EX-99.1 2 v209571_ex99-1.htm
Exhibit 99.1
 
Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-763-7800

PRESS RELEASE

Shore Bancshares Reports 2010 Results

Easton, Maryland (1/26/2011) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $850 thousand or $0.10 per diluted common share for the fourth quarter of 2010, compared to a net loss of $1.4 million or $(0.17) per diluted common share for the third quarter of 2010, and net income of $1.2 million or $0.14 per diluted common share for the fourth quarter of 2009.  The main contributors to the fluctuations in net income were goodwill impairment charges during the third quarter of 2010 and provisions for credit losses.  During the third quarter of 2010, the Company recorded goodwill impairment charges of $3.0 million and other intangible assets impairment charges of $51 thousand.  The provision for credit losses was $4.4 million in the fourth quarter of 2010, which was $199 thousand higher than the provision for the third quarter of 2010 and $724 thousand higher than the provision for the fourth quarter of 2009.

The Company reported a net loss of $1.7 million or $(0.20) per diluted common share for 2010, compared to net income of $5.4 million or $0.64 per diluted common share for 2009.  The 2010 net loss included the previously mentioned goodwill and other intangible assets impairment charges of $3.051 million.  The provision for credit losses was $21.1 million and $9.0 million for 2010 and 2009, respectively.  For 2009, net income available to common shareholders was negatively impacted by $1.9 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.

“We are proactively managing our way through a very tough operating environment for community banks. At this stage of the persistent cycle, even traditionally resilient markets with the best demographics such as those within our Delmarva footprint are showing strain,” said W. Moorhead Vermilye, chief executive officer.

“Although it was a disappointing year, we produced a modest profit for the fourth quarter.  The company’s net interest margin was a respectable 4.09% for the fourth quarter, up 9 basis points over the third quarter and ahead 19 basis points from the final quarter of 2009. We again set aside a substantial provision for credit losses in the fourth quarter, bringing our total provision for the full year to over $21 million, which we believe is prudent given the impact the economic downturn has had on our real estate markets.”

“Our capital ratios continue to remain healthy, with year-to-date average equity to average assets of 11.05% and average tangible equity to average tangible assets of 9.43%.  We remain well-capitalized, with our capital ratios continuing to be well in excess of regulatory minimums,” said Vermilye.

The Company’s return on average assets for the fourth quarter of 2010 was 0.30%, compared to (0.49)% and 0.41% for the quarters ended September 30, 2010 and December 31, 2009, respectively.  The return on average stockholders’ equity was 2.73% for the fourth quarter of 2010, compared to (4.43)% for the third quarter of 2010 and 3.75% for the fourth quarter of 2009.

The Company’s return on average assets for 2010 was (0.15)%, compared to 0.48% for 2009.  The return on average stockholders’ equity was (1.33)% and 4.00% for 2010 and 2009, respectively.
 
 
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Total assets were $1.130 billion at December 31, 2010, compared to $1.157 billion at the end of 2009, a decrease of 2.3%.  Total loans were $895.4 million, a decrease of 2.3%, and total deposits were $979.5 million, a decrease of 1.2%, when compared to December 31, 2009.  At December 31, 2010, total stockholders’ equity was $122.5 million, a decrease of 4.1% from $127.8 million at the end of 2009.  At the end of 2010, goodwill reflected the $3.0 million impairment charge and a $724 thousand increase related to a contingent payment to be made to Jack Martin and Associates, Inc. for meeting performance criteria outlined in its acquisition agreement.

Review of Quarterly Financial Results
Net interest income for the fourth quarter of 2010 was $10.9 million, a 1.7% increase from the third quarter of 2010 and a slight increase from the fourth quarter of 2009.  The increase in net interest income when compared to the third quarter of 2010 and the fourth quarter of 2009 was primarily due to a decrease in the balances of and rates paid on interest bearing liabilities that more than offset the decline in the balances of earning assets.  The Company’s net interest margin was 4.09% for the fourth quarter of 2010, an increase of 9 basis points when compared to the third quarter of 2010 and an increase of 19 basis points when compared to the fourth quarter of 2009.

As previously mentioned, the provision for credit losses was $4.4 million for the three months ended December 31, 2010, compared to $4.2 million and $3.7 million for the three months ended September 30, 2010 and the three months ended December 31, 2009, respectively.  The ratio of the allowance for credit losses to period-end loans was 1.59% at December 31, 2010, compared to 1.45% at September 30, 2010 and 1.19% at December 31, 2009.  Management believes that the provision for credit losses and the resulting allowance were adequate at December 31, 2010.

