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 27, 2010

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 CFR240.14d-2(b))

      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))

ITEM 2.02. Results of Operation and Financial Condition.

On July 27, 2010, Shore Bancshares, Inc. issued a press release describing its financial results for the three and six months ended June 30, 2010.  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 99.1 Press release dated July 27, 2010 (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 28, 2010	By:	/s/ W. Moorhead Vermilye
		W. Moorhead Vermilye
		President and CEO

- 2 - -

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated July 27, 2010 (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 Second Quarter and First-Half Results

Easton, Maryland (07/27/2010) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $445 thousand or $0.05 per diluted common share for the second quarter of 2010, compared to a net loss of $1.6 million or $(0.19) per diluted common share for the first quarter of 2010, and net income of $354 thousand or $0.04 per diluted common share for the second quarter of 2009.  The second quarter of 2010 included a provision for credit losses of $4.9 million, which was $2.7 million lower than the comparable amount for the first quarter of 2010 but $3.2 million higher than the comparable amount for the second quarter of 2009.  For the second quarter of 2009, net income available to common stockholders was negatively impacted by $1.5 million in dividends and discount accretion associated with the sale and subsequent repurchase of preferred stock under the U.S. Department of the Treasury’s Troubled Asset Relief Program Capital Purchase Program.

The Company reported a net loss of $1.1 million or $(0.13) per diluted common share for the first half of 2010, compared to net income of $2.2 million or $0.27 per diluted common share for the first half of 2009. The provision for credit losses was $12.5 million for the first half of 2010 and $3.6 million for the first half of 2009.  Net income for the first six months of 2009 reflected $1.9 million in preferred stock dividends and discount accretion.

“In this tough credit and economic environment, we are pleased to be able to report a modest profit this quarter,” said W. Moorhead Vermilye, president and chief executive officer. “Our teams of loan workout and credit assessment specialists have been working diligently to identify, monitor, resolve and eventually dispose of problem loans and we are confident they are doing an effective job as we move through this cycle. This is our principal focus, and in the face of weak loan demand, we understand clearly what issues we need to resolve to maintain our traditionally stellar balance sheet.”

The Company’s return on average assets for the second quarter of 2010 was 0.16%, compared to (0.55)% and 0.13% for the quarters ended March 31, 2010 and June 30, 2009, respectively.  The return on average stockholders’ equity was 1.42% for the second quarter of 2010, compared to (4.95)% for the first quarter of 2010 and 1.07% for the second quarter of 2009.

The Company’s return on average assets for the first six months of 2010 was (0.20)%, compared to 0.41% for the first six months of 2009.  The return on average stockholders’ equity was (1.78)% for the first half of 2010, compared to 3.18% for the first half of 2009.

Total assets were $1.129 billion at June 30, 2010, compared to $1.157 billion at the end of 2009, a decrease of 2.4%.  Total loans were $905.5 million, a decrease of 1.2%, and total deposits were $971.6 million, a decrease of 2.0%, when compared to December 31, 2009.  Total stockholders’ equity decreased 2.5% from $127.8 million at the end of 2009 to $124.7 million at June 30, 2010.

Page 2 of 10

Review of Quarterly Financial Results

Net interest income for the second quarter of 2010 was $10.7 million, an increase of 2.8% from the first quarter of 2010 and an increase of 6.0% from the same period last year.  The increase in net interest income when compared to the first quarter of 2010 was due to slightly higher rates on average earning assets and a decrease in the balances and rates paid on interest bearing liabilities offsetting the decline in average earning assets.  The increase in net interest income when compared to the second quarter of 2009 was primarily due to higher average balances of earning assets and lower rates paid on interest bearing liabilities offsetting the decline in yields on earning assets.  The Company’s net interest margin was 4.03% for the second quarter of 2010, an increase of 8 basis points when compared to the first quarter of 2010 and an increase of 18 basis points when compared to the second quarter of 2009.

As previously mentioned, the provision for credit losses was $4.9 million for the three months ended June 30, 2010. The comparable amounts were $7.6 million and $1.7 million for the three months ended March 31, 2010 and June 30, 2009, respectively.  The ratio of the allowance for credit losses to period-end loans increased to 1.47% at June 30, 2010, compared to 1.41% at March 31, 2010 and 1.17% at June 30, 2009.  Management believes that the provision for credit losses and the resulting allowance were adequate at June 30, 2010.

