EX-99.1 2 v326769_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 (10/23/2012) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported a net loss of $1.8 million or $(0.22) per diluted common share for the third quarter of 2012, compared to net income of $293 thousand or $0.03 per diluted common share for the second quarter of 2012, and net income of $94 thousand or $0.01 per diluted common share for the third quarter of 2011.

The Company reported a net loss of $4.6 million or $(0.54) per diluted common share for the first nine months of 2012, compared to a net loss of $1.2 million or $(0.14) per diluted common share for the first nine months of 2011.

“As we continue to charge off problem assets, we added $6.2 million to the provision for credit losses during the third quarter. Net charge-offs for the third quarter were $6.2 million, of which $4.2 million were attributable to two sizeable real estate loan relationships,” said W. Moorhead Vermilye, chief executive officer. “Net charge-offs during prior quarters this year were $4.1 million for the second quarter and $9.1 million for the first quarter. Clearly, there is a very high cost involved in working our way out of troubled loans and removing them from the balance sheet, but we are moving as aggressively as possible through this tough cycle. Fortunately, the underlying strength of the company has enabled us to maintain capital levels substantially above regulatory minimums to be considered well capitalized, as evidenced by our ratio of average equity to average assets of 10.26% for the first nine months of 2012 and the ratio of average tangible equity to average tangible assets of 8.97% for the nine-month period.”

When comparing the third quarter of 2012 to the second quarter of 2012, the primary reason for the difference in results was an increase in the provision for credit losses of $2.7 million. When comparing the third quarter of 2012 to the third quarter of 2011, the main reasons for the difference in results were an increase in the provision for credit losses of $2.6 million and a decline in net interest income of $1.4 million. When comparing the first nine months of 2012 to the first nine months of 2011, the principal factors driving the difference were an increase in the provision for credit losses of $2.7 million and a decline in net interest income of $3.0 million.

Balance Sheet Review

Total assets were $1.179 billion at September 30, 2012, a $20.4 million, or 1.8%, increase when compared to the $1.158 billion at the end of 2011. Total loans decreased 3.9% to $808.0 million while total earning assets increased 1.6% to $1.1 billion when compared to December 31, 2011. Total deposits increased 2.8% to $1.039 billion while total stockholders’ equity decreased 2.5% from the end of 2011. The ratio of average equity to average assets was 10.26% and 10.74% for the first nine months of 2012 and 2011, respectively, while the ratio of average tangible equity to average tangible assets was 8.97% and 9.27% for the first nine months of 2012 and 2011, 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 2012 was $8.7 million, a 3.4% decrease from the second quarter of 2012 and a 13.8% decrease from the same period last year. The decrease in net interest income when compared to the second quarter of 2012 was primarily due to lower yields earned on average earning assets. The decrease in net interest income when compared to the third quarter of 2011 was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances. The Company’s net interest margin was 3.15% for the third quarter of 2012, 3.36% for the second quarter of 2012 and 3.77% for the third quarter of 2011.

Page 2 of 11

The provision for credit losses was $6.2 million for the three months ended September 30, 2012. The comparable amounts were $3.5 million and $3.7 million for the three months ended June 30, 2012 and September 30, 2011, respectively. The ratio of the allowance for credit losses to period-end loans was 1.60% at both September 30, 2012 and June 30, 2012 and 1.57% at September 30, 2011.

The higher level of provision for credit losses for the third quarter of 2012 when compared to the second quarter of 2012 and the third quarter of 2011 was primarily in response to loan charge-offs. Net charge-offs were $6.2 million for the third quarter of 2012, $4.1 million for the second quarter of 2012 and $6.5 million for the third quarter of 2011. A large portion of the loan charge-offs during the third quarter of 2012, $4.2 million, resulted from two real estate loan relationships. The ratio of quarter-to-date annualized net charge-offs to average loans was 3.07% for the third quarter of 2012, 2.01% for the second quarter of 2012 and 2.95% for the third quarter of 2011. Total nonperforming assets at September 30, 2012 increased $3.1 million when compared to June 30, 2012, which included a $13.6 million increase in accruing troubled debt restructurings net of an $8.5 million decline in nonaccrual loans and a $3.1 million decline in other real estate owned. The change in the components of nonperforming assets reflected our continued effort either to develop concessionary workouts relating to problem loans or remove problem loans from our portfolio. Nonperforming assets at September 30, 2012 increased $10.4 million when compared to September 30, 2011, primarily due to an increase in troubled debt restructurings. The ratio of nonperforming assets to total assets was 8.77% at September 30, 2012, compared to 8.53% at June 30, 2012 and 8.02% at September 30, 2011.

Total noninterest income for the third quarter of 2012 decreased $576 thousand, or 12.6%, when compared to the second quarter of 2012 and decreased $522 thousand, or 11.5%, when compared to the third quarter of 2011. The lower amount when compared to the second quarter of 2012 was primarily the result of a decrease in other noninterest income ($845 thousand) partially offset by an increase in investment securities gains ($278 thousand). Included in other noninterest income for the third quarter of 2012 was $581 thousand in losses on the sales of other real estate owned, mainly relating to two properties. Included in other noninterest income for the second quarter of 2012 was a $217 thousand gain on the sale of a bank branch building. The decrease in noninterest income during the third quarter of 2012 when compared to the third quarter of 2011 was primarily due to a decline in other noninterest income ($513 thousand) mainly from the $581 thousand in losses on the sales of other real estate owned.