The continued large level of provision for credit losses 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 $3.3 million for the fourth quarter of 2010, $4.3 million for the third quarter of 2010 and $3.5 million for the fourth quarter of 2009.  The ratio of quarter-to-date annualized net charge-offs to average loans was 1.46% for the fourth quarter of 2010, 1.90% for the third quarter of 2010 and 1.51% for the fourth quarter of 2009. The ratio of nonperforming assets to total assets was 3.53% at December 31, 2010.  The comparable nonperforming asset ratio was 3.38% at September 30, 2010, and 1.63% at December 31, 2009.

Total noninterest income for the fourth quarter of 2010 was $3.9 million, a decrease of $695 thousand, or 15.0%, when compared to the third quarter of 2010 and a decrease of $177 thousand, or 4.3%, when compared to the fourth quarter of 2009.  Most of the decrease when compared to the third quarter of 2010 was due to a $397 thousand decrease in insurance agency commissions and a $224 thousand gain in the third quarter relating to the surrender of directors’ life insurance policies.  The decrease when compared to the fourth quarter of 2009 was mainly due to a decrease in mortgage broker fees of $131 thousand.  During 2010, the Company closed its mortgage brokerage subsidiary and now conducts brokerage activities through a minority series investment in an unrelated Delaware limited liability company under the name “Wye Mortgage Group”.

Total noninterest expense for the fourth quarter of 2010 was $9.1 million, a decrease of $3.5 million, or 28.1%, when compared to the third quarter of 2010 mainly due to third quarter goodwill impairment charges of $3.0 million and other intangible assets impairment charges of $51 thousand.  Excluding the goodwill and other intangible assets impairment charges, total noninterest expense decreased $496 thousand, or 5.2%, when compared to the third quarter of 2010.  When compared to the fourth quarter of 2009, total noninterest expense for the fourth quarter of 2010 decreased $293 thousand, or 3.1%, primarily due to lower salaries and wages expense.

Review of 2010 Financial Results
Net interest income for 2010 was $42.6 million, an increase of 3.0% when compared to 2009.  The increase was primarily due to lower rates paid on interest bearing liabilities offsetting the decline in yields on earning assets.  The net interest margin increased from 3.90% for 2009 to 4.02% for 2010.
 
 
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The provisions for credit losses for 2010 and 2009 were $21.1 million and $9.0 million, respectively.  Net charge-offs were $17.8 million and $7.4 million for 2010 and 2009, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 1.96% for 2010 and 0.81% for 2009.

Total noninterest income for 2010 was $18.0 million, a decline of $1.5 million, or 7.7%, when compared to 2009.  The decrease in noninterest income was mainly due to a decline in insurance agency commissions of $1.0 million and mortgage broker fees of $666 thousand.

Total noninterest expense for 2010 was $41.7 million, an increase of $1.5 million, or 3.7%, when compared to 2009.  The increase in noninterest expense was primarily due to the goodwill and other intangible assets impairment charges and higher expenses related to collection and other real estate owned activities which were partially offset by lower expenses accrued for bonus and profit sharing plans, lower insurance agency commissions expense and lower FDIC insurance premium expense. Excluding the goodwill and other intangible assets impairment charges, total noninterest expense decreased $1.6 million, or 3.9%, when compared to 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 two banks, The Talbot Bank of Easton, Maryland, and CNB; 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. Additional information is available at www.shbi.com.

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, Chief Executive Officer, 410-763-7800
 
 
Shore Bancshares, Inc.
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Financial Highlights
(Dollars in thousands, except per share data)

   
For the Three Months Ended
    
For the Twelve Months Ended
  
   
December 31,
    
December 31,
  
   
2010
    
2009
    
% Change
    
2010
    
2009
    
% Change
  
PROFITABILITY FOR THE PERIOD
                                    
Net interest income
   $ 10,866     $ 10,806       0.6 %   $ 42,639     $ 41,378       3.0 %
Provision for credit losses
     4,392       3,668       19.7       21,119       8,986       135.0  
Noninterest income
     3,948       4,125       (4.3 )     18,041       19,541       (7.7 )
Noninterest expense
     9,082       9,375       (3.1 )     41,720       40,248       3.7  
Income (loss) before income taxes
     1,340       1,888       (29.0 )     (2,159 )     11,685       (118.5 )
Income tax expense (benefit)
     490       672       (27.1 )     (492 )     4,412       (111.2 )
Net income (loss)
     850       1,216       (30.1 )     (1,667 )     7,273       (122.9 )
Preferred stock dividends and discount accretion
     -       -       -       -       1,876       (100.0 )
Net income (loss) available to common shareholders
   $ 850     $ 1,216       (30.1 )   $ (1,667 )   $ 5,397       (130.9 )
                                                 
