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): July 23, 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:

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

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

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

࿳Pre-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 July 23, 2008, Shore Bancshares, Inc. issued a press release describing its financial results for the three and six months ended June 30, 2008. 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 July 23, 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: July 24, 2008	By:	/s/ W. Moorhead Vermilye
		W. Moorhead Vermilye President and CEO

-2-

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated July 23, 2008 (furnished herewith).

-3-

EX-99.1

Shore Bancshares, Inc.

18 E. Dover Street

Easton, Maryland 21601

Phone 410-822-1400

PRESS RELEASE

Shore Bancshares Reports Second Quarter and First-Half Results

Easton, Maryland (07/23/2008) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $2.766 million or $0.33 per diluted share for the second quarter of 2008, compared to $3.372 million or $0.40 per diluted share for the first quarter of 2008 and $3.356 million or $0.40 per diluted share for the second quarter of 2007. Net income for the first half of 2008 was $6.1 million or $0.73 per diluted share, compared to $6.8 million or $0.81 per diluted share for the first half of 2007.

“Having passed the halfway mark during a year that will surely prove among the most difficult for many community banks, we think our relative performance has been very good and our outlook remains quite positive as it relates to the stability and uniqueness of our markets as well as our growth prospects, our asset quality and our capital strength,” said W. Moorhead Vermilye, president and chief executive officer of Shore Bancshares, Inc. “We are cautious, but upbeat and we see the glass as much more full than empty.”

“At June 30, our total stockholders’ equity was $123 million, with average equity to average assets at 12.45% and average tangible equity to average tangible assets at 10.43%. Our capital ratios continue to be well in excess of regulatory minimums.”

“We believe our loan quality is excellent, especially given current economic conditions across the country and also closer to home in the mid-Atlantic region. We also believe the close proximity of our home markets on the Delmarva Peninsula to the major metro centers from New York down to the Norfolk-area tidewater complex gives us far more benefits than we tend to get credit for.”

“Our loan delinquencies and nonperforming assets remain at very low levels. We added $615 thousand to our provision for loan losses during the second quarter, due to economic conditions and to keep pace with overall loan growth, which was $33 million in new loans during the second quarter, as loans were up 4.1%. Our ratio of nonperforming assets to total assets stood at a very favorable 0.47% at June 30, 2008 and net charge-offs for the second quarter amounted to $259 thousand. All of these measures reflect continuing adherence to our traditional very conservative approach to originating loans and to the broader process of managing overall credit quality.”

“During the second quarter, the underlying strength of our markets and our position as the dominant independent local banking company on the Delmarva Peninsula combined to produce both very respectable loan growth, plus nearly $2 million in new noninterest (fee-based) income. The increase in fee-based revenue over the second quarter of 2007 was primarily the result of our acquisition of two insurance agencies during the fourth quarter of 2007. We think the acquisitions will bode well as we strive to diversify overall fee-based revenue sources to help stabilize the impact of volatile interest rates that impact the lending side of our business.”

“On a related note, we continued to fund our loan growth primarily through our own local core deposit-gathering activities. In a very competitive environment for deposits, we were able to hold the resulting decline in our net interest margin to 49 basis points during the second quarter versus a year ago (and a 25 basis point decline versus the linked first quarter of 2008). So the margin stood at 4.17% for the second quarter of 2008 and 4.30% for the first half of 2008, which we believe is better than decent, given the operating environment for community banks,” said Vermilye. “From a strategic standpoint, we feel our company is well-positioned to take advantage of rising rates in the future. In the meantime, we plan to

Page 2 of 8

remain focused on strong underwriting and core business organic growth initiatives - areas in which we traditionally excel.”

The Company’s return on average assets for the second quarter of 2008 was 1.12%, compared to 1.38% and 1.43% for the quarters ended March 31, 2008 and June 30, 2007, respectively. The return on average stockholders’ equity was 8.98% for the second quarter of 2008, compared to 10.96% for the first quarter of 2008 and 11.69% for the second quarter of 2007.