The continued historically large level of provision expense was primarily in response to the overall increase in nonperforming assets and loan charge-offs, as well as overall economic conditions.  Net charge-offs were $4.4 million for the second quarter of 2010, $5.7 million for the first quarter of 2010 and $1.6 million for the second quarter of 2009.  The ratio of quarter-to-date annualized net charge-offs to average loans was 1.95% for the second quarter of 2010, 2.54% for the first quarter of 2010 and 0.71% for the second quarter of 2009. The ratio of nonperforming assets to total assets was 3.42% at June 30, 2010.  The comparable nonperforming asset ratio was 2.87% at March 31, 2010, and 1.37% at June 30, 2009.

Total noninterest income for the second quarter of 2010 decreased $314 thousand when compared to the first quarter of 2010 and decreased $779 thousand when compared to the second quarter of 2009. The decrease when compared to the first quarter of 2010 was primarily a result of a decrease in insurance agency commissions and contingency payments.  Contingency payments are typically received in the first quarter of each year and are based on the prior year’s performance.  The decline in noninterest income during the second quarter of 2010 when compared to the second quarter of 2009 was primarily due to a decline in insurance agency commissions and a $420 thousand gain on an interest rate swap transaction recorded in the second quarter of 2009.

Total noninterest expense for the second quarter of 2010 decreased $633 thousand when compared to the first quarter of 2010 mainly due to lower expenses accrued for bonus and profit sharing plans. When compared to the second quarter of 2009, total noninterest expense for the second quarter of 2010 decreased $1.0 million primarily due to lower expenses accrued for bonus and profit sharing plans and lower FDIC insurance premium expense which were partially offset by higher expenses related to collection and other real estate owned activities.   Included in the FDIC insurance premium expense for the second quarter of 2009 was a special one-time assessment of $513 thousand.

Review of Six-Month Financial Results

Net interest income for the first six months of 2010 was $21.1 million, an increase of 4.7% when compared to the first six months of 2009.  The increase was primarily due to higher average balances of earning assets and lower rates paid on interest bearing liabilities offsetting the decline in yields on earning assets.  The net interest margin increased from 3.96% for the first half of 2009 to 3.99% for the first half of 2010.

The provisions for credit losses for the six months ended June 30, 2010 and 2009 were $12.5 million and $3.6 million, respectively.  Net charge-offs were $10.1 million and $2.2 million for the six months ended June 30, 2010 and 2009, respectively.  The ratio of year-to-date annualized net charge-offs to average loans was 2.24% for the first half of 2010 and 0.48% for the first half of 2009.

Page 3 of 10

Total noninterest income for the six months ended June 30, 2010 declined $1.2 million when compared to the same period in 2009.  As with the second quarter 2010 results, the decrease in noninterest income was mainly due to a decline in insurance agency commissions and a $420 thousand gain on an interest rate swap transaction recorded in the second quarter of 2009.

Total noninterest expense for the six months ended June 30, 2010 decreased $567 thousand when compared to the same period in 2009.  Lower expenses accrued for bonus and profit sharing plans and lower FDIC premium insurance expense were partially offset by higher expenses related to collection and other real estate owned activities when compared to the first six months of 2009.  

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, CNB, 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; and a registered investment adviser firm, Wye Financial Services, LLC.  Shore Bancshares, Inc. engages in the mortgage broker business under the name “Wye Mortgage Group” through a minority series investment in an unrelated Delaware limited liability company.