                                                 
Return on average assets (1)
     0.30 %     0.41 %     (26.8 )%     (0.15 )%     0.48 %     (131.3 )%
Return on average equity (1)
     2.73       3.75       (27.2 )     (1.33 )     4.00       (133.3 )
Net interest margin
     4.09       3.90       4.9       4.02       3.90       3.1  
Efficiency ratio - GAAP based
     61.31       62.79       (2.4 )     68.75       66.07       4.1  
                                                 
PER SHARE DATA
                                                
Basic net income (loss) per share
   $ 0.10     $ 0.14       (28.6 )%   $ (0.20 )   $ 0.86       (123.3 )%
Basic net income (loss) per common share
     0.10       0.14       (28.6 )     (0.20 )     0.64       (131.3 )
Diluted net income (loss) per share
     0.10       0.14       (28.6 )     (0.20 )     0.86       (123.3 )
Diluted net income (loss) per common share
     0.10       0.14       (28.6 )     (0.20 )     0.64       (131.3 )
Dividends paid per common share
     0.06       0.16       (62.5 )     0.24       0.64       (62.5 )
Book value per common share at period end
     14.51       15.18       (4.4 )                        
Tangible book value per common share at period end
     12.32       12.64       (2.5 )                        
Market value at period end
     10.54       14.50       (27.3 )                        
Market range:
                                                
High
     10.73       17.71       (39.4 )     14.80       24.43       (39.4 )
Low
     9.25       13.52       (31.6 )     9.20       11.00       (16.4 )
                                                 
PERIOD-END BALANCE SHEET DATA
                                                
Loans
   $ 895,404     $ 916,557       (2.3 )%                        
Securities
     105,782       106,535       (0.7 )                        
Assets
     1,130,311       1,156,516       (2.3 )                        
Deposits
     979,516       990,937       (1.2 )                        
Stockholders' equity
     122,513       127,810       (4.1 )                        
                                                 
AVERAGE BALANCE SHEET DATA
                                                
Loans
   $ 903,075     $ 921,908       (2.0 )%   $ 906,732     $ 913,631       (0.8 )%
Securities
     103,600       104,561       (0.9 )     107,242       92,354       16.1  
Earning assets
     1,060,645       1,104,919       (4.0 )     1,068,264       1,068,601       -  
Assets
     1,128,517       1,169,337       (3.5 )     1,136,916       1,128,912       0.7  
Deposits
     978,444       1,002,982       (2.4 )     980,332       949,660       3.2  
Stockholders' equity
     123,341       128,715       (4.2 )     125,586       134,978       (7.0 )
                                                 
CAPITAL AND CREDIT QUALITY RATIOS
                                                
Average equity to average assets
     10.93 %     11.01 %             11.05 %     11.96 %        
Annualized net charge-offs to average loans
     1.46       1.51               1.96       0.81          
Allowance for credit losses to period-end loans
     1.59       1.19                                  
Nonperforming assets to total loans+other real estate owned
     4.44       2.05                                  
Nonperforming assets to total assets
     3.53       1.63                                  
Nonperforming assets+Loans 90 days past due and still accruing to total loans+other real estate owned
     4.97       2.86                                  
Nonperforming assets+Loans 90 days past due and still accruing to total assets
     3.95       2.27                                  

(1) Calculation uses net income (loss) available to common shareholders.
 

Shore Bancshares, Inc.
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Consolidated Balance Sheets
(In thousands, except per share data)

               
Dec. 31, 2010
  
   
Dec. 31,
    
Dec. 31,
    
compared to
  
   
2010
    
2009
    
Dec. 31, 2009
  
ASSETS
                  
Cash and due from banks
   $ 19,680     $ 14,411       36.6 %
Interest-bearing deposits with other banks
     21,593       598       3,510.9  
Federal funds sold
     36,691       60,637       (39.5 )
Investments available-for-sale (at fair value)
     99,055       97,595       1.5  
Investments held-to-maturity
     6,727       8,940       (24.8 )
                         
Loans
     895,404       916,557       (2.3 )
Less: allowance for credit losses
     (14,227 )     (10,876 )     30.8  
Loans, net
     881,177       905,681       (2.7 )
                         
Premises and equipment, net
     14,483       14,307       1.2  
Goodwill
     13,678       15,954       (14.3 )
Other intangible assets, net
     4,840       5,406       (10.5 )
Other real estate and other assets owned, net
     3,702       2,572       43.9  
Other assets
     28,685       30,415       (5.7 )
                         
Total assets
   $ 1,130,311     $ 1,156,516       (2.3 )
                         
