EX-99.1 2 v238198_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 Third Quarter and Nine-Month Results

Easton, Maryland (10/25/2011) - Shore Bancshares, Inc. (NASDAQ - SHBI) today reported  net income of $94 thousand or $0.01 per diluted common share for the third quarter of 2011, compared to a net loss of $233 thousand or $(0.03) per diluted common share for the second quarter of 2011, and a net loss of $1.4 million or $(0.17) per diluted common share for the third quarter of 2010. The Company reported a net loss of $1.2 million or $(0.14) per diluted common share for the first nine months of 2011, compared to a net loss of $2.5 million or $(0.30) per diluted common share for the first nine months of 2010.

During the third quarter of 2011, the Company recorded goodwill impairment charges of $1.2 million and other intangible assets impairment charges of $120 thousand.  Most of the impairment charges related to the Company’s retail insurance business and $274 thousand of the goodwill impairment was not tax deductible.  A decrease in the provision for credit losses of $1.7 million, partially offset by the impairment charges, was  the primary reason for the improved results when comparing the third quarter of 2011 to the second quarter of 2011.  When comparing the third quarter of 2011 to the third quarter of 2010, the main reasons for the improved results were lower impairment charges of $1.7 million and a decrease in the provision for credit losses of $543 thousand, which were partially offset by a decline in net interest income of $564 thousand.

When comparing the results of the first nine months of 2011 to the first nine months of 2010, the principal factors creating the difference were lower impairment charges of $1.7 million and a decrease in the provision for credit losses of $1.3 million, which were partially offset by a decline in net interest income of $1.8 million.

“We are still experiencing elevated credit losses associated with the disposition of nonperforming loans, as evidenced by the $3.7 million we set aside during the third quarter for possible loan losses, but it is encouraging to note that the loan loss provision was less this quarter than for the linked second quarter ($5.4 million) and also for the third quarter a year ago ($4.2 million).  We are cautiously optimistic that the level of new nonperforming loans has substantially peaked and our focused efforts to dispose of existing problem loans are making consistent headway ultimately to reduce our ratio of nonperforming assets to total assets.  It’s a very slow process, however, as real estate values across our markets remain at historical lows,” said W. Moorhead Vermilye, chief executive officer.

Mr. Vermilye added, “On a positive note, total deposits increased 3.3% to $1.012 billion when compared to December 31, 2010. The net interest margin remained solid at 3.77% for the third quarter of 2011, versus 3.80% for the second quarter of 2011 and 4.00% for the third quarter of 2010.”

“Our company is the dominant locally-managed financial institution covering the Delmarva peninsula and we are committed to supporting customers in every way through this tough business climate.  Our deposit market share stability confirms that our loyal customers understand we are in this business for the long term as an independent local banking leader,” Vermilye said.

The Company’s return on average assets for the third quarter of 2011 was 0.03%, compared to (0.08)% and (0.49)% for the quarters ended June 30, 2011 and September 30, 2010, respectively.  The return on average  equity was 0.31% for the third quarter of 2011, compared to (0.77)% for the second quarter of 2011 and (4.43)% for the third quarter of 2010.  The return on average tangible equity was 4.21% for the third quarter of 2011, compared to (0.60)% for the second quarter of 2011 and 4.31% for the third quarter of 2010.

 
 
 
 
Page 2 of 11

The Company’s return on average assets for the first nine months of 2011 was (0.14)%, compared to (0.30)% for the first nine months of 2010. The return on average equity was (1.34)% and (2.66)% for the first nine months of 2011and 2010, respectively, while the return on average tangible equity was (0.09)% and 0.22% for the first nine months of 2011and 2010, respectively.
 
Total assets were $1.158 billion at September 30, 2011, a 2.4% increase when compared to the $1.130 billion at the end of 2010. Total loans decreased 3.7% to $862.6 million and total deposits increased 3.3% to $1.012 billion when compared to December 31, 2010. Total stockholders’ equity decreased 1.2% from the end of 2010. Average equity to average assets was 10.74% and 11.09% for the first nine months of 2011 and 2010, respectively, while average tangible equity to average tangible assets was 9.27% and 9.40% for the first nine months of 2011 and 2010, respectively. Capital levels remain well above regulatory minimums to be considered well-capitalized.
 
Review of Quarterly Financial Results
Net interest income for the third quarter of 2011 was $10.1 million, a 1.8% increase from the second quarter of 2011 and a decrease of 5.3% from the same period last year. The increase in net interest income when compared to the second quarter of 2011 was primarily due to an increase in the balances of average earning assets. The decrease in net interest income when compared to the third quarter of 2010 was primarily due to lower yields earned on average earning assets. The Company’s net interest margin was 3.77% for the third quarter of 2011, 3.80% for the second quarter of 2011 and 4.00% for the third quarter of 2010.
 
The provision for credit losses was $3.7 million for the three months ended September 30, 2011. The comparable amounts were $5.4 million and $4.2 million for the three months ended June 30, 2011 and September 30, 2010, respectively. The ratio of the allowance for credit losses to period-end loans was 1.57% at September 30, 2011, compared to 1.86% at June 30, 2011 and 1.45% at September 30, 2010. Management believes that the provision for credit losses and the resulting allowance were adequate at September 30, 2011 to provide for probable losses in our loan portfolio.
 