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, 410-822-1400

Shore Bancshares, Inc.													Page 4 of 10
Financial Highlights
(Dollars in thousands, except per share data)
	For the Three Months Ended									For the Six Months Ended
	June 30,									June 30,
	2010			2009			% Change			2010			2009			% Change
PROFITABILITY FOR THE PERIOD
Net interest income	$	10,691		$	10,086			6.0	%	$	21,086		$	20,144			4.7	%
Provision for credit losses		4,917			1,681			192.5			12,534			3,616			246.6
Noninterest income		4,568			5,347			(14.6	)		9,450			10,697			(11.7	)
Noninterest expense		9,688			10,693			(9.4	)		20,009			20,576			(2.8	)
Income (loss) before income taxes		654			3,059			(78.6	)		(2,007	)		6,649			(130.2	)
Income tax expense (benefit)		209			1,166			(82.1	)		(890	)		2,543			(135.0	)
Net income (loss)		445			1,893			(76.5	)		(1,117	)		4,106			(127.2	)
Preferred stock dividends and discount accretion		-			1,539			(100.0	)		-			1,876			(100.0	)
Net income (loss) available to common shareholders	$	445		$	354			25.7		$	(1,117	)	$	2,230			(150.1	)
Return on average assets (1)		0.16	%		0.13	%		23.1	%		(0.20	) %		0.41	%		(148.8	) %
Return on average equity (1)		1.42			1.07			32.7			(1.78	)		3.18			(156.0	)
Net interest margin		4.03			3.85			4.7			3.99			3.96			0.8
Efficiency ratio - GAAP based		63.49			69.29			(8.4	)		65.53			66.72			(1.8	)
PER SHARE DATA
Basic net income (loss) per share	$	0.05		$	0.23			(78.3	) %	$	(0.13	)	$	0.49			(126.5	) %
Basic net income (loss) per common share		0.05			0.04			25.0			(0.13	)		0.27			(148.1	)
Diluted net income (loss) per share		0.05			0.22			(77.3	)		(0.13	)		0.49			(126.5	)
Diluted net income (loss) per common share		0.05			0.04			25.0			(0.13	)		0.27			(148.1	)
Dividends paid per common share		0.06			0.16			(62.5	)		0.12			0.32			(62.5	)
Book value per common share at period end		14.77			15.19			(2.8	)
Tangible book value per common share at period end		12.27			12.62			(2.8	)
Market value at period end		11.91			17.94			(33.6	)
Market range:
High		14.80			21.46			(31.0	)		14.80			24.43			(39.4	)
Low		11.75			15.18			(22.6	)		10.21			11.00			(7.2	)
PERIOD-END BALANCE SHEET DATA
Loans	$	905,477		$	919,088			(1.5	) %
Securities		106,556			86,123			23.7
Assets		1,129,196			1,158,212			(2.5	)
Deposits		971,608			981,334			(1.0	)
Stockholders' equity		124,666			127,876			(2.5	)
AVERAGE BALANCE SHEET DATA
Loans	$	909,295		$	913,671			(0.5	) %	$	909,831		$	906,066			0.4	%
Securities		109,744			83,387			31.6			109,996			83,672			31.5
Earning assets		1,071,115			1,060,886			1.0			1,073,257			1,033,909			3.8
Assets		1,134,662			1,120,338			1.3			1,140,105			1,089,532			4.6
Deposits		976,749			942,431			3.6			979,491			896,311			9.3
Stockholders' equity		125,670			132,607			(5.2	)		126,869			141,501			(10.3	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		11.08	%		11.84	%					11.13	%		12.99	%
Annualized net charge-offs to average loans		1.95			0.71						2.24			0.48
Allowance for credit losses to period-end loans		1.47			1.17
Nonperforming assets to total loans+other real estate owned		4.26			1.73
Nonperforming assets to total assets		3.42			1.37
Nonperforming assets+Loans 90 days past due
and still accruing to total loans+other real estate owned		4.78			2.60
Nonperforming assets+Loans 90 days past due
and still accruing to total assets		3.84			2.07
(1) Calculation uses net income (loss) available to common shareholders.