LIABILITIES
                        
Noninterest-bearing deposits
   $ 124,188     $ 122,492       1.4  
Interest-bearing deposits
     855,328       868,445       (1.5 )
Total deposits
     979,516       990,937       (1.2 )
                         
Short-term borrowings
     16,041       20,404       (21.4 )
Accrued expenses and other liabilities
     11,309       15,936       (29.0 )
Long-term debt
     932       1,429       (34.8 )
Total liabilities
     1,007,798       1,028,706       (2.0 )
                         
STOCKHOLDERS' EQUITY
                        
Common stock, par value $0.01; authorized 35,000,000 shares
     84       84       -  
Warrant
     1,543       1,543       -  
Additional paid in capital
     30,242       29,872       1.2  
Retained earnings
     92,458       96,151       (3.8 )
Accumulated other comprehensive (loss) income
     (1,814 )     160       (1,233.8 )
Total stockholders' equity
     122,513       127,810       (4.1 )
                         
Total liabilities and stockholders' equity
   $ 1,130,311     $ 1,156,516       (2.3 )
                         
Period-end common shares outstanding
     8,443       8,419       0.3  
Book value per common share
   $ 14.51     $ 15.18       (4.4 )
 
 
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Consolidated Statements of Income
(In thousands, except per share data)

   
For the Three Months Ended
    
For the Twelve Months Ended
  
   
December 31,
    
December 31,
  
   
2010
    
2009
    
% Change
    
2010
    
2009
    
% Change
  
INTEREST INCOME
                                    
Interest and fees on loans
   $ 12,958     $ 13,837       (6.4 )%   $ 51,962     $ 55,209       (5.9 )%
Interest and dividends on investment securities:
                                                
Taxable
     804       860       (6.5 )     3,209       3,184       0.8  
Tax-exempt
     47       60       (21.7 )     212       301       (29.6 )
Interest on federal funds sold
     13       23       (43.5 )     60       84       (28.6 )
Interest on deposits with other banks
     7       -       -       18       11       63.6  
Total interest income
     13,829       14,780       (6.4 )     55,461       58,789       (5.7 )
                                                 
INTEREST EXPENSE
                                                
Interest on deposits
     2,937       3,924       (25.2 )     12,681       17,018       (25.5 )
Interest on short-term borrowings
     15       31       (51.6 )     83       127       (34.6 )
Interest on long-term debt
     11       19       (42.1 )     58       266       (78.2 )
Total interest expense
     2,963       3,974       (25.4 )     12,822       17,411       (26.4 )
                                                 
NET INTEREST INCOME
     10,866       10,806       0.6       42,639       41,378       3.0  
Provision for credit losses
     4,392       3,668       19.7       21,119       8,986       135.0  
                                                 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
     6,474       7,138       (9.3 )     21,520       32,392       (33.6 )
                                                 
NONINTEREST INCOME
                                                
Service charges on deposit accounts
     799       866       (7.7 )     3,257       3,424       (4.9 )
Trust and investment fee income
     358       350       2.3       1,503       1,100       36.6  
Investment securities gains (losses)
     -       -       -       -       49       (100.0 )
Insurance agency commissions
     2,116       2,159       (2.0 )     10,113       11,131       (9.1 )
Other noninterest income
     675       750       (10.0 )     3,168       3,837       (17.4 )
Total noninterest income
     3,948       4,125       (4.3 )     18,041       19,541       (7.7 )
                                                 
NONINTEREST EXPENSE
                                                
Salaries and wages
     4,220       4,424       (4.6 )     17,477       18,488       (5.5 )
Employee benefits
     893       840       6.3       3,829       4,631       (17.3 )
Occupancy expense
     562       572       (1.7 )     2,328       2,324       0.2  
Furniture and equipment expense
     262       268       (2.2 )     1,200       1,183       1.4  
Data processing
     620       598       3.7       2,607       2,463       5.8  
Directors' fees
     68       84       (19.0 )     412       478       (13.8 )
Goodwill and other intangible assets impairment
     -       -       -       3,051       -       -  
Amortization of intangible assets
     129       129       -       515       515       -  
Insurance agency commissions expense
     339       398       (14.8 )     1,569       1,913       (18.0 )
FDIC insurance premium expense
     445       457       (2.6 )     1,834       2,078       (11.7 )
Other noninterest expenses
     1,544       1,605       (3.8 )     6,898       6,175       11.7  
Total noninterest expense
     9,082       9,375       (3.1 )     41,720       40,248       3.7  
                                                 
Income (loss) before income taxes
     1,340       1,888       (29.0 )     (2,159 )     11,685       (118.5 )
Income tax expense (benefit)
     490       672       (27.1 )     (492 )     4,412       (111.2 )
                                                 