The level of provision for credit losses was primarily in response to loan charge-offs which remain at historically high levels and a very weak economy. Net charge-offs were $6.5 million for both the third and second quarters of 2011 and $4.3 million for the third quarter of 2010. The ratio of quarter-to-date annualized net charge-offs to average loans was 2.95% for the third quarter of 2011, 2.96% for the second quarter of 2011 and 1.90% for the third quarter of 2010. In addition, nonperforming assets have increased $13.3 million when compared to the end of June 2011 and $45.6 million when compared to the end of September 2010. The increase from the end of the prior quarter was primarily in loans past due 90 days and still accruing. This increase was mainly due to three large credits totaling $9.7 million. Subsequent to September 30, 2011, two of the relationships, which totaled $8.2 million, were brought current. Management believes that the third loan, which totaled $1.5 million, is well-secured, and it is in the process of collection. The ratio of nonperforming assets to total assets was 8.02% at September 30, 2011. The comparable nonperforming assets to total assets ratio was 7.08% at June 30, 2011, and 4.16% at September 30, 2010.
 
Total noninterest income for the third quarter of 2011 increased $142 thousand, or 3.2%, when compared to the second quarter of 2011 and decreased $120 thousand, or 2.6%, when compared to the third quarter of 2010. The increase when compared to the second quarter of 2011 was primarily due to $352 thousand more in gains on sales of investment securities which were partially offset by $163 thousand less in insurance agency commissions. The decline in noninterest income during the third quarter of 2011 when compared to the third quarter of 2010 was primarily due to a decline in insurance agency commissions of $201 thousand, service charges on deposit accounts of $144 thousand and other noninterest income of $161 thousand, offset by $354 thousand in gains on sales of investment securities. The lower service charges on deposit accounts were due to a decrease in customer use of overdraft protection programs. Included in other noninterest income for the third quarter of 2010 was a $224 thousand gain relating to the surrender of directors’ life insurance policies.
 
 
 
 

Page 3 of 11

Total noninterest expense for the third quarter of 2011 increased $1.5 million, or 16.1%, when compared to the second quarter of 2011 mainly due to the goodwill and other intangible assets impairment charges of $1.3 million.  The increase in noninterest expense also included higher expenses related to other real estate owned activities which were partially offset by lower expenses related to FDIC insurance premiums and insurance agency commissions. When compared to the third quarter of 2010, total noninterest expense for the third quarter of 2011 decreased $2.0 million, or 15.5%, primarily due to lower impairment charges of $1.7 million and lower expenses related to salaries and FDIC insurance premiums, offset slightly by higher expenses related to other real estate owned activities included in other noninterest expenses.

Review of Nine-Month Financial Results
Net interest income for the first nine months of 2011 was $29.9 million, a decrease of 5.8% when compared to the first nine months of 2010.  The decrease was primarily due to lower balances of and yields earned on average earning assets.  The net interest margin decreased 20 basis points (bp) from 3.99% for the first nine months of 2010 to 3.79% for the first nine months of 2011.

The provisions for credit losses for the nine months ended September 30, 2011 and 2010 were $15.4 million and $16.7 million, respectively.  Net charge-offs were $16.1 million and $14.5 million for the nine months ended September 30, 2011 and 2010, respectively.  The ratio of year-to-date annualized net charge-offs to average loans was 2.45% for the first nine months of 2011 and 2.13% for the first nine months of 2010.
Total noninterest income for the nine months ended September 30, 2011 declined $794 thousand when compared to the same period in 2010.  As with the third quarter 2011 results, the decrease in noninterest income was mainly due to a decline in insurance agency commissions, service charges on deposit accounts and other noninterest income which reflected the $224 thousand gain relating to the surrender of directors’ life insurance policies during the third quarter of 2010.  These decreases in noninterest income were partially offset by $435 thousand in gains on sales of investment securities.

Total noninterest expense for the nine months ended September 30, 2011 decreased $2.9 million when compared to the same period in 2010.  The primary reason for the decrease was lower expenses related to impairment charges, salaries, FDIC insurance premiums and insurance agency commissions.  These expenses were somewhat offset by higher data processing charges relating to the merger of The Felton Bank into CNB during the first quarter of 2011.

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.
Page 4 of 11
Financial Highlights
  
(Dollars in thousands, except per share data)
  

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2011
    
2010
    
Change
    
2011
    
2010
    
Change
  
PROFITABILITY FOR THE PERIOD
                                    
Net interest income
   $ 10,123     $ 10,687       (5.3 )%   $ 29,927     $ 31,773       (5.8 )%
Provision for credit losses
     3,650       4,193       (13.0 )     15,435       16,727       (7.7 )
Noninterest income
     4,523       4,643       (2.6 )     13,299       14,093       (5.6 )
Noninterest expense
     10,677       12,629       (15.5 )     29,762       32,638       (8.8 )
Income (loss) before income taxes
     319       (1,492 )     121.4       (1,971 )     (3,499 )     43.7  
Income tax expense (benefit)
     225       (92 )     344.6       (749 )     (982 )     23.7  
Net income (loss)
   $ 94     $ (1,400 )     106.7     $ (1,222 )   $ (2,517 )     51.5  
                                                 
Return on average assets
     0.03 %     (0.49 )%     52 bp     (0.14 )%     (0.30 )%     16 bp
Return on average equity
     0.31       (4.43 )     474       (1.34 )     (2.66 )     132  
Return on average tangible equity (1)
     4.21       4.31       (10 )     (0.09 )     0.22       (31 )
Net interest margin
     3.77       4.00       (23 )     3.79       3.99       (20 )
Efficiency ratio - GAAP
     72.90       82.38       (948 )     68.85       71.16       (231 )
Efficiency ratio - Non-GAAP (1)
     64.40       62.56       184       65.51       63.98       153  
                                                 
PER SHARE DATA
                                                
Basic net income (loss) per common share
   $ 0.01     $ (0.17 )     105.9 %   $ (0.14 )   $ (0.30 )     53.3 %
Diluted net income (loss) per common share
     0.01       (0.17 )     105.9       (0.14 )     (0.30 )     53.3  
Dividends paid per common share
     0.01       0.06       (83.3 )     0.08       0.18       (55.6 )
Book value per common share at period end
     14.31       14.49       (1.2 )                        
Tangible book value per common share at period end (1)
     12.32       12.37       (0.4 )                        
Market value at period end
     4.36       9.48       (54.0 )                        
Market range:
                                                