The Company’s return on average assets for the first six months of 2008 was 1.25%, compared to 1.43% for the first six months of 2007. The return on average stockholders’ equity was 10.02% for the first half of 2008, compared to 11.89% for the first half of 2007.

At June 30, 2008, total assets were $1.019 billion, total deposits were $818.7 million, and total stockholders’ equity was $123.0 million compared to $956.9 million, $765.9 million and $120.2 million, respectively, at December 31, 2007.The increase in total assets of approximately $62 million since December 31, 2007 related mainly to growth in loans, funded primarily by deposit growth. The growth in loans was $65.2 million during the first half of 2008, with period-end loans totaling $841.6 million at June 30, 2008.

Review of Quarterly Financial Results

Net interest income for the second quarter of 2008 was $9.6 million, a decrease of 4.0% from the first quarter of 2008 and a decrease of 6.0% from the same period last year. Lower yields on earning assets were the primary reason for the decreases. The Company’s net interest margin was 4.17% for the second quarter of 2008, a decrease of 25 basis points when compared to the first quarter of 2008 and a decrease of 49 basis points when compared to the second quarter of 2007.

The provision for credit losses was $615 thousand for the three months ended June 30, 2008. The comparable amounts were $462 thousand and $413 thousand for the three months ended March 31, 2008 and June 30, 2007, respectively. The increased provision for the second quarter of 2008 when compared to the first quarter of 2008 and the second quarter of 2007 reflected the continued growth in the loan portfolio and current economic conditions. Net charge-offs were $259 thousand for the second quarter of 2008, $87 thousand for the first quarter of 2008 and $34 thousand for the second quarter of 2007. Quarter-to-date annualized net charge-offs to average loans was 0.13% for the second quarter of 2008, 0.04% for the first quarter of 2008 and 0.02% for the second quarter of 2007. Nonperforming assets to total assets was 0.47% at June 30, 2008. The comparable nonperforming asset ratio was 0.34% at March 31, 2008 and 0.24% at June 30, 2007. The allowance for credit losses to period-end loans was 0.98% at both June 30, 2008 and March 31, 2008 and 0.94% at June 30, 2007. Management believes that the provision for credit losses and the resulting allowance were adequate at June 30, 2008.

Noninterest income for the second quarter of 2008 increased $1.9 million when compared to the second quarter of 2007. The increase was primarily the result of the acquisition of two insurance agencies during the fourth quarter of 2007. Service charge income increased $135 thousand, insurance agency commissions increased $1.5 million and other noninterest income increased $250 thousand for the second quarter of 2008 when compared to the second quarter of 2007. Noninterest income decreased $308 thousand from the first quarter of 2008 due to a decrease in insurance agency commissions of $356 thousand. When compared to the first quarter of 2008 service charge income increased $46 thousand.

Noninterest expense for the second quarter of 2008 increased $2.0 million when compared to the second quarter of 2007. The increase was primarily attributable to the operating expenses of the two insurance agencies acquired during the fourth quarter of 2007. Salaries and benefits increased $1.0 million and other noninterest expenses increased $885 thousand for the second quarter of 2008 when compared to the second quarter of 2007. Noninterest expense increased $138 thousand from the first quarter of 2008 primarily due to an increase in other noninterest expenses partially offset by a decrease in salaries and benefits.

Page 3 of 8

Review of Six-Month Financial Results

Net interest income for the first six months of 2008 was $19.7 million, a decrease of 2.4% when compared to the first six months of 2007. The decrease was primarily the result of lower yields on earning assets. The net interest margin declined 26 basis points from 4.56% for the first half of 2007 to 4.30% for the first half of 2008.

The provisions for credit losses for the six months ended June 30, 2008 and 2007 were $1.1 million and $655 thousand, respectively. Net charge-offs were $346 thousand and $70 thousand for the six months ended June 30, 2008 and 2007, respectively. The increased provision in 2008 reflected the overall growth of the loan portfolio as well as current economic conditions. Year-to-date annualized net charge-offs to average loans was 0.09% for the first half of 2008 and 0.02% for the first half of 2007.