Shore Bancshares, Inc.										Page 5 of 10
Consolidated Balance Sheets
(In thousands, except per share data)
										June 30, 2010			June 30, 2010
	June 30,			Dec. 31,			June 30,			compared to			compared to
	2010			2009			2009			Dec. 31, 2009			June 30, 2009
ASSETS
Cash and due from banks	$	16,645		$	14,411		$	20,498			15.5	%		(18.8	) %
Interest-bearing deposits with other banks		15,652			598			1,622			2,517.4			865.0
Federal funds sold		32,372			60,637			85,242			(46.6	)		(62.0	)
Investments available-for-sale (at fair value)		98,211			97,595			77,129			0.6			27.3
Investments held-to-maturity		8,345			8,940			8,994			(6.7	)		(7.2	)
Loans		905,477			916,557			919,088			(1.2	)		(1.5	)
Less: allowance for credit losses		(13,289	)		(10,876	)		(10,784	)		22.2			23.2
Loans, net		892,188			905,681			908,304			(1.5	)		(1.8	)
Premises and equipment, net		14,924			14,307			14,018			4.3			6.5
Goodwill		15,954			15,954			15,954			-			-
Other intangible assets, net		5,148			5,406			5,663			(4.8	)		(9.1	)
Other real estate and other assets owned, net		1,428			2,572			2,212			(44.5	)		(35.4	)
Other assets		28,329			30,415			18,576			(6.9	)		52.5
Total assets	$	1,129,196		$	1,156,516		$	1,158,212			(2.4	)		(2.5	)
LIABILITIES
Noninterest-bearing deposits	$	121,410		$	122,492		$	113,111			(0.9	)		7.3
Interest-bearing deposits		850,198			868,445			868,223			(2.1	)		(2.1	)
Total deposits		971,608			990,937			981,334			(2.0	)		(1.0	)
Short-term borrowings		17,864			20,404			28,096			(12.4	)		(36.4	)
Accrued expenses and other liabilities		13,629			15,936			12,959			(14.5	)		5.2
Long-term debt		1,429			1,429			7,947			-			(82.0	)
Total liabilities		1,004,530			1,028,706			1,030,336			(2.4	)		(2.5	)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares		84			84			84			-			-
Warrant		1,543			1,543			1,543			-			-
Additional paid in capital		30,081			29,872			29,816			0.7			0.9
Retained earnings		94,021			96,151			95,679			(2.2	)		(1.7	)
Accumulated other comprehensive (loss) income		(1,063	)		160			754			(764.4	)		(241.0	)
Total stockholders' equity		124,666			127,810			127,876			(2.5	)		(2.5	)
Total liabilities and stockholders' equity	$	1,129,196		$	1,156,516		$	1,158,212			(2.4	)		(2.5	)
Period-end common shares outstanding		8,443			8,419			8,419			0.3			0.3
Book value per common share	$	14.77		$	15.18		$	15.19			(2.7	)		(2.8	)

Shore Bancshares, Inc.											Page 6 of 10
Consolidated Statements of Income
(In thousands, except per share data)
	For the Three Months Ended							For the Six Months Ended
	June 30,							June 30,
	2010		2009		% Change			2010			2009		% Change
INTEREST INCOME
Interest and fees on loans	$	13,047	$	13,754		(5.1	)  %	$	25,921		$	27,371		(5.3	)  %
Interest and dividends on investment securities:
Taxable		846		768		10.2			1,728			1,524		13.4
Tax-exempt		56		79		(29.1	)		115			164		(29.9	)
Interest on federal funds sold		14		23		(39.1	)		26			30		(13.3	)
Interest on deposits with other banks		4		6		(33.3	)		5			7		(28.6	)
Total interest income		13,967		14,630		(4.5	)		27,795			29,096		(4.5	)
INTEREST EXPENSE
Interest on deposits		3,242		4,441		(27.0	)		6,627			8,726		(24.1	)
Interest on short-term borrowings		19		28		(32.1	)		51			77		(33.8	)
Interest on long-term debt		15		75		(80.0	)		31			149		(79.2	)
Total interest expense		3,276		4,544		(27.9	)		6,709			8,952		(25.1	)
NET INTEREST INCOME		10,691		10,086		6.0			21,086			20,144		4.7
Provision for credit losses		4,917		1,681		192.5			12,534			3,616		246.6
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		5,774		8,405		(31.3	)		8,552			16,528		(48.3	)
NONINTEREST INCOME
Service charges on deposit accounts		831		888		(6.4	)		1,617			1,697		(4.7	)
Trust and investment fee income		372		258		44.2			788			476		65.5
Investment securities gains (losses)		-		-		-			-			49		(100.0	)
Insurance agency commissions		2,595		2,893		(10.3	)		5,484			6,228		(11.9	)
Other noninterest income		770		1,308		(41.1	)		1,561			2,247		(30.5	)
Total noninterest income		4,568		5,347		(14.6	)		9,450			10,697		(11.7	)
NONINTEREST EXPENSE
Salaries and wages		4,363		4,759		(8.3	)		8,853			9,299		(4.8	)
Employee benefits		758		1,200		(36.8	)		2,039			2,580		(21.0	)
Occupancy expense		597		587		1.7			1,219			1,136		7.3
Furniture and equipment expense		313		302		3.6			613			616		(0.5	)
Data processing		660		580		13.8			1,291			1,190		8.5
Directors' fees		105		117		(10.3	)		226			285		(20.7	)
Amortization of intangible assets		129		129		-			258			258		-
Insurance agency commissions expense		464		537		(13.6	)		892			1,087		(17.9	)
FDIC insurance premium expense		460		919		(49.9	)		941			1,163		(19.1	)
Other noninterest expenses		1,839		1,563		17.7			3,677			2,962		24.1
Total noninterest expense		9,688		10,693		(9.4	)		20,009			20,576		(2.8	)
Income (loss) before income taxes		654		3,059		(78.6	)		(2,007	)		6,649		(130.2	)
Income tax expense (benefit)		209		1,166		(82.1	)		(890	)		2,543		(135.0	)
NET INCOME (LOSS)		445		1,893		(76.5	)		(1,117	)		4,106		(127.2	)
Preferred stock dividends and discount accretion		-		1,539		(100.0	)		-			1,876		(100.0	)
Net income (loss) available to common shareholders	$	445	$	354		25.7		$	(1,117	)	$	2,230		(150.1	)
Weighted average shares outstanding - basic		8,443		8,413		0.4			8,440			8,409		0.4
Weighted average shares outstanding - diluted		8,443		8,417		0.3			8,440			8,413		0.3
Basic net income (loss) per share	$	0.05	$	0.23		(78.3	)	$	(0.13	)	$	0.49		(126.5	)
Basic net income (loss) per common share		0.05		0.04		25.0			(0.13	)		0.27		(148.1	)
Diluted net income (loss) per share		0.05		0.22		(77.3	)		(0.13	)		0.49		(126.5	)
Diluted net income (loss) per common share		0.05		0.04		25.0			(0.13	)		0.27		(148.1	)
Dividends paid per common share		0.06		0.16		(62.5	)		0.12			0.32		(62.5	)