High
     7.06       12.10       (41.7 )     11.11       14.80       (24.9 )
Low
     3.95       9.20       (57.1 )     3.95       9.20       (57.1 )
                                                 
PERIOD-END BALANCE SHEET DATA
                                                
Loans
   $ 862,566     $ 906,490       (4.8 )%                        
Securities
     112,328       104,075       7.9                          
Assets
     1,157,536       1,134,503       2.0                          
Deposits
     1,011,919       982,428       3.0                          
Stockholders' equity
     120,986       122,355       (1.1 )                        
                                                 
AVERAGE BALANCE SHEET DATA
                                                
Loans
   $ 869,221     $ 904,293       (3.9 )%   $ 879,509     $ 907,965       (3.1 )%
Securities
     113,938       105,466       8.0       110,482       108,469       1.9  
Earning assets
     1,069,636       1,066,063       0.3       1,062,846       1,070,833       (0.7 )
Assets
     1,142,588       1,139,043       0.3       1,132,964       1,139,747       (0.6 )
Deposits
     994,968       984,018       1.1       984,733       980,968       0.4  
Stockholders' equity
     121,327       125,308       (3.2 )     121,656       126,343       (3.7 )
                                                 
CAPITAL AND CREDIT QUALITY RATIOS
                                                
Average equity to average assets
     10.62 %     11.00 %     (38 )bp     10.74 %     11.09 %     (35 )bp
Average tangible equity to average tangible assets (1)
     9.17       9.33       (16 )     9.27       9.40       (13 )
Annualized net charge-offs to average loans
     2.95       1.90       105       2.45       2.13       32  
Allowance for credit losses to period-end loans
     1.57       1.45       12                          
Allowance for credit losses to nonaccrual loans
     27.31       35.76       (845 )                        
Allowance for credit losses to nonperforming loans (2)
     16.31       28.76       (1,245 )                        
Nonaccrual loans to total loans
     5.75       4.06       169                          
Nonaccrual loans to total assets
     4.28       3.24       104                          
Nonperforming assets to total loans+other real estate and other assets owned (3)
     10.65       5.20       545                          
Nonperforming assets to total assets
     8.02       4.16       386                          

(1)
See the reconciliation table on page 11 of 11.

(2)
Nonperforming loans include nonaccrual, 90 days past due and still accruing and accruing troubled debt restructurings.

(3)
Nonperforming assets include nonperforming loans and other real estate and other assets owned.
 
 
 
 

Shore Bancshares, Inc.
Page 5 of 11
Consolidated Balance Sheets
  
(In thousands, except per share data)
  

                     
September 30, 2011
    
September 30, 2011
  
   
September 30,
    
December 31,
    
September 30,
    
compared to
    
compared to
  
   
2011
    
2010
    
2010
    
December 31, 2010
    
September 30, 2010
  
ASSETS
                              
Cash and due from banks
   $ 26,519     $ 19,680     $ 21,764       34.8 %     21.8 %
Interest-bearing deposits with other banks
     92,293       21,593       18,014       327.4       412.3  
Federal funds sold
     9,966       36,691       35,161       (72.8 )     (71.7 )
Investments available for sale (at fair value)
     105,804       99,055       96,219       6.8       10.0  
Investments held to maturity
     6,524       6,727       7,856       (3.0 )     (17.0 )
                                         
Loans
     862,566       895,404       906,490       (3.7 )     (4.8 )
Less: allowance for credit losses
     (13,540 )     (14,227 )     (13,153 )     (4.8 )     2.9  
Loans, net
     849,026       881,177       893,337       (3.6 )     (5.0 )
                                         
Premises and equipment, net
     14,236       14,483       14,714       (1.7 )     (3.2 )
Goodwill
     12,454       13,678       12,954       (8.9 )     (3.9 )
Other intangible assets, net
     4,334       4,840       4,969       (10.5 )     (12.8 )
Other real estate and other assets owned, net
     9,865       3,702       1,517       166.5       550.3  
Other assets
     26,515       28,685       27,998       (7.6 )     (5.3 )
                                         
Total assets
   $ 1,157,536     $ 1,130,311     $ 1,134,503       2.4       2.0  
                                         
LIABILITIES
                                        
Noninterest-bearing deposits
   $ 135,822     $ 124,188     $ 121,480       9.4       11.8  
Interest-bearing deposits
     876,097       855,328       860,948       2.4       1.8  
Total deposits
     1,011,919       979,516       982,428       3.3       3.0  
                                         
Short-term borrowings
     15,292       16,041       17,782       (4.7 )     (14.0 )
Accrued expenses and other liabilities
     8,407       11,309       10,509       (25.7 )     (20.0 )
Long-term debt
     932       932       1,429       -       (34.8 )
Total liabilities
     1,036,550       1,007,798       1,012,148       2.9       2.4  
                                         
STOCKHOLDERS' EQUITY
                                        
Common stock, par value $0.01; authorized 35,000,000 shares
     85       84       84       1.2       1.2  
Warrant
     1,543       1,543       1,543       -       -  
Additional paid in capital
     30,438       30,242       30,173       0.6       0.9  
Retained earnings
     90,560       92,458       92,115       (2.1 )     (1.7 )
Accumulated other comprehensive loss
     (1,640 )     (1,814 )     (1,560 )     9.6       (5.1 )
Total stockholders' equity
     120,986       122,513       122,355       (1.2 )     (1.1 )
                                         