Noninterest income for the six months ended June 30, 2008 totaled $10.7 million, an increase of $3.8 million when compared to the same period in 2007. The increase was primarily due to the acquisition of the two insurance agencies during the fourth quarter of 2007. Service charge income increased $317 thousand, insurance agency commissions increased $3.0 million and other noninterest income increased $494 thousand for the first half of 2008 when compared to the first half of 2007.

Noninterest expense for the six months ended June 30, 2008 was $19.3 million, an increase of $3.7 million when compared to the same period in 2007. The increase was primarily attributable to the operating expenses of the two insurance agencies acquired during the fourth quarter of 2007. Salaries and benefits increased $2.1 million and other noninterest expenses increased $1.5 million for the first half of 2008 when compared to the first half of 2007.

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, TSGIA, Inc; two insurance premium finance companies, Mubell Finance, LLC and ESFS, Inc; a registered investment adviser firm, Wye Financial Services, LLC; and a mortgage broker subsidiary, Wye Mortgage Group, 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. 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 CEO

Page 4 of 8

Shore Bancshares, Inc.
Financial Highlights
(Dollars in thousands, except per share data)
	For the Three Months Ended									For the Six Months Ended
	June 30,									June 30,
	2008			2007			% Change			2008			2007			% Change
PROFITABILITY FOR THE PERIOD
Net interest income	$	9,632		$	10,242			(6.0	)%	$	19,662		$	20,147			(2.4	)%
Provision for credit losses		615			413			48.9			1,077			655			64.4
Noninterest income		5,194			3,261			59.3			10,696			6,909			54.8
Noninterest expense		9,729			7,747			25.6			19,320			15,638			23.5
Income before income taxes		4,482			5,343			(16.1	)		9,961			10,763			(7.5	)
Income tax expense		1,716			1,987			(13.6	)		3,823			4,004			(4.5	)
Net income	$	2,766		$	3,356			(17.6	)	$	6,138		$	6,759			(9.2	)
Return on average assets		1.12	%		1.43	%		(21.7	)%		1.25	%		1.43	%		(12.6	)%
Return on average equity		8.98			11.69			(23.2	)		10.02			11.89			(15.7	)
Net interest margin		4.17			4.66			(10.5	)		4.30			4.56			(5.7	)
Efficiency ratio - GAAP based		65.62			57.37			14.4			63.64			57.80			10.1
PER SHARE DATA
Basic net income	$	0.33		$	0.40			(17.5	)%	$	0.73		$	0.81			(9.9	)%
Diluted net income		0.33			0.40			(17.5	)		0.73			0.81			(9.9	)
Dividends paid		0.16			0.16			-			0.32			0.32			-
Book value at period end		14.65			13.72			6.8
Tangible book value at period end		12.01			12.12			(0.9	)
Market value at period end		18.72			25.85			(27.6	)
Market range:
High		26.47			29.15			(9.2	)		26.47			30.76			(13.9	)
Low		18.52			23.98			(22.8	)		18.52			23.54			(21.3	)
AT PERIOD END
Loans	$	841,600		$	731,211			15.1	%
Securities		91,842			126,305			(27.3	)
Assets		1,019,463			940,763			8.4
Deposits		818,656			764,728			7.1
Stockholders' equity		123,038			114,930			7.1
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		12.41	%		12.21	%					12.45	%		12.04	%
Annualized net charge-offs to average loans		0.13			0.02						0.09			0.02
Allowance for credit losses to period-end loans		0.98			0.94
Nonperforming assets to total assets		0.47			0.24