NET INCOME (LOSS)
     850       1,216       (30.1 )     (1,667 )     7,273       (122.9 )
Preferred stock dividends and discount accretion
     -       -       -       -       1,876       (100.0 )
Net income (loss) available to common shareholders
   $ 850     $ 1,216       (30.1 )   $ (1,667 )   $ 5,397       (130.9 )
                                                 
Weighted average shares outstanding - basic
     8,443       8,419       0.3       8,442       8,414       0.3  
Weighted average shares outstanding - diluted
     8,443       8,421       0.3       8,442       8,417       0.3  
                                                 
Basic net income (loss) per share
   $ 0.10     $ 0.14       (28.6 )   $ (0.20 )   $ 0.86       (123.3 )
Basic net income (loss) per common share
     0.10       0.14       (28.6 )     (0.20 )     0.64       (131.3 )
Diluted net income (loss) per share
     0.10       0.14       (28.6 )     (0.20 )     0.86       (123.3 )
Diluted net income (loss) per common share
     0.10       0.14       (28.6 )     (0.20 )     0.64       (131.3 )
Dividends paid per common share
     0.06       0.16       (62.5 )     0.24       0.64       (62.5 )
 
 
Shore Bancshares, Inc.
Page 7 of 10
Consolidated Average Balance Sheets
(Dollars in thousands)

   
For the Three Months Ended
    
For the Twelve Months Ended
  
   
December 31,
    
December 31,
  
   
2010
    
2009
    
2010
    
2009
  
   
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
  
   
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
  
Earning assets
                                                
Loans
   $ 903,075       5.71 %   $ 921,908       5.97 %   $ 906,732       5.75 %   $ 913,631       6.06 %
Investment securities
                                                                
Taxable
     98,378       3.24       97,595       3.50       101,162       3.17       84,283       3.78  
Tax-exempt
     5,222       5.40       6,966       4.96       6,080       5.29       8,071       5.67  
Federal funds sold
     34,018       0.16       77,782       0.11       39,770       0.15       59,416       0.14  
Interest-bearing deposits
     19,952       0.12       668       0.45       14,520       0.12       3,200       0.35  
Total earning assets
     1,060,645       5.20 %     1,104,919       5.33 %     1,068,264       5.22 %     1,068,601       5.53 %
Cash and due from banks
     19,867               17,312               16,567               17,049          
Other assets
     62,305               58,543               65,774               54,016          
Allowance for credit losses
     (14,300 )             (11,437 )             (13,689 )             (10,754 )        
Total assets
   $ 1,128,517             $ 1,169,337             $ 1,136,916             $ 1,128,912          
                                                                 
Interest-bearing liabilities
                                                                
Demand deposits
   $ 128,592       0.22 %   $ 127,537       0.26 %   $ 130,297       0.24 %   $ 124,758       0.25 %
Money market and savings deposits
     258,713       0.84       249,393       0.66       258,650       0.76       218,125       0.62  
Certificates of deposit $100,000 or more
     256,167       1.77       276,390       2.51       256,393       2.00       258,879       2.96  
Other time deposits
     208,808       2.23       228,020       2.91       214,121       2.46       234,468       3.28  
Interest-bearing deposits
     852,280       1.37       881,340       1.77       859,461       1.48       836,230       2.04  
Short-term borrowings
     15,381       0.39       18,994       0.63       16,348       0.51       25,519       0.50  
Long-term debt
     932       4.46       1,429       5.28       1,304       4.41       4,792       5.55  
Total interest-bearing liabilities
     868,593       1.35 %     901,763       1.75 %     877,113       1.46 %     866,541       2.01 %
Noninterest-bearing deposits
     126,164               121,642               120,871               113,430          
Accrued expenses and other liabilities
     10,419               17,217               13,346               13,963          
Stockholders' equity
     123,341               128,715               125,586               134,978          
Total liabilities and stockholders' equity
   $ 1,128,517             $ 1,169,337             $ 1,136,916             $ 1,128,912          
                                                                 
Net interest spread
             3.85 %             3.58 %             3.76 %             3.52 %
Net interest margin
             4.09 %             3.90 %             4.02 %             3.90 %
 
 
Page 8 of 10
Financial Highlights By Quarter
(Dollars in thousands, except per share data)

   
4th quarter
    
3rd quarter
    
2 nd quarter
    
1st quarter
    
4th quarter
    
4Q 10
    
4Q 10
  
   
2010
    
2010
    
2010
    
2010
    
2009
    
compared to
    
compared to
  
   
(4Q 10)
    