Total liabilities and stockholders' equity
   $ 1,157,536     $ 1,130,311     $ 1,134,503       2.4       2.0  
                                         
Period-end common shares outstanding
     8,457       8,443       8,443       0.2       0.2  
Book value per common share
   $ 14.31     $ 14.51     $ 14.49       (1.4 )     (1.2 )
 
 
 
 

Shore Bancshares, Inc.
Page 6 of 11
Consolidated Statements of Income
  
(In thousands, except per share data)
  

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2011
    
2010
    
% Change
    
2011
    
2010
    
% Change
  
INTEREST INCOME
                                    
Interest and fees on loans
   $ 12,003     $ 13,083       (8.3 )%   $ 35,900     $ 39,004       (8.0 )%
Interest and dividends on investment securities:
                                                
Taxable
     795       677       17.4       2,234       2,405       (7.1 )
Tax-exempt
     38       50       (24.0 )     116       165       (29.7 )
Interest on federal funds sold
     3       21       (85.7 )     24       47       (48.9 )
Interest on deposits with other banks
     29       6       383.3       47       11       327.3  
Total interest income
     12,868       13,837       (7.0 )     38,321       41,632       (8.0 )
                                                 
INTEREST EXPENSE
                                                
Interest on deposits
     2,720       3,117       (12.7 )     8,322       9,744       (14.6 )
Interest on short-term borrowings
     15       17       (11.8 )     41       68       (39.7 )
Interest on long-term debt
     10       16       (37.5 )     31       47       (34.0 )
Total interest expense
     2,745       3,150       (12.9 )     8,394       9,859       (14.9 )
                                                 
NET INTEREST INCOME
     10,123       10,687       (5.3 )     29,927       31,773       (5.8 )
Provision for credit losses
     3,650       4,193       (13.0 )     15,435       16,727       (7.7 )
                                                 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
     6,473       6,494       (0.3 )     14,492       15,046       (3.7 )
                                                 
NONINTEREST INCOME
                                                
Service charges on deposit accounts
     697       841       (17.1 )     2,145       2,458       (12.7 )
Trust and investment fee income
     389       357       9.0       1,183       1,145       3.3  
Investment securities gains
     354       -       -       435       -       -  
Insurance agency commissions
     2,312       2,513       (8.0 )     7,297       7,997       (8.8 )
Other noninterest income
     771       932       (17.3 )     2,239       2,493       (10.2 )
Total noninterest income
     4,523       4,643       (2.6 )     13,299       14,093       (5.6 )
                                                 
NONINTEREST EXPENSE
                                                
Salaries and wages
     4,097       4,404       (7.0 )     12,447       13,257       (6.1 )
Employee benefits
     878       897       (2.1 )     2,917       2,936       (0.6 )
Occupancy expense
     585       547       6.9       1,749       1,766       (1.0 )
Furniture and equipment expense
     262       325       (19.4 )     825       938       (12.0 )
Data processing
     661       696       (5.0 )     2,192       1,987       10.3  
Directors' fees
     198       118       67.8       417       344       21.2  
Goodwill and other intangible assets impairment
     1,344       3,051       (55.9 )     1,344       3,051       (55.9 )
Amortization of intangible assets
     129       128       0.8       386       386       -  
Insurance agency commissions expense
     250       338       (26.0 )     982       1,230       (20.2 )
FDIC insurance premium expense
     180       448       (59.8 )     1,044       1,389       (24.8 )
Other noninterest expenses
     2,093       1,677       24.8       5,459       5,354       2.0  
Total noninterest expense
     10,677       12,629       (15.5 )     29,762       32,638       (8.8 )
                                                 
Income (loss) before income taxes
     319       (1,492 )     121.4       (1,971 )     (3,499 )     43.7  
Income tax expense (benefit)
     225       (92 )     344.6       (749 )     (982 )     23.7  
                                                 
NET INCOME (LOSS)
   $ 94     $ (1,400 )     106.7     $ (1,222 )   $ (2,517 )     51.5  
                                                 
Weighted average shares outstanding - basic
     8,457       8,443       0.2       8,449       8,441       0.1  
Weighted average shares outstanding - diluted
     8,457       8,443       0.2       8,449       8,441       0.1  
                                                 
Basic net income (loss) per common share
   $ 0.01     $ (0.17 )     105.9     $ (0.14 )   $ (0.30 )     53.3  
Diluted net income (loss) per common share
     0.01       (0.17 )     105.9       (0.14 )     (0.30 )     53.3  
Dividends paid per common share
     0.01       0.06       (83.3 )     0.08       0.18       (55.6 )
 
 
 
 

Shore Bancshares, Inc.
Page 7 of 11
Consolidated Average Balance Sheets
  
(Dollars in thousands)
  

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2011
    
2010
    
2011
    
2010
  
   
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
  
   
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
  
Earning assets
                                                
Loans
   $ 869,221       5.49 %   $ 904,293       5.76 %   $ 879,509       5.47 %   $ 907,965       5.76 %
Investment securities
                                                                
Taxable
     109,498       2.88       99,572       2.70       105,939       2.82       102,100       3.15  
Tax-exempt
     4,440       5.12       5,894       5.16       4,543       5.16       6,369       5.26  
Federal funds sold
     15,905       0.07       40,638       0.20       28,896       0.11       41,709       0.15  
Interest-bearing deposits
     70,572       0.16       15,666       0.15       43,959       0.14       12,690       0.12  
Total earning assets
     1,069,636       4.79 %     1,066,063       5.18 %     1,062,846       4.84 %     1,070,833       5.22 %
Cash and due from banks
     20,414               21,865               19,356               15,455          
Other assets
     69,394               65,081               67,588               66,942          
Allowance for credit losses
     (16,856 )             (13,966 )             (16,826 )             (13,483 )        
Total assets
   $ 1,142,588             $ 1,139,043             $ 1,132,964             $ 1,139,747          
                                                                 