Shore Bancshares, Inc.																			Page 7 of 10
Consolidated Average Balance Sheets
(Dollars in thousands)
	For the Three Months Ended												For the Six Months Ended
	June 30,												June 30,
	2010						2009						2010						2009
	Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/
	balance			rate			balance			rate			balance			rate			balance			rate
Earning assets
Loans	$	909,295			5.77	%	$	913,671			6.06	%	$	909,831			5.76	%	$	906,066			6.11	%
Investment securities
Taxable		103,284			3.29			75,277			4.09			103,385			3.37			75,067			4.09
Tax-exempt		6,460			5.30			8,110			6.02			6,611			5.35			8,605			5.92
Federal funds sold		38,001			0.15			55,699			0.16			42,253			0.13			38,873			0.15
Interest-bearing deposits		14,075			0.12			8,129			0.33			11,177			0.10			5,298			0.28
Total earning assets		1,071,115			5.26	%		1,060,886			5.56	%		1,073,257			5.25	%		1,033,909			5.71	%
Cash and due from banks		9,997						18,705						12,197						15,395
Other assets		67,860						51,595						67,889						50,487
Allowance for credit losses		(14,310	)					(10,848	)					(13,238	)					(10,259	)
Total assets	$	1,134,662					$	1,120,338					$	1,140,105					$	1,089,532
Interest bearing liabilities
Demand deposits	$	132,563			0.25	%	$	125,076			0.24	%	$	130,287			0.25	%	$	123,104			0.24	%
Money market and savings deposits		259,273			0.72			222,825			0.63			258,180			0.70			188,165			0.56
Certificates of deposit $100,000 or more		251,340			2.09			245,210			3.20			255,416			2.17			241,997			3.30
Other time deposits		215,987			2.56			239,668			3.45			217,849			2.62			236,077			3.50
Interest bearing deposits		859,163			1.51			832,779			2.14			861,732			1.55			789,343			2.23
Short-term borrowings		15,771			0.48			25,435			0.45			16,896			0.60			32,469			0.48
Long-term debt		1,429			4.40			7,947			3.78			1,429			4.43			7,947			3.78
Total interest bearing liabilities		876,363			1.50	%		866,161			2.10	%		880,057			1.54	%		829,759			2.18	%
Noninterest bearing deposits		117,586						109,652						117,759						106,968
Accrued expenses and other liabilities		15,043						11,918						15,420						11,304
Stockholders' equity		125,670						132,607						126,869						141,501
Total liabilities and stockholders' equity	$	1,134,662					$	1,120,338					$	1,140,105					$	1,089,532
Net interest spread					3.76	%					3.46	%					3.71	%					3.53	%
Net interest margin					4.03	%					3.85	%					3.99	%					3.96	%