Page 5 of 8

Shore Bancshares, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
										June 30, 2008
										compared to			June 30, 2008
	June 30,			December 31,			June 30,			December 31,			compared to
	2008			2007			2007			2007			June 30, 2007
ASSETS
Cash and due from banks	$	19,532		$	17,198		$	16,743			13.6	%		16.7	%
Interest-bearing deposits with other banks		343			3,036			15,553			(88.7	)		(97.8	)
Federal funds sold		23,111			6,646			15,226			247.7			51.8
Investments available-for-sale (at fair value)		80,721			97,137			112,353			(16.9	)		(28.2	)
Investments held-to-maturity		11,121			12,896			13,952			(13.8	)		(20.3	)
Loans		841,600			776,350			731,211			8.4			15.1
Less: allowance for credit losses		(8,282	)		(7,551	)		(6,885	)		9.7			20.3
Loans, net		833,318			768,799			724,326			8.4			15.0
Premises and equipment, net		14,465			15,617			15,965			(7.4	)		(9.4	)
Accrued interest receivable		4,843			5,008			5,065			(3.3	)		(4.4	)
Goodwill		15,954			15,954			11,939			-			33.6
Other intangible assets, net		6,179			6,436			1,421			(4.0	)		334.8
Other real estate owned		-			176			313			(100.0	)		(100.0	)
Other assets		9,876			8,008			7,907			23.3			24.9
Total assets	$	1,019,463		$	956,911		$	940,763			6.5			8.4
LIABILITIES
Noninterest-bearing deposits	$	109,718		$	104,081		$	110,305			5.4			(0.5	)
Interest-bearing deposits		708,938			661,814			654,423			7.1			8.3
Total deposits		818,656			765,895			764,728			6.9			7.1
Short-term borrowings		58,263			47,694			27,560			22.2			111.4
Long-term debt		8,485			12,485			27,000			(32.0	)		(68.6	)
Accrued interest payable and other liabilities		11,021			10,602			6,545			4.0			68.4
Total liabilities		896,425			836,676			825,833			7.1			8.5
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares		84			84			84			-			-
Additional paid in capital		29,663			29,539			29,487			0.4			0.6
Retained earnings		93,498			90,365			86,356			3.5			8.3
Accumulated other comprehensive income (loss)		(207	)		247			(997	)		(183.8	)		79.2
Total stockholders' equity		123,038			120,235			114,930			2.3			7.1
Total liabilities and stockholders' equity	$	1,019,463		$	956,911		$	940,763			6.5			8.4
Period-end shares outstanding		8,400			8,381			8,379			0.2			0.3
Book value per share	$	14.65		$	14.35		$	13.72			2.1			6.8

Page 6 of 8

Shore Bancshares, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
	For the Three Months Ended							For the Six Months Ended
	June 30,							June 30,
	2008		2007		% Change			2008		2007		% Change
INTEREST INCOME
Interest and fees on loans	$	13,961	$	14,210		(1.8	)%	$	28,521	$	27,834		2.5	%
Interest and dividends on investment securities:
Taxable		945		1,291		(26.8	)		2,025		2,575		(21.4	)
Tax-exempt		109		135		(19.3	)		232		259		(10.4	)
Interest on federal funds sold		83		290		(71.4	)		205		810		(74.7	)
Interest on deposits with other banks		29		329		(91.2	)		67		667		(90.0	)
Total interest income		15,127		16,255		(6.9	)		31,050		32,145		(3.4	)
INTEREST EXPENSE
Interest on deposits		4,997		5,402		(7.5	)		10,340		10,770		(4.0	)
Interest on short-term borrowings		316		276		14.5			682		559		22.0
Interest on long-term debt		182		335		(45.7	)		366		669		(45.3	)
Total interest expense		5,495		6,013		(8.6	)		11,388		11,998		(5.1	)
NET INTEREST INCOME		9,632		10,242		(6.0	)		19,662		20,147		(2.4	)
Provision for credit losses		615		413		48.9			1,077		655		64.4
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		9,017		9,829		(8.3	)		18,585		19,492		(4.7	)
NONINTEREST INCOME
Service charges on deposit accounts		917		782		17.3			1,788		1,471		21.5
Investment securities gains (losses)		-		1		(100.0	)		-		1		(100.0	)
Insurance agency commissions		3,111		1,562		99.2			6,578		3,601		82.7
Other noninterest income		1,166		916		27.3			2,330		1,836		26.9
Total noninterest income		5,194		3,261		59.3			10,696		6,909		54.8
NONINTEREST EXPENSE
Salaries and employee benefits		5,759		4,715		22.1			11,743		9,648		21.7
Occupancy expense		537		474		13.3			1,036		984		5.3
Furniture and equipment expense		298		348		(14.4	)		584		670		(12.8	)
Data processing		440		467		(5.8	)		910		899		1.2
Directors' fees		130		128		1.6			295		291		1.4
Amortization of intangible assets		129		64		101.6			258		147		75.5
Other noninterest expenses		2,436		1,551		57.1			4,494		2,999		49.8
Total noninterest expense		9,729		7,747		25.6			19,320		15,638		23.5
Income before income taxes		4,482		5,343		(16.1	)		9,961		10,763		(7.5	)
Income tax expense		1,716		1,987		(13.6	)		3,823		4,004		(4.5	)
NET INCOME	$	2,766	$	3,356		(17.6	)	$	6,138	$	6,759		(9.2	)
Weighted average shares outstanding - basic		8,381		8,378		0.0			8,379		8,380		(0.0	)
Weighted average shares outstanding - diluted		8,388		8,393		(0.1	)		8,387		8,395		(0.1	)
Basic net income per share	$	0.33	$	0.40		(17.5	)	$	0.73	$	0.81		(9.9	)
Diluted net income per share		0.33		0.40		(17.5	)		0.73		0.81		(9.9	)
Dividends paid per share		0.16		0.16		-			0.32		0.32		-