Interest-bearing liabilities
                                                                
Demand deposits
   $ 154,685       0.20 %   $ 132,023       0.24 %   $ 141,447       0.21 %   $ 130,872       0.25 %
Money market and savings deposits
     266,871       1.03       259,511       0.81       263,216       0.97       258,628       0.73  
Certificates of deposit $100,000 or more
     235,362       1.63       258,542       1.91       246,362       1.67       256,470       2.08  
Other time deposits
     204,836       1.91       212,098       2.37       206,470       2.01       215,911       2.53  
Interest-bearing deposits
     861,754       1.25       862,174       1.44       857,495       1.30       861,881       1.51  
Short-term borrowings
     15,640       0.37       16,092       0.38       14,947       0.36       16,673       0.55  
Long-term debt
     932       4.46       1,429       4.36       932       4.51       1,429       4.40  
Total interest-bearing liabilities
     878,326       1.24 %     879,695       1.42 %     873,374       1.29 %     879,983       1.50 %
Noninterest-bearing deposits
     133,214               121,844               127,238               119,087          
Accrued expenses and other liabilities
     9,721               12,196               10,696               14,334          
Stockholders' equity
     121,327               125,308               121,656               126,343          
Total liabilities and stockholders' equity
   $ 1,142,588             $ 1,139,043             $ 1,132,964             $ 1,139,747          
                                                                 
Net interest spread
             3.55 %             3.76 %             3.55 %             3.72 %
Net interest margin
             3.77 %             4.00 %             3.79 %             3.99 %
 
 
 
 

Shore Bancshares, Inc.
Page 8 of 11
Financial Highlights By Quarter
  
(Dollars in thousands, except per share data)
  

   
3rd quarter
    
2nd quarter
    
1st quarter
    
4th quarter
    
3rd quarter
     3Q 11     3Q 11  
   
2011
    
2011
    
2011
    
2010
    
2010
    
compared to
    
compared to
  
    (3Q 11)     (2Q 11)     (1Q 11)     (4Q 10)     (3Q 10)     2Q 11     3Q 10  
PROFITABILITY FOR THE PERIOD
                                                        
Taxable-equivalent net interest income
   $ 10,172     $ 10,001     $ 9,921     $ 10,932     $ 10,754       1.7 %     (5.4 )%
Taxable-equivalent adjustment
     49       59       59       66       67       (16.9 )     (26.9 )
Net interest income
     10,123       9,942       9,862       10,866       10,687       1.8       (5.3 )
Provision for credit losses
     3,650       5,395       6,390       4,392       4,193       (32.3 )     (13.0 )
Noninterest income
     4,523       4,381       4,395       3,948       4,643       3.2       (2.6 )
Noninterest expense
     10,677       9,194       9,891       9,082       12,629       16.1       (15.5 )
Income (loss) before income taxes
     319       (266 )     (2,024 )     1,340       (1,492 )     219.9       121.4  
Income tax expense (benefit)
     225       (33 )     (941 )     490       (92 )     781.8       344.6  
Net income (loss)
   $ 94     $ (233 )   $ (1,083 )   $ 850     $ (1,400 )     140.3       106.7  
                                                         
Return on average assets
     0.03 %     (0.08 )%     (0.39 )%     0.30 %     (0.49 )%     11 bp     52 bp
Return on average equity
     0.31       (0.77 )     (3.59 )     2.73       (4.43 )     108       474  
Return on average tangible equity (1)
     4.21       (0.60 )     (3.92 )     3.49       4.31       481       (10 )
Net interest margin
     3.77       3.80       3.79       4.09       4.00       (3 )     (23 )
Efficiency ratio - GAAP
     72.90       64.19       69.38       61.31       82.38       871       (948 )
Efficiency ratio - Non-GAAP (1)
     64.40       63.31       68.85       60.44       62.56       109       184  
                                                         
PER SHARE DATA
                                                        
Basic net income (loss) per common share
   $ 0.01     $ (0.03 )   $ (0.13 )   $ 0.10     $ (0.17 )     133.3 %     105.9 %
Diluted net income (loss) per common share
     0.01       (0.03 )     (0.13 )     0.10       (0.17 )     133.3       105.9  
Dividends paid per common share
     0.01       0.01       0.06       0.06       0.06       -       (83.3 )
Book value per common share at period end
     14.31       14.30       14.32       14.51       14.49       0.1       (1.2 )
Tangible book value per common share at period end (1)
     12.32       12.14       12.14       12.32       12.37       1.5       (0.4 )
Market value at period end
     4.36       6.98       9.75       10.54       9.48       (37.5 )     (54.0 )
Market range:
                                                        
High
     7.06       10.21       11.11       10.73       12.10       (30.9 )     (41.7 )
Low
     3.95       6.51       9.42       9.25       9.20       (39.3 )     (57.1 )
                                                         
PERIOD-END BALANCE SHEET DATA
                                                        
Loans
   $ 862,566     $ 877,331     $ 884,715     $ 895,404     $ 906,490       (1.7 )%     (4.8 )%
Securities
     112,328       113,271       106,920       105,782       104,075       (0.8 )     7.9  
Assets
     1,157,536       1,124,191       1,131,334       1,130,311       1,134,503       3.0       2.0  
Deposits
     1,011,919       973,442       986,486       979,516       982,428       4.0       3.0  
Stockholders' equity
     120,986       120,941       120,926       122,513       122,355       -       (1.1 )
                                                         