Shore Bancshares, Inc.																Page 8 of 10
Financial Highlights By Quarter
(Dollars in thousands, except per share data)
	2nd quarter			1st quarter			4th quarter			3rd quarter			2nd quarter				2Q 10			2Q 10
	2010			2010			2009			2009			2009			compared to			compared to
		(2Q 10)			(1Q 10)			(4Q 09)			(3Q 09)			(2Q 09)			1Q 10			2Q 09
PROFITABILITY FOR THE PERIOD
Net interest income	$	10,691		$	10,395		$	10,806		$	10,428		$	10,086			2.8	%		6.0	%
Provision for credit losses		4,917			7,617			3,668			1,702			1,681			(35.4	)		192.5
Noninterest income		4,568			4,882			4,125			4,719			5,347			(6.4	)		(14.6	)
Noninterest expense		9,688			10,321			9,375			10,297			10,693			(6.1	)		(9.4	)
Income (loss) before income taxes		654			(2,661	)		1,888			3,148			3,059			124.6			(78.6	)
Income tax expense (benefit)		209			(1,099	)		672			1,197			1,166			119.0			(82.1	)
Net income (loss)		445			(1,562	)		1,216			1,951			1,893			128.5			(76.5	)
Preferred stock dividends and discount accretion		-			-			-			-			1,539			-			(100.0	)
Net income (loss) available to common shareholders	$	445		$	(1,562	)	$	1,216		$	1,951		$	354			128.5			25.7
Return on average assets (1)		0.16	%		(0.55	) %		0.41	%		0.66	%		0.13	%		129.1	%		23.1	%
Return on average equity (1)		1.42			(4.95	)		3.75			6.03			1.07			128.7			32.7
Net interest margin		4.03			3.95			3.90			3.79			3.85			2.0			4.7
Efficiency ratio - GAAP based		63.49			67.56			62.79			67.98			69.29			(6.0	)		(8.4	)
PER SHARE DATA
Basic net income (loss) per share	$	0.05		$	(0.19	)	$	0.14		$	0.23		$	0.23			126.3	%		(78.3	) %
Basic net income (loss) per common share		0.05			(0.19	)		0.14			0.23			0.04			126.3			25.0
Diluted net income (loss) per share		0.05			(0.19	)		0.14			0.23			0.22			126.3			(77.3	)
Diluted net income (loss) per common share		0.05			(0.19	)		0.14			0.23			0.04			126.3			25.0
Dividends paid per common share		0.06			0.06			0.16			0.16			0.16			-			(62.5	)
Book value per common share at period end		14.77			14.82			15.18			15.23			15.19			(0.3	)		(2.8	)
Tangible book value per common share at period end		12.27			12.30			12.64			12.68			12.62			(0.2	)		(2.8	)
Market value at period end		11.91			14.25			14.50			16.73			17.94			(16.4	)		(33.6	)
Market range:
High		14.80			14.75			17.71			20.72			21.46			0.3			(31.0	)
Low		11.75			10.21			13.52			16.64			15.18			15.1			(22.6	)
PERIOD-END BALANCE SHEET DATA
Loans	$	905,477		$	905,194		$	916,557		$	918,601		$	919,088			-	%		(1.5	) %
Securities		106,556			112,929			106,535			100,772			86,123			(5.6	)		23.7
Assets		1,129,196			1,146,334			1,156,516			1,157,685			1,158,212			(1.5	)		(2.5	)
Deposits		971,608			990,750			990,937			992,196			981,334			(1.9	)		(1.0	)
Stockholders' equity		124,666			125,108			127,810			128,219			127,876			(0.4	)		(2.5	)
AVERAGE BALANCE SHEET DATA
Loans	$	909,295		$	910,374		$	921,908		$	920,241		$	913,671			(0.1	) %		(0.5	) %
Securities		109,744			110,252			104,561			97,226			83,387			(0.5	)		31.6
Earning assets		1,071,115			1,075,425			1,104,919			1,100,538			1,060,886			(0.4	)		1.0
Assets		1,134,662			1,145,607			1,169,337			1,166,587			1,120,338			(1.0	)		1.3
Deposits		976,749			982,265			1,002,982			1,001,304			942,431			(0.6	)		3.6
Stockholders' equity		125,670			128,081			128,715			128,409			132,607			(1.9	)		(5.2	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		11.08	%		11.18	%		11.01	%		11.01	%		11.84	%
Annualized net charge-offs to average loans		1.95			2.54			1.51			0.76			0.71
Allowance for credit losses to period-end loans		1.47			1.41			1.19			1.17			1.17
Nonperforming assets to total loans+other real estate owned		4.26			3.62			2.05			1.90			1.73
Nonperforming assets to total assets		3.42			2.87			1.63			1.51			1.37
Nonperforming assets+Loans 90 days past due
and still accruing to total loans+other real estate owned		4.78			3.93			2.86			2.89			2.60
Nonperforming assets+Loans 90 days past due
and still accruing to total assets		3.84			3.11			2.27			2.30			2.07
(1) Calculation uses net income (loss) available to common shareholders.