Page 7 of 8

Shore Bancshares, Inc.
Financial Highlights By Quarter
(Dollars in thousands, except per share data)
	2nd quarter			1st quarter			4th quarter			3rd quarter			2nd quarter			2Q 08 compared			2Q 08 compared
	2008			2008			2007			2007			2007			to			to
	(2Q 08)			(1Q 08)			(4Q 07)			(3Q 07)			(2Q 07)			1Q 08			2Q 07
PROFITABILITY FOR THE PERIOD
Net interest income	$	9,632		$	10,030		$	10,426		$	10,463		$	10,242			(4.0	)%		(6.0	)%
Provision for credit losses		615			462			465			604			413			33.1			48.9
Noninterest income		5,194			5,502			4,715			3,055			3,261			(5.6	)		59.3
Noninterest expense		9,729			9,591			9,302			7,599			7,747			1.4			25.6
Income before income taxes		4,482			5,479			5,374			5,315			5,343			(18.2	)		(16.1	)
Income tax expense		1,716			2,107			2,034			1,964			1,987			(18.6	)		(13.6	)
Net income	$	2,766		$	3,372		$	3,340		$	3,351		$	3,356			(18.0	)		(17.6	)
Return on average assets		1.12	%		1.38	%		1.40	%		1.42	%		1.43	%		(18.8	)%		(21.7	)%
Return on average equity		8.98			10.96			11.78			11.51			11.69			(18.1	)		(23.2	)
Net interest margin		4.17			4.42			4.70			4.74			4.66			(5.7	)		(10.5	)
Efficiency ratio - GAAP based		65.62			61.75			61.44			56.21			57.37			6.3			14.4
PER SHARE DATA
Basic net income	$	0.33		$	0.40		$	0.40		$	0.40		$	0.40			(17.5	)%		(17.5	)%
Diluted net income		0.33			0.40			0.40			0.40			0.40			(17.5	)		(17.5	)
Dividends paid		0.16			0.16			0.16			0.16			0.16			-			-
Book value at period end		14.65			14.62			14.35			14.05			13.72			0.2			6.8
Tangible book value at period end		12.01			11.96			11.68			12.46			12.12			0.4			(0.9	)
Market value at period end		18.72			21.45			21.95			24.14			25.85			(12.7	)		(27.6	)
Market range:
High		26.47			23.40			24.72			27.05			29.15			13.1			(9.2	)
Low		18.52			20.00			20.00			20.52			23.98			(7.4	)		(22.8	)
AT PERIOD END
Loans	$	841,600		$	808,583		$	776,350		$	750,457		$	731,211			4.1	%		15.1	%
Securities		91,842			99,062			110,033			122,773			126,305			(7.3	)		(27.3	)
Assets		1,019,463			1,003,836			956,911			939,877			940,763			1.6			8.4
Deposits		818,656			808,917			765,895			760,123			764,728			1.2			7.1
Stockholders' equity		123,038			122,699			120,235			117,736			114,930			0.3			7.1
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		12.41	%		12.56	%		11.91	%		12.30	%		12.21	%
Annualized net charge-offs to average loans		0.13			0.04			0.06			0.06			0.02
Allowance for credit losses to period-end loans		0.98			0.98			0.97			0.96			0.94
Nonperforming assets to total assets		0.47			0.34			0.39			0.47			0.24