AVERAGE BALANCE SHEET DATA
                                                        
Loans
   $ 869,221     $ 881,976     $ 887,531     $ 903,075     $ 904,293       (1.4 )%     (3.9 )%
Securities
     113,938       111,190       106,235       103,600       105,466       2.5       8.0  
Earning assets
     1,069,636       1,056,658       1,062,164       1,060,645       1,066,063       1.2       0.3  
Assets
     1,142,588       1,125,213       1,131,259       1,128,517       1,139,043       1.5       0.3  
Deposits
     994,968       976,840       982,249       978,444       984,018       1.9       1.1  
Stockholders' equity
     121,327       121,187       122,466       123,341       125,308       0.1       (3.2 )
                                                         
CAPITAL AND CREDIT QUALITY RATIOS
                                                        
Average equity to average assets
     10.62 %     10.77 %     10.83 %     10.93 %     11.00 %     (15 )bp     (38 )bp
Average tangible equity to average tangible assets (1)
     9.17       9.29       9.35       9.50       9.33       (12 )     (16 )
Annualized net charge-offs to average loans
     2.95       2.96       1.44       1.46       1.90       (1 )     105  
Allowance for credit losses to period-end loans
     1.57       1.86       1.97       1.59       1.45       (29 )     12  
Allowance for credit losses to nonaccrual loans
     27.31       33.74       35.83       39.26       35.76       (643 )     (845 )
Allowance for credit losses to nonperforming loans (2)
     16.31       22.80       22.40       22.82       28.76       (649 )     (1,245 )
Nonaccrual loans to total loans
     5.75       5.53       5.51       4.05       4.06       22       169  
Nonaccrual loans to total assets
     4.28       4.31       4.31       3.21       3.24       (3 )     104  
Nonperforming assets to total loans+other real estate and other assets owned (3)
     10.65       8.99       9.31       7.34       5.20       166       545  
Nonperforming assets to total assets
     8.02       7.08       7.32       5.84       4.16       94       386  

(1)
See the reconciliation table on page 11 of 11.

(2)
Nonperforming loans include nonaccrual, 90 days past due and still accruing and accruing troubled debt restructurings.

(3)
Nonperforming assets include nonperforming loans and other real estate and other assets owned.
 
 
 
 

Shore Bancshares, Inc.
Page 9 of 11
Consolidated Statements of Income By Quarter
  
(In thousands, except per share data)
  

                                  3Q 11     3Q 11  
                                 
compared to
    
compared to
  
    3Q 11     2Q 11     1Q 11     4Q 10     3Q 10     2Q 11     3Q 10  
INTEREST INCOME
                                                        
Interest and fees on loans
   $ 12,003     $ 11,896     $ 12,001     $ 12,958     $ 13,083       0.9 %     (8.3 )%
Interest and dividends on investment securities:
                                                        
Taxable
     795       782       657       804       677       1.7       17.4  
Tax-exempt
     38       40       38       47       50       (5.0 )     (24.0 )
Interest on federal funds sold
     3       5       16       13       21       (40.0 )     (85.7 )
Interest on deposits with other banks
     29       12       6       7       6       141.7       383.3  
Total interest income
     12,868       12,735       12,718       13,829       13,837       1.0       (7.0 )
                                                         
INTEREST EXPENSE
                                                        
Interest on deposits
     2,720       2,769       2,833       2,937       3,117       (1.8 )     (12.7 )
Interest on short-term borrowings
     15       13       13       15       17       15.4       (11.8 )
Interest on long-term debt
     10       11       10       11       16       (9.1 )     (37.5 )
Total interest expense
     2,745       2,793       2,856       2,963       3,150       (1.7 )     (12.9 )
                                                         
NET INTEREST INCOME
     10,123       9,942       9,862       10,866       10,687       1.8       (5.3 )
Provision for credit losses
     3,650       5,395       6,390       4,392       4,193       (32.3 )     (13.0 )
                                                         
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
     6,473       4,547       3,472       6,474       6,494       42.4       (0.3 )
                                                         
NONINTEREST INCOME
                                                        
Service charges on deposit accounts
     697       744       704       799       841       (6.3 )     (17.1 )
Trust and investment fee income
     389       418       376       358       357       (6.9 )     9.0  
Investment securities gains
     354       2       79       -       -       17,600.0       -  
Insurance agency commissions
     2,312       2,475       2,510       2,116       2,513       (6.6 )     (8.0 )
Other noninterest income
     771       742       726       675       932       3.9       (17.3 )
Total noninterest income
     4,523       4,381       4,395       3,948       4,643       3.2       (2.6 )
                                                         
NONINTEREST EXPENSE
                                                        
Salaries and wages
     4,097       4,104       4,246       4,220       4,404       (0.2 )     (7.0 )
Employee benefits
     878       886       1,153       893       897       (0.9 )     (2.1 )
Occupancy expense
     585       568       596       562       547       3.0       6.9  
Furniture and equipment expense
     262       291       272       262       325       (10.0 )     (19.4 )
Data processing
     661       680       851       620       696       (2.8 )     (5.0 )
Directors' fees
     198       112       107       68       118       76.8       67.8  
Goodwill and other intangible assets impairment
     1,344       -       -       -       3,051       -       (55.9 )
Amortization of intangible assets
     129       128       129       129       128       0.8       0.8  
Insurance agency commissions expense
     250       357       375       339       338       (30.0 )     (26.0 )
FDIC insurance premium expense
     180       404       460       445       448       (55.4 )     (59.8 )
Other noninterest expenses
     2,093       1,664       1,702       1,544       1,677       25.8       24.8  
Total noninterest expense
     10,677       9,194       9,891       9,082       12,629       16.1       (15.5 )
                                                         