(3Q 10)
    
(2Q 10)
    
(1Q 10)
    
(4Q 09)
    
3Q 10
    
4Q 09
  
PROFITABILITY FOR THE PERIOD
                                          
Net interest income
   $ 10,866     $ 10,687     $ 10,691     $ 10,395     $ 10,806       1.7 %     0.6 %
Provision for credit losses
     4,392       4,193       4,917       7,617       3,668       4.7       19.7  
Noninterest income
     3,948       4,643       4,568       4,882       4,125       (15.0 )     (4.3 )
Noninterest expense
     9,082       12,629       9,688       10,321       9,375       (28.1 )     (3.1 )
Income (loss) before income taxes
     1,340       (1,492 )     654       (2,661 )     1,888       189.8       (29.0 )
Income tax expense (benefit)
     490       (92 )     209       (1,099 )     672       632.6       (27.1 )
Net income (loss)
     850       (1,400 )     445       (1,562 )     1,216       160.7       (30.1 )
Preferred stock dividends and discount accretion
     -       -       -       -       -       -       -  
Net income (loss) available to common shareholders
   $ 850     $ (1,400 )   $ 445     $ (1,562 )   $ 1,216       160.7       (30.1 )
                                                         
Return on average assets (1)
     0.30 %     (0.49 )%     0.16 %     (0.55 )%     0.41 %     161.2 %     (26.8 )%
Return on average equity (1)
     2.73       (4.43 )     1.42       (4.95 )     3.75       161.6       (27.2 )
Net interest margin
     4.09       4.00       4.03       3.95       3.90       2.3       4.9  
Efficiency ratio - GAAP based
     61.31       82.38       63.49       67.56       62.79       (25.6 )     (2.4 )
                                                         
PER SHARE DATA
                                                        
Basic net income (loss) per share
   $ 0.10     $ (0.17 )   $ 0.05     $ (0.19 )   $ 0.14       158.8 %     (28.6 )%
Basic net income (loss) per common share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Diluted net income (loss) per share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Diluted net income (loss) per common share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Dividends paid per common share
     0.06       0.06       0.06       0.06       0.16       -       (62.5 )
Book value per common share at period end
     14.51       14.49       14.77       14.82       15.18       0.1       (4.4 )
Tangible book value per common share at period end
     12.32       12.37       12.27       12.30       12.64       (0.4 )     (2.5 )
Market value at period end
     10.54       9.48       11.91       14.25       14.50       11.2       (27.3 )
Market range:
                                                        
High
     10.73       12.10       14.80       14.75       17.71       (11.3 )     (39.4 )
Low
     9.25       9.20       11.75       10.21       13.52       0.5       (31.6 )
                                                         
PERIOD-END BALANCE SHEET DATA
                                                        
Loans
   $ 895,404     $ 906,490     $ 905,477     $ 905,194     $ 916,557       (1.2 )%     (2.3 )%
Securities
     105,782       104,075       106,556       112,929       106,535       1.6       (0.7 )
Assets
     1,130,311       1,134,503       1,129,196       1,146,334       1,156,516       (0.4 )     (2.3 )
Deposits
     979,516       982,428       971,608       990,750       990,937       (0.3 )     (1.2 )
Stockholders' equity
     122,513       122,355       124,666       125,108       127,810       0.1       (4.1 )
                                                         
AVERAGE BALANCE SHEET DATA
                                                        
Loans
   $ 903,075     $ 904,293     $ 909,295     $ 910,374     $ 921,908       (0.1 )%     (2.0 )%
Securities
     103,600       105,466       109,744       110,252       104,561       (1.8 )     (0.9 )
Earning assets
     1,060,645       1,066,063       1,071,115       1,075,425       1,104,919       (0.5 )     (4.0 )
Assets
     1,128,517       1,139,043       1,134,662       1,145,607       1,169,337       (0.9 )     (3.5 )
Deposits
     978,444       984,018       976,749       982,265       1,002,982       (0.6 )     (2.4 )
Stockholders' equity
     123,341       125,308       125,670       128,081       128,715       (1.6 )     (4.2 )
                                                         
CAPITAL AND CREDIT QUALITY RATIOS
                                                        
Average equity to average assets
     10.93 %     11.00 %     11.08 %     11.18 %     11.01 %                
Annualized net charge-offs to average loans
     1.46       1.90       1.95       2.54       1.51                  
Allowance for credit losses to period-end loans
     1.59       1.45       1.47       1.41       1.19                  
Nonperforming assets to total loans+other real estate owned
     4.44       4.22       4.29       3.62       2.05                  
Nonperforming assets to total assets
     3.53       3.38       3.45       2.87       1.63                  
Nonperforming assets+Loans 90 days past due and still accruing to total loans+other real estate owned
     4.97       4.58       4.81       3.93       2.86                  
Nonperforming assets+Loans 90 days past due and still accruing to total assets
     3.95       3.67       3.86       3.11       2.27                  