Shore Bancshares, Inc.												Page 9 of 10
Consolidated Statements of Income By Quarter
(In thousands, except per share data)
													2Q 10			2Q 10
												compared to			compared to
		2Q 10		1Q 10			4Q 09		3Q 09		2Q 09		1Q 10			2Q 09
INTEREST INCOME
Interest and fees on loans	$	13,047	$	12,874		$	13,837	$	14,001	$	13,754		1.3	%		(5.1	) %
Interest and dividends on investment securities:
Taxable		846		882			860		800		768		(4.1	)		10.2
Tax-exempt		56		59			60		77		79		(5.1	)		(29.1	)
Interest on federal funds sold		14		12			23		31		23		16.7			(39.1	)
Interest on deposits with other banks		4		1			-		4		6		300.0			(33.3	)
Total interest income		13,967		13,828			14,780		14,913		14,630		1.0			(4.5	)
INTEREST EXPENSE
Interest on deposits		3,242		3,385			3,924		4,368		4,441		(4.2	)		(27.0	)
Interest on short-term borrowings		19		32			31		19		28		(40.6	)		(32.1	)
Interest on long-term debt		15		16			19		98		75		(6.3	)		(80.0	)
Total interest expense		3,276		3,433			3,974		4,485		4,544		(4.6	)		(27.9	)
NET INTEREST INCOME		10,691		10,395			10,806		10,428		10,086		2.8			6.0
Provision for credit losses		4,917		7,617			3,668		1,702		1,681		(35.4	)		192.5
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		5,774		2,778			7,138		8,726		8,405		107.8			(31.3	)
NONINTEREST INCOME
Service charges on deposit accounts		831		786			866		861		888		5.7			(6.4	)
Trust and investment fee income		372		416			350		274		258		(10.6	)		44.2
Investment securities gains (losses)		-		-			-		-		-		-			-
Insurance agency commissions		2,595		2,889			2,159		2,744		2,893		(10.2	)		(10.3	)
Other noninterest income		770		791			750		840		1,308		(2.7	)		(41.1	)
Total noninterest income		4,568		4,882			4,125		4,719		5,347		(6.4	)		(14.6	)
NONINTEREST EXPENSE
Salaries and wages		4,363		4,490			4,424		4,765		4,759		(2.8	)		(8.3	)
Employee benefits		758		1,281			840		1,211		1,200		(40.8	)		(36.8	)
Occupancy expense		597		622			572		616		587		(4.0	)		1.7
Furniture and equipment expense		313		300			268		299		302		4.3			3.6
Data processing		660		631			598		675		580		4.6			13.8
Directors' fees		105		121			84		109		117		(13.2	)		(10.3	)
Amortization of intangible assets		129		129			129		128		129		-			-
Insurance agency commissions expense		464		428			398		428		537		8.4			(13.6	)
FDIC insurance premium expense		460		481			457		458		919		(4.4	)		(49.9	)
Other noninterest expenses		1,839		1,838			1,605		1,608		1,563		0.1			17.7
Total noninterest expense		9,688		10,321			9,375		10,297		10,693		(6.1	)		(9.4	)
Income (loss) before income taxes		654		(2,661	)		1,888		3,148		3,059		124.6			(78.6	)
Income tax expense (benefit)		209		(1,099	)		672		1,197		1,166		119.0			(82.1	)
NET INCOME (LOSS)		445		(1,562	)		1,216		1,951		1,893		128.5			(76.5	)
Preferred stock dividends and discount accretion		-		-			-		-		1,539		-			(100.0	)
Net income (loss) available to common shareholders	$	445	$	(1,562	)	$	1,216	$	1,951	$	354		128.5			25.7
Weighted average shares outstanding - basic		8,443		8,436			8,419		8,419		8,413		0.1			0.4
Weighted average shares outstanding - diluted		8,443		8,436			8,421		8,423		8,417		0.1			0.3
Basic net income (loss) per share	$	0.05	$	(0.19	)	$	0.14	$	0.23	$	0.23		126.3			(78.3	)
Basic net income (loss) per common share		0.05		(0.19	)		0.14		0.23		0.04		126.3			25.0
Diluted net income (loss) per share		0.05		(0.19	)		0.14		0.23		0.22		126.3			(77.3	)
Diluted net income (loss) per common share		0.05		(0.19	)		0.14		0.23		0.04		126.3			25.0
Dividends paid per common share		0.06		0.06			0.16		0.16		0.16		-			(62.5	)