Income (loss) before income taxes
     319       (266 )     (2,024 )     1,340       (1,492 )     219.9       121.4  
Income tax expense (benefit)
     225       (33 )     (941 )     490       (92 )     781.8       344.6  
                                                         
NET INCOME (LOSS)
   $ 94     $ (233 )   $ (1,083 )   $ 850     $ (1,400 )     140.3       106.7  
                                                         
Weighted average shares outstanding - basic
     8,457       8,446       8,443       8,443       8,443       0.1       0.2  
Weighted average shares outstanding - diluted
     8,457       8,446       8,443       8,443       8,443       0.1       0.2  
                                                         
Basic net income (loss) per common share
   $ 0.01     $ (0.03 )   $ (0.13 )   $ 0.10     $ (0.17 )     133.3       105.9  
Diluted net income (loss) per common share
     0.01       (0.03 )     (0.13 )     0.10       (0.17 )     133.3       105.9  
Dividends paid per common share
     0.01       0.01       0.06       0.06       0.06       -       (83.3 )
 
 
 
 

Shore Bancshares, Inc.
Page 10 of 11
Consolidated Average Balance Sheets By Quarter
  
(Dollars in thousands)
  

                                                               
Average balance
  
                                                                3Q 11      3Q 11   
                                                               
compared to
    
compared to
  
    3Q 11      2Q 11      1Q 11      4Q 10      3Q 10      2Q 11      3Q 10   
   
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
    
Average
    
Yield/
                  
   
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
    
balance
    
rate
                  
Earning assets
                                                                                          
Loans
   $ 869,221       5.49 %   $ 881,976       5.43 %   $ 887,531       5.50 %   $ 903,075       5.71 %   $ 904,293       5.76 %     (1.5 )%     (3.9 )%
Investment securities
                                                                                                
Taxable
     109,498       2.88       106,609       2.94       101,625       2.62       98,378       3.24       99,572       2.70       2.7       10.0  
Tax-exempt
     4,440       5.12       4,581       5.27       4,610       5.08       5,222       5.40       5,894       5.16       (3.1 )     (24.7 )
Federal funds sold
     15,905       0.07       24,310       0.09       46,813       0.14       34,018       0.16       40,638       0.20       (34.6 )     (60.9 )
Interest-bearing deposits
     70,572       0.16       39,182       0.12       21,585       0.12       19,952       0.12       15,666       0.15       80.1       350.5  
Total earning assets
     1,069,636       4.79 %     1,056,658       4.86 %     1,062,164       4.88 %     1,060,645       5.20 %     1,066,063       5.18 %     1.2       0.3  
Cash and due from banks
     20,414               18,327               19,316               19,867               21,865               11.4       (6.6 )
Other assets
     69,394               68,190               65,426               62,305               65,081               1.8       6.6  
Allowance for credit losses
     (16,856 )             (17,962 )             (15,647 )             (14,300 )             (13,966 )             (6.2 )     20.7  
Total assets
   $ 1,142,588             $ 1,125,213             $ 1,131,259             $ 1,128,517             $ 1,139,043               1.5       0.3  
                                                                                                 
Interest-bearing liabilities
                                                                                                
Demand deposits
   $ 154,685       0.20 %   $ 137,775       0.22 %   $ 131,628       0.22 %   $ 128,592       0.22 %   $ 132,023       0.24 %     12.3       17.2  
Money market and savings deposits
     266,871       1.03       261,869       0.97       260,841       0.93       258,713       0.84       259,511       0.81       1.9       2.8  
Certificates of deposit $100,000 or more
     235,362       1.63       244,805       1.67       259,179       1.70       256,167       1.77       258,542       1.91       (3.9 )     (9.0 )
Other time deposits
     204,836       1.91       206,310       2.02       208,301       2.10       208,808       2.23       212,098       2.37       (0.7 )     (3.4 )
Interest-bearing deposits
     861,754       1.25       850,759       1.31       859,949       1.34       852,280       1.37       862,174       1.44       1.3       (0.1 )
Short-term borrowings
     15,640       0.37       15,020       0.36       14,165       0.37       15,381       0.39       16,092       0.38       4.1       (2.8 )
Long-term debt
     932       4.46       932       4.51       932       4.56       932       4.46       1,429       4.36       -       (34.8 )
Total interest-bearing liabilities
     878,326       1.24 %     866,711       1.29 %     875,046       1.32 %     868,593       1.35 %     879,695       1.42 %     1.3       (0.2 )
Noninterest-bearing deposits
     133,214               126,081               122,300               126,164               121,844               5.7       9.3  
Accrued expenses and other liabilities
     9,721               11,234               11,447               10,419               12,196               (13.5 )     (20.3 )
Stockholders' equity
     121,327               121,187               122,466               123,341               125,308               0.1       (3.2 )
Total liabilities and stockholders' equity
   $ 1,142,588             $ 1,125,213             $ 1,131,259             $ 1,128,517             $ 1,139,043               1.5       0.3  
                                                                                                 
Net interest spread
             3.55 %             3.57 %             3.56 %             3.85 %             3.76 %                
Net interest margin
             3.77 %             3.80 %             3.79 %             4.09 %             4.00 %                
 
 
 
 

Shore Bancshares, Inc.
Page 11 of 11
Reconciliation of Non-GAAP Measures
  
(In thousands, except per share data)
  

                                 
YTD
    
YTD
  
    3Q 11     2Q 11     1Q 11     4Q 10     3Q 10    
09/30/2011
    
09/30/2010
  
                                                     
The following reconciles return on average equity and return on average tangible equity (Note 1):
                                                    
                                                     
Net income (loss)
   $ 94     $ (233 )   $ (1,083 )   $ 850     $ (1,400 )   $ (1,222 )   $ (2,517 )
Net income (loss) - annualized (A)
   $ 373     $ (935 )   $ (4,392 )   $ 3,372     $ (5,554 )   $ (1,634 )   $ (3,365 )
                                                         