Page 8 of 8
Shore Bancshares, Inc.
Consolidated Statements of Income By Quarter
(Dollars in thousands, except per share data)
											2Q 08			2Q 08
											compared to			compared to
	2Q 08		1Q 08		4Q 07		3Q 07		2Q 07		1Q 08			2Q 07
INTEREST INCOME
Interest and fees on loans	$	13,961	$	14,560	$	14,958	$	14,732	$	14,210		(4.1	)%		(1.8	)%
Interest and dividends on investment securities:
Taxable		945		1,080		1,205		1,325		1,291		(12.5	)		(26.8	)
Tax-exempt		109		123		124		128		135		(11.4	)		(19.3	)
Interest on federal funds sold		83		122		120		178		290		(32.0	)		(71.4	)
Interest on deposits with other banks		29		38		46		180		329		(23.7	)		(91.2	)
Total interest income		15,127		15,923		16,453		16,543		16,255		(5.0	)		(6.9	)
INTEREST EXPENSE
Interest on deposits		4,997		5,343		5,430		5,493		5,402		(6.5	)		(7.5	)
Interest on short-term borrowings		316		366		426		279		276		(13.7	)		14.5
Interest on long-term debt		182		184		171		308		335		(1.1	)		(45.7	)
Total interest expense		5,495		5,893		6,027		6,080		6,013		(6.8	)		(8.6	)
NET INTEREST INCOME		9,632		10,030		10,426		10,463		10,242		(4.0	)		(6.0	)
Provision for credit losses		615		462		465		604		413		33.1			48.9
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		9,017		9,568		9,961		9,859		9,829		(5.8	)		(8.3	)
NONINTEREST INCOME
Service charges on deposit accounts		917		871		952		949		782		5.3			17.3
Investment securities gains (losses)		-		-		4		-		1		-			(100.0	)
Insurance agency commissions		3,111		3,467		2,694		1,403		1,562		(10.3	)		99.2
Other noninterest income		1,166		1,164		1,065		703		916		0.2			27.3
Total noninterest income		5,194		5,502		4,715		3,055		3,261		(5.6	)		59.3
NONINTEREST EXPENSE
Salaries and employee benefits		5,759		5,984		5,520		4,823		4,715		(3.8	)		22.1
Occupancy expense		537		499		518		460		474		7.6			13.3
Furniture and equipment expense		298		286		324		318		348		4.2			(14.4	)
Data processing		440		470		467		454		467		(6.4	)		(5.8	)
Directors' fees		130		165		178		136		128		(21.2	)		1.6
Amortization of intangible assets		129		129		130		56		64		-			101.6
Other noninterest expenses		2,436		2,058		2,165		1,352		1,551		18.4			57.1
Total noninterest expense		9,729		9,591		9,302		7,599		7,747		1.4			25.6
Income before income taxes		4,482		5,479		5,374		5,315		5,343		(18.2	)		(16.1	)
Income tax expense		1,716		2,107		2,034		1,964		1,987		(18.6	)		(13.6	)
NET INCOME	$	2,766	$	3,372	$	3,340	$	3,351	$	3,356		(18.0	)		(17.6	)
Weighted average shares outstanding - basic		8,381		8,391		8,380		8,380		8,378		(0.1	)		0.0
Weighted average shares outstanding - diluted		8,388		8,400		8,391		8,392		8,393		(0.1	)		(0.1	)
Basic net income per share	$	0.33	$	0.40	$	0.40	$	0.40	$	0.40		(17.5	)		(17.5	)
Diluted net income per share		0.33		0.40		0.40		0.40		0.40		(17.5	)		(17.5	)
Dividends paid per share		0.16		0.16		0.16		0.16		0.16		-			-