At December 31, 2007, total assets were $956.9 million, total deposits were $765.9 million, and total stockholders’ equity was $120.2 million, compared to $945.6 million, $774.2 million, and $111.3 million, respectively, at December 31, 2006. The increase in total assets of $11.3 million since December 31, 2006 was primarily related to loan growth. Loans increased $76.6 million during 2007, totaling $776.4 million at December 31, 2007.

Review of Financial Results for the Quarter

Net interest income for the fourth quarter of 2007 was $10.4 million, an increase of 7.8% over the $9.7 million earned during the same period last year. An increased volume of earning assets, concentrated in loans, as well as higher overall yields were the reasons for the growth in net interest income. The Company’s net interest margin for the quarter ended December 31, 2007 increased to 4.70%, compared to 4.42% for the same period in 2006. The market for deposits remained competitive throughout the fourth quarter of 2007, resulting in higher rates paid for interest bearing deposits. The cost of interest bearing liabilities was 3.35% for the quarter ended December 31, 2007, compared to 3.33% for the same quarter in 2006.

The provision for credit losses for the three-month periods ended December 31, 2007 and 2006 was $465,000 and $526,000, respectively. Net charge-offs were $135,000 for the three months ended December 31, 2007, compared to $69,000 for the same period last year. The decline in the provision for the fourth quarter of 2007 over the same period last year is the result of a decline in nonaccrual loans. Management believes that the provision for credit losses and the resulting allowance are adequate at December 31, 2007.

Noninterest income for the fourth quarter of 2007 increased $1.8 million primarily as a result of two insurance entities acquired in the fourth quarter of 2007. Increases in service charges totaling $137,000 also contributed to the growth.

Noninterest expense for the fourth quarter of 2007 increased $2.1 million to $9.3 million when compared to the fourth quarter of 2006. The increase was primarily attributable to the acquisition of two new insurance entities acquired in the fourth quarter of 2007.

Review of Full-Year Financial Results

Net interest income for the year ended December 31, 2007 increased 5.5% or $2.1 million to $41 million when compared to 2006. The increase is the result of growth in earning assets, concentrated in the loan portfolio. The yield on earning assets increased 36 basis points to 7.34% and the overall cost of interest bearing liabilities increased 50 basis points to 3.36% for the year ended December 31, 2007 when compared to 2006. The Company’s net interest margin remained relatively flat at 4.64% for the year when compared to last year.

The provision for credit losses for the years ended December 31, 2007 and 2006 was $1,724,000 and $1,493,000, respectively. Net charge-offs were $472,000 and $429,000 for the years ended December 31, 2007 and 2006, respectively. The increased provision relates to the overall growth of the loan portfolio.

Noninterest income for the year ended December 31, 2007 totaled $14.7 million, an increase of 14.3% when compared to $12.8 million for 2006. The increase is primarily the result of the acquisition of two new insurance entities during the fourth quarter of 2007. Service charge income increased $235,000, insurance agency commissions increased $954,000 and other noninterest income increased $649,000 for the year ended December 31, 2007 when compared to 2006.

Noninterest expense for the year ended December 31, 2007 increased $4 million or 14% to $32.5 million when compared to the 2006. The increase is primarily attributable to the operating costs of the two new insurance agencies that were acquired in the fourth quarter of 2007 ($1,714,000) and increased salaries and benefits costs for the Company’s other operations ($1,513,000). The salaries and benefits cost increases that are non-acquisition related are the results of 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.

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; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin and Associates, Inc.; a wholesale insurance company; Tri-State General Insurance Agency, Inc.; an insurance premium finance company, Mubell Finance, LLC; and a registered investment adviser firm, Wye Financial Services, LLC.

Forward-Looking Statements

This press release contains 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 section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

For further information contact: W. Moorhead Vermilye, President and CEOPh: (410)822-1400