Net income (loss), excluding net amortization and impairment charges of intangible assets
   $ 1,094     $ (155 )   $ (1,005 )   $ 928     $ 1,134     $ (66 )   $ 173  
                                                         
Net income (loss), excluding net amortization and impairment charges of intangible assets - annualized (B)
   $ 4,340     $ (622 )   $ (4,076 )   $ 3,682     $ 4,499     $ (88 )   $ 231  
                                                         
Average stockholders' equity (C)
   $ 121,327     $ 121,187     $ 122,466     $ 123,341     $ 125,308     $ 121,656     $ 126,343  
Less:  Average goodwill and other intangible assets
     (18,190 )     (18,334 )     (18,465 )     (17,877 )     (21,016 )     (18,329 )     (21,166 )
Average tangible equity (D)
   $ 103,137     $ 102,853     $ 104,001     $ 105,464     $ 104,292     $ 103,327     $ 105,177  
                                                         
Return on average equity (GAAP)  (A)/(C)
     0.31 %     (0.77 )%     (3.59 )%     2.73 %     (4.43 )%     (1.34 )%     (2.66 )%
Return on average tangible equity (Non-GAAP)  (B)/(D)
     4.21 %     (0.60 )%     (3.92 )%     3.49 %     4.31 %     (0.09 )%     0.22 %
                                                         
The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2):
                                                        
                                                         
Noninterest expense (E)
   $ 10,677     $ 9,194     $ 9,891     $ 9,082     $ 12,629     $ 29,762     $ 32,638  
Less:  Amortization of intangible assets
     (129 )     (128 )     (129 )     (129 )     (128 )     (386 )     (386 )
  Impairment charges
     (1,344 )     -       -       -       (3,051 )     (1,344 )     (3,051 )
Adjusted noninterest expense (F)
   $ 9,204     $ 9,066     $ 9,762     $ 8,953     $ 9,450     $ 28,032     $ 29,201  
                                                         
Net interest income (G)
   $ 10,123     $ 9,942     $ 9,862     $ 10,866     $ 10,687     $ 29,927     $ 31,773  
                                                         
Noninterest income (H)
   $ 4,523     $ 4,381     $ 4,395     $ 3,948     $ 4,643     $ 13,299     $ 14,093  
Less:  Investment securities (gains)/losses
     (354 )     (2 )     (79 )     -       -       (435 )     -  
  Other nonrecurring (gains)/losses
     -       -       -       -       (224 )     -       (224 )
Adjusted noninterest income (I)
   $ 4,169     $ 4,379     $ 4,316     $ 3,948     $ 4,419     $ 12,864     $ 13,869  
                                                         
Efficiency ratio (GAAP)  (E)/(G)+(H)
     72.90 %     64.19 %     69.38 %     61.31 %     82.38 %     68.85 %     71.16 %
Efficiency ratio (Non-GAAP)  (F)/(G)+(I)
     64.40 %     63.31 %     68.85 %     60.44 %     62.56 %     65.51 %     63.98 %
                                                         
The following reconciles book value per common share and tangible book value per common share (Note 1):
                                                        
                                                         
Stockholders' equity (J)
   $ 120,986     $ 120,941     $ 120,926     $ 122,513     $ 122,355                  
Less:  Goodwill and other intangible assets
     (16,788 )     (18,261 )     (18,389 )     (18,518 )     (17,923 )                
Tangible equity (K)
   $ 104,198     $ 102,680     $ 102,537     $ 103,995     $ 104,432                  
                                                         
Shares outstanding (L)
     8,457       8,457       8,443       8,443       8,443                  
                                                         
Book value per common share (GAAP)  (J)/(L)
   $ 14.31     $ 14.30     $ 14.32     $ 14.51     $ 14.49                  
Tangible book value per common share (Non-GAAP)  (K)/(L)
   $ 12.32     $ 12.14     $ 12.14     $ 12.32     $ 12.37                  
                                                         
The following reconciles average equity to average assets and average tangible equity to average tangible assets (Note 1):
                                                        
                                                         
Average stockholders' equity (M)
   $ 121,327     $ 121,187     $ 122,466     $ 123,341     $ 125,308     $ 121,656     $ 126,343  
Less:  Average goodwill and other intangible assets
     (18,190 )     (18,334 )     (18,465 )     (17,877 )     (21,016 )     (18,329 )     (21,166 )
Average tangible equity (N)
   $ 103,137     $ 102,853     $ 104,001     $ 105,464     $ 104,292     $ 103,327     $ 105,177  
                                                         
Average assets (O)
   $ 1,142,588     $ 1,125,213     $ 1,131,259     $ 1,128,517     $ 1,139,043     $ 1,132,964     $ 1,139,747  
Less:  Average goodwill and other intangible assets
     (18,190 )     (18,334 )     (18,465 )     (17,877 )     (21,016 )     (18,329 )     (21,166 )
Average tangible assets (P)
   $ 1,124,398     $ 1,106,879     $ 1,112,794     $ 1,110,640     $ 1,118,027     $ 1,114,635     $ 1,118,581  
                                                         
Average equity/average assets (GAAP)  (M)/(O)
     10.62 %     10.77 %     10.83 %     10.93 %     11.00 %     10.74 %     11.09 %
Average tangible equity/average tangible assets (Non-GAAP)  (N)/(P)
     9.17 %     9.29 %     9.35 %     9.50 %     9.33 %     9.27 %     9.40 %

Note 1: 
Management believes that reporting tangible equity and tangible assets more closely approximates the adequacy of capital for regulatory purposes.

Note 2: 
Management believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling cash-based operating activities.