Shore Bancshares, Inc.																															Page 10 of 10
Consolidated Average Balance Sheets By Quarter
(Dollars in thousands)
																															Average balance
																																2Q 10			2Q 10
																															compared to			compared to
		2Q 10						1Q 10						4Q 09						3Q 09						2Q 09						1Q 10			2Q 09
	Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/
	balance			rate			balance			rate			balance			rate			balance			rate			balance			rate
Earning assets
Loans	$	909,295			5.77	%	$	910,374			5.75	%	$	921,908			5.97	%	$	920,241			6.05	%	$	913,671			6.06	%		(0.1	)  %		(0.5	) %
Investment securities
Taxable		103,284			3.29			103,488			3.45			97,595			3.50			89,101			3.56			75,277			4.09			(0.2	)		37.2
Tax-exempt		6,460			5.30			6,764			5.39			6,966			4.96			8,125			5.76			8,110			6.02			(4.5	)		(20.4	)
Federal funds sold		38,001			0.15			46,553			0.11			77,782			0.11			81,466			0.16			55,699			0.16			(18.4	)		(31.8	)
Interest-bearing deposits		14,075			0.12			8,246			0.06			668			0.45			1,605			0.77			8,129			0.33			70.7			73.2
Total earning assets		1,071,115			5.26	%		1,075,425			5.24	%		1,104,919			5.33	%		1,100,538			5.41	%		1,060,886			5.56	%		(0.4	)		1.0
Cash and due from banks		9,997						14,422						17,312						20,042						18,705						(30.7	)		(46.6	)
Other assets		67,860						67,914						58,543						57,049						51,595						(0.1	)		31.5
Allowance for credit losses		(14,310	)					(12,154	)					(11,437	)					(11,042	)					(10,848	)					17.7			31.9
Total assets	$	1,134,662					$	1,145,607					$	1,169,337					$	1,166,587					$	1,120,338						(1.0	)		1.3
Interest bearing liabilities
Demand deposits	$	132,563			0.25	%	$	127,986			0.25	%	$	127,537			0.26	%	$	125,233			0.26	%	$	125,076			0.24	%		3.6			6.0
Money market and savings deposits		259,273			0.72			256,818			0.68			249,393			0.66			245,801			0.67			222,825			0.63			1.0			16.4
Certificates of deposit $100,000 or more		251,340			2.09			259,538			2.24			276,390			2.51			274,580			2.82			245,210			3.20			(3.2	)		2.5
Other time deposits		215,987			2.56			219,731			2.67			228,020			2.91			237,757			3.20			239,668			3.45			(1.7	)		(9.9	)
Interest bearing deposits		859,163			1.51			864,073			1.59			881,340			1.77			883,371			1.96			832,779			2.14			(0.6	)		3.2
Short-term borrowings		15,771			0.48			18,032			0.71			18,994			0.63			18,373			0.42			25,435			0.45			(12.5	)		(38.0	)
Long-term debt		1,429			4.40			1,429			4.45			1,429			5.28			1,947			19.90			7,947			3.78			-			(82.0	)
Total interest bearing liabilities		876,363			1.50	%		883,534			1.58	%		901,763			1.75	%		903,691			1.97	%		866,161			2.10	%		(0.8	)		1.2
Noninterest bearing deposits		117,586						118,192						121,642						117,933						109,652						(0.5	)		7.2
Accrued expenses and other liabilities		15,043						15,800						17,217						16,554						11,918						(4.8	)		26.2
Stockholders' equity		125,670						128,081						128,715						128,409						132,607						(1.9	)		(5.2	)
Total liabilities and stockholders' equity	$	1,134,662					$	1,145,607					$	1,169,337					$	1,166,587					$	1,120,338						(1.0	)		1.3
Net interest spread					3.76	%					3.66	%					3.58	%					3.44	%					3.46	%
Net interest margin					4.03	%					3.95	%					3.90	%					3.79	%					3.85	%