(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)

                                 
4Q 10
    
4Q 10
  
                                 
compared to
    
compared to
  
   
4Q 10
    
3Q 10
    
2Q 10
    
1Q 10
    
4Q 09
    
3Q 10
    
4Q 09
  
INTEREST INCOME
                                          
Interest and fees on loans
   $ 12,958     $ 13,083     $ 13,047     $ 12,874     $ 13,837       (1.0 ) %     (6.4 ) %
Interest and dividends on investment securities:
                                                        
Taxable
     804       677       846       882       860       18.8       (6.5 )
Tax-exempt
     47       50       56       59       60       (6.0 )     (21.7 )
Interest on federal funds sold
     13       21       14       12       23       (38.1 )     (43.5 )
Interest on deposits with other banks
     7       6       4       1       -       16.7       -  
Total interest income
     13,829       13,837       13,967       13,828       14,780       (0.1 )     (6.4 )
                                                         
INTEREST EXPENSE
                                                        
Interest on deposits
     2,937       3,117       3,242       3,385       3,924       (5.8 )     (25.2 )
Interest on short-term borrowings
     15       17       19       32       31       (11.8 )     (51.6 )
Interest on long-term debt
     11       16       15       16       19       (31.3 )     (42.1 )
Total interest expense
     2,963       3,150       3,276       3,433       3,974       (5.9 )     (25.4 )
                                                         
NET INTEREST INCOME
     10,866       10,687       10,691       10,395       10,806       1.7       0.6  
Provision for credit losses
     4,392       4,193       4,917       7,617       3,668       4.7       19.7  
                                                         
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
     6,474       6,494       5,774       2,778       7,138       (0.3 )     (9.3 )
                                                         
NONINTEREST INCOME
                                                        
Service charges on deposit accounts
     799       841       831       786       866       (5.0 )     (7.7 )
Trust and investment fee income
     358       357       372       416       350       0.3       2.3  
Investment securities gains (losses)
     -       -       -       -       -       -       -  
Insurance agency commissions
     2,116       2,513       2,595       2,889       2,159       (15.8 )     (2.0 )
Other noninterest income
     675       932       770       791       750       (27.6 )     (10.0 )
Total noninterest income
     3,948       4,643       4,568       4,882       4,125       (15.0 )     (4.3 )
                                                         
NONINTEREST EXPENSE
                                                        
Salaries and wages
     4,220       4,404       4,363       4,490       4,424       (4.2 )     (4.6 )
Employee benefits
     893       897       758       1,281       840       (0.4 )     6.3  
Occupancy expense
     562       547       597       622       572       2.7       (1.7 )
Furniture and equipment expense
     262       325       313       300       268       (19.4 )     (2.2 )
Data processing
     620       696       660       631       598       (10.9 )     3.7  
Directors' fees
     68       118       105       121       84       (42.4 )     (19.0 )
Goodwill and other intangible assets impairment
     -       3,051       -       -       -       (100.0 )     -  
Amortization of intangible assets
     129       128       129       129       129       0.8       -  
Insurance agency commissions expense
     339       338       464       428       398       0.3       (14.8 )
FDIC insurance premium expense
     445       448       460       481       457       (0.7 )     (2.6 )
Other noninterest expenses
     1,544       1,677       1,839       1,838       1,605       (7.9 )     (3.8 )
Total noninterest expense
     9,082       12,629       9,688       10,321       9,375       (28.1 )     (3.1 )
                                                         
Income (loss) before income taxes
     1,340       (1,492 )     654       (2,661 )     1,888       189.8       (29.0 )
Income tax expense (benefit)
     490       (92 )     209       (1,099 )     672       632.6       (27.1 )
                                                         
NET INCOME (LOSS)
     850       (1,400 )     445       (1,562 )     1,216       160.7       (30.1 )
Preferred stock dividends and discount accretion
     -       -       -       -       -       -       -  
Net income (loss) available to common shareholders
   $ 850     $ (1,400 )   $ 445     $ (1,562 )   $ 1,216       160.7       (30.1 )
                                                         
Weighted average shares outstanding - basic
     8,443       8,443       8,443       8,436       8,419       -       0.3  
Weighted average shares outstanding - diluted
     8,443       8,443       8,443       8,436       8,421       -       0.3  
                                                         