Financial Highlights
(Dollars in thousands, except per share data)	Three Months Ended									Twelve Months ended
	December 31,									December 31,
	2007			2006			% Change			2007			2006			% Change
PROFITABILITY FOR THE PERIOD:
Net interest income	$	10,426		$	9,671			7.8	%	$	41,036		$	38,896			5.5	%
Provision for loan and lease losses		465			526			-11.6	%	$	1,724			1,493			15.5	%
Noninterest income		4,715			2,926			61.1	%	$	14,679			12,839			14.3	%
Noninterest expense		9,302			7,189			29.4	%	$	32,539			28,534			14.0	%
Income before income taxes		5,374			4,882			10.1	%	$	21,452			21,708			-1.2	%
Income taxes		2,034			1,829			11.2	%	$	8,002			8,154			-1.9	%
Net income		3,340			3,053			9.4	%	$	13,450			13,554			-0.8	%
Return on average assets		1.40	%		1.30	%		8.1	%		1.42	%		1.52	%		-6.4	%
Return on average equity		11.78	%		11.06	%		6.5	%		11.79	%		12.66	%		-6.9	%
Net interest margin		4.70	%		4.42	%		6.3	%		4.64	%		4.70	%		-1.3	%
Efficiency ratio - GAAP based		61.44	%		56.40	%		8.9	%		58.40	%		54.50	%		7.2	%
PER SHARE DATA:
Basic net income	$	0.40		$	0.36			11.1	%	$	1.61		$	1.62			-0.6	%
Diluted net income	$	0.40		$	0.36			11.1	%	$	1.60		$	1.61			-0.6	%
Dividends declared	$	0.16		$	0.15			6.7	%	$	0.64		$	0.59			8.5	%
Book Value	$	14.35		$	13.28			8.0	%	$	14.35		$	13.28			8.0	%
Tangible book value	$	11.68		$	11.67			0.1	%	$	11.68		$	11.67			0.1	%
Average fully diluted shares		8,390,832			8,399,666			-0.2	%		8,394,075			8,393,011			0.0	%
AT PERIOD-END:
Assets	$	956,911		$	945,649			1.2	%	$	956,911		$	945,649			1.2	%
Deposits	$	765,895		$	774,182			-1.1	%	$	765,895		$	774,182			-1.1	%
Loans and leases	$	776,350		$	699,719			11.0	%	$	776,350		$	699,719			11.0	%
Securities	$	110,033		$	130,246			-15.5	%	$	110,033		$	130,246			-15.5	%
Stockholders' equity	$	120,235		$	111,327			8.0	%	$	120,235		$	111,327			8.0	%
CAPITAL AND CREDIT QUALITY RATIOS:
Average equity to average assets		11.91	%		11.72	%					12.04	%		11.98	%
Allowance for loan and lease losses to loans and leases		0.97	%		0.90	%					0.97	%		0.90	%
Nonperforming assets to total assets		0.39	%		0.85	%					0.39	%		0.85	%
Annualized net (charge-offs) recoveries to average loan and leases		0.06	%		0.06	%					0.06	%		0.06	%

Consolidated Balance Sheets
(In thousands)
	December 31,			December 31,
	2007			2006
ASSETS
Cash and due from banks	$	17,198		$	26,511
Federal funds sold		6,646			19,622
Interest-bearing deposits with banks		3,036			33,540
Investments available-for-sale (at fair value)		97,137			116,275
Investments held-to-maturity		12,896			13,971
Total loans and leases		776,350			699,719
Less: allowance for loan and lease losses		(7,551	)		(6,300	)
Net loans and leases		768,799			693,419
Premises and equipment, net		15,617			15,974
Accrued interest receivable		5,008			4,892
Goodwill		15,954			11,939
Other intangible assets, net		6,436			1,569
Other assets		8,184			7,937
Total assets	$	956,911		$	945,649
LIABILITIES
Noninterest-bearing deposits	$	104,081		$	109,962
Interest-bearing deposits		661,814			664,220
Total deposits		765,895			774,182
Short-term borrowings		47,694			26,524
Other long-term borrowings		12,485			27,000
Accrued interest payable and other liabilities		10,602			6,616
Total liabilities		836,676			834,322
STOCKHOLDER'S EQUITY
Common stock		84			84
Additional paid in capital		29,539			29,688
Retained earnings		90,365			82,279
Accumulated other comprehensive income		247			(724	)
Total stockholders’ equity		120,235			111,327
Total liabilities and stockholders’ equity	$	956,911		$	945,649

Consolidated Statements of Income
(Dollars in thousands, except per share data)
	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
	2007		2006		2007		2006
Interest Income:
Interest and fees on loans and leases	$	14,958	$	13,261	$	57,524	$	50,572
Interest on deposits with banks		46		445		893		939
Interest and dividends on securities:		-
Taxable		1,205		1,227		5,105		4,452
Exempt from federal income taxes		124		133		511		549
Interest on federal funds sold		120		529		1,108		1,459
Total interest income		16,453		15,595		65,141		57,971
Interest expense:
Interest on deposits		5,429		5,311		21,692		17,129
Interest on short-term borrowings		364		265		1,107		1,034
Interest on long-term borrowings		234		348		1,306		912
Total interest expense		6,027		5,924		24,105		19,075
Net interest income		10,426		9,671		41,036		38,896
Provision for loan and lease losses		465		526		1,724		1,493
Net interest income after provision for loan and lease losses		9,961		9,145		39,312		37,403
Noninterest income:
Securities gains (losses)		4		0		5		3
Service charges on deposit accounts		952		815		3,372		3,137
Insurance agency commissions		2,694		1,329		7,698		6,744
Other income		1,065		782		3,604		2,955
Total noninterest income		4,715		2,926		14,679		12,839
Noninterest expenses:
Salaries and employee benefits		5,520		4,364		19,991		17,693
Occupancy expense of premises		518		421		1,962		1,655
Equipment expenses		324		285		1,312		1,293
Data processing		467		386		1,820		1,559
Directors' fees		178		129		605		536
Amortization of intangible assets		130		84		333		337
Other expenses		2,165		1,520		6,516		5,461
Total noninterest expense		9,302		7,189		32,539		28,534
Income before income taxes		5,374		4,882		21,452		21,708
Income tax expense		2,034		1,829		8,002		8,154
Net income	$	3,340	$	3,053	$	13,450	$	13,554
Basic net income per share	$	0.40	$	0.36	$	1.61	$	1.62
Diluted net income per share	$	0.40	$	0.36	$	1.60	$	1.61
Dividends declared per share	$	0.16	$	0.15	$	0.64	$	0.59