Basic net income (loss) per share
   $ 0.10     $ (0.17 )   $ 0.05     $ (0.19 )   $ 0.14       158.8       (28.6 )
Basic net income (loss) per common share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Diluted net income (loss) per share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Diluted net income (loss) per common share
     0.10       (0.17 )     0.05       (0.19 )     0.14       158.8       (28.6 )
Dividends paid per common share
     0.06       0.06       0.06       0.06       0.16       -       (62.5 )
 
 
Shore Bancshares, Inc.
Page 10 of 10
Consolidated Average Balance Sheets By Quarter
(Dollars in thousands)

                                                               
Average balance
  
                                                               
4Q 10
    
4Q 10
  
                                                               
compared to
    
compared to
  
   
4Q 10
    
3Q 10
    
2Q 10
    
1Q 10
    
4Q 09
    
3Q 10
    
4Q 09
  
   
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
              
   
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
              
Earning assets
                                                                        
Loans
   $ 903,075       5.71 %   $ 904,293       5.76 %   $ 909,295       5.77 %   $ 910,374       5.75 %   $ 921,908       5.97 %     (0.1 ) %     (2.0 ) %
Investment securities
                                                                                                
Taxable
     98,378       3.24       99,572       2.70       103,284       3.29       103,488       3.45       97,595       3.50       (1.2 )     0.8  
Tax-exempt
     5,222       5.40       5,894       5.16       6,460       5.30       6,764       5.39       6,966       4.96       (11.4 )     (25.0 )
Federal funds sold
     34,018       0.16       40,638       0.20       38,001       0.15       46,553       0.11       77,782       0.11       (16.3 )     (56.3 )
Interest-bearing deposits
     19,952       0.12       15,666       0.15       14,075       0.12       8,246       0.06       668       0.45       27.4       2,886.8  
Total earning assets
     1,060,645       5.20 %     1,066,063       5.18 %     1,071,115       5.26 %     1,075,425       5.24 %     1,104,919       5.33 %     (0.5 )     (4.0 )
Cash and due from banks
     19,867               21,865               9,997               14,422               17,312               (9.1 )     14.8  
Other assets
     62,305               65,081               67,860               67,914               58,543               (4.3 )     6.4  
Allowance for credit losses
     (14,300 )             (13,966 )             (14,310 )             (12,154 )             (11,437 )             2.4       25.0  
Total assets
   $ 1,128,517             $ 1,139,043             $ 1,134,662             $ 1,145,607             $ 1,169,337               (0.9 )     (3.5 )
                                                                                                 
Interest-bearing liabilities
                                                                                                
Demand deposits
   $ 128,592       0.22 %   $ 132,023       0.24 %   $ 132,563       0.25 %   $ 127,986       0.25 %   $ 127,537       0.26 %     (2.6 )     0.8  
Money market and savings deposits
     258,713       0.84       259,511       0.81       259,273       0.72       256,818       0.68       249,393       0.66       (0.3 )     3.7  
Certificates of deposit $100,000 or more
     256,167       1.77       258,542       1.91       251,340       2.09       259,538       2.24       276,390       2.51       (0.9 )     (7.3 )
Other time deposits
     208,808       2.23       212,098       2.37       215,987       2.56       219,731       2.67       228,020       2.91       (1.6 )     (8.4 )
Interest-bearing deposits
     852,280       1.37       862,174       1.44       859,163       1.51       864,073       1.59       881,340       1.77       (1.2 )     (3.3 )
Short-term borrowings
     15,381       0.39       16,092       0.38       15,771       0.48       18,032       0.71       18,994       0.63       (4.4 )     (19.0 )
Long-term debt
     932       4.46       1,429       4.36       1,429       4.40       1,429       4.45       1,429       5.28       (34.8 )     (34.8 )
Total interest-bearing liabilities
     868,593       1.35 %     879,695       1.42 %     876,363       1.50 %     883,534       1.58 %     901,763       1.75 %     (1.3 )     (3.7 )
Noninterest-bearing deposits
     126,164               121,844               117,586               118,192               121,642               3.6       3.7  
Accrued expenses and other liabilities
     10,419               12,196               15,043               15,800               17,217               (14.6 )     (39.5 )
Stockholders' equity
     123,341               125,308               125,670               128,081               128,715               (1.6 )     (4.2 )
Total liabilities and stockholders' equity
   $ 1,128,517             $ 1,139,043             $ 1,134,662             $ 1,145,607             $ 1,169,337               (0.9 )     (3.5 )
                                                                                                 
Net interest spread
             3.85 %             3.76 %             3.76 %             3.66 %             3.58 %                
Net interest margin
             4.09 %             4.00 %             4.03 %             3.95 %             3.90 %