Total noninterest expense for the third quarter of 2012 remained relatively flat when compared to the second quarter of 2012. When compared to the third quarter of 2011, total noninterest expense for the third quarter of 2012 decreased $968 thousand, or 9.1%. This decrease was primarily due to a decline in goodwill impairment ($1.3 million) and other noninterest expenses ($186 thousand). During the third quarter of 2012, goodwill and other intangible assets were subjected to the annual assessment for impairment. As a result of the assessment, it was determined that there was no impairment at the Company’s subsidiaries that have these intangible assets on their balance sheets. Included in other noninterest expenses were lower amounts related to other real estate owned activities ($250 thousand). Partially offsetting the decrease in total noninterest expense were increases in salaries and wages ($289 thousand) and FDIC insurance premium expense ($196 thousand).

Review of Nine-Month Financial Results

Net interest income for the first nine months of 2012 was $27.0 million, a decrease of 9.9% when compared to the first nine months of 2011. This decrease was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances. The net interest margin was 3.31% for the first nine months of 2012 and 3.79% for the first nine months of 2011.

Page 3 of 11

The provisions for credit losses for the nine months ended September 30, 2012 and 2011 were $18.1 million and $15.4 million, respectively. Net charge-offs were $19.4 million and $16.1 million for the nine months ended September 30, 2012 and 2011, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 3.17% for the first nine months of 2012 and 2.45% for the first nine months of 2011.

Total noninterest income for the nine months ended September 30, 2012 decreased $147 thousand, or 1.1%, when compared to the same period in 2011. This decrease was primarily due to a decline in service charges on deposit accounts ($247 thousand) and investment securities gains ($157 thousand) which was partially offset by an increase in insurance agency commissions ($225 thousand).

Total noninterest expense for the nine months ended September 30, 2012 increased $108 thousand, or less than 1%, when compared to the same period in 2011. The increase was primarily due to higher salaries and wages ($731 thousand) and other noninterest expenses ($739 thousand) which was partially offset by the $1.3 million decline in goodwill impairment. Salaries and wages included amounts relating to the hiring of a new executive vice president at The Talbot Bank of Easton, Maryland during the second quarter of last year as part of that bank’s succession plan, and a new lender at CNB for the Delaware region during the third quarter of last year. Other noninterest expenses included higher amounts relating to other real estate owned activities ($393 thousand) and collection expense for loans ($217 thousand).

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,
	2012			2011			Change			2012			2011			Change
PROFITABILITY FOR THE PERIOD
Net interest income	$	8,730		$	10,123			(13.8	)%	$	26,958		$	29,927			(9.9	)%
Provision for credit losses		6,200			3,650			69.9			18,095			15,435			17.2
Noninterest income		4,001			4,523			(11.5	)		13,152			13,299			(1.1	)
Noninterest expense		9,709			10,677			(9.1	)		29,870			29,762			0.4
(Loss) income before income taxes		(3,178	)		319			(1,096.2	)		(7,855	)		(1,971	)		(298.5	)
Income tax (benefit) expense		(1,357	)		225			(703.1	)		(3,291	)		(749	)		(339.4	)
Net (loss) income	$	(1,821	)	$	94			(2,037.2	)	$	(4,564	)	$	(1,222	)		(273.5	)


Return on average assets		(0.61	)%		0.03	%		(64	)bp		(0.52	)%		(0.14	)%		(38	)bp
Return on average equity		(6.07	)		0.31			(638	)		(5.08	)		(1.34	)		(374	)
Return on average tangible equity (1)		(6.82	)		4.21			(1,103	)		(5.65	)		(0.09	)		(556	)
Net interest margin		3.15			3.77			(62	)		3.31			3.79			(48	)
Efficiency ratio - GAAP		76.03			72.66			337			74.23			68.59			564
Efficiency ratio - Non-GAAP (1)		76.95			64.18			1,277			74.35			65.25			910


PER SHARE DATA
Basic net (loss) income per common share	$	(0.22	)	$	0.01			(2,300.0	)%	$	(0.54	)	$	(0.14	)		(285.7	)%
Diluted net (loss) income per common share		(0.22	)		0.01			(2,300.0	)		(0.54	)		(0.14	)		(285.7	)
Dividends paid per common share		-			0.01			(100.0	)		0.01			0.08			(87.5	)
Book value per common share at period end		13.97			14.31			(2.4	)
Tangible book value per common share at period end (1)		12.04			12.32			(2.3	)
Market value at period end		6.02			4.36			38.1
Market range:
High		6.33			7.06			(10.3	)		7.45			11.11			(32.9	)
Low		4.98			3.95			26.1			4.91			3.95			24.3


AVERAGE BALANCE SHEET DATA
Loans	$	808,244		$	869,221			(7.0	)%	$	819,088		$	879,509			(6.9	)%
Securities		137,871			113,938			21.0			135,411			110,482			22.6
Earning assets		1,108,256			1,069,636			3.6			1,094,247			1,062,846			3.0
Assets		1,184,146			1,142,588			3.6			1,169,158			1,132,964			3.2
Deposits		1,040,693			994,968			4.6			1,024,390			984,733			4.0
Stockholders' equity		119,321			121,327			(1.7	)		119,916			121,656			(1.4	)


CREDIT QUALITY DATA AT PERIOD END
Net charge-offs	$	6,235		$	6,468			(3.6	)%	$	19,428		$	16,122			20.5	%

Nonaccrual loans	$	39,442		$	49,581			(20.4	)
Loans 90 days past due and still accruing		4,675			10,516			(55.5	)
Accruing troubled debt restructurings		50,785			22,929			121.5
Total nonperforming loans		94,902			83,026			14.3
Other real estate and other assets owned, net		8,418			9,865			(14.7	)
Total nonperforming assets	$	103,320		$	92,891			11.2


CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		10.08	%		10.62	%		(54	)bp		10.26	%		10.74	%		(48	)bp
Average tangible equity to average tangible assets (1)		8.81			9.17			(36	)		8.97			9.27			(30	)
Annualized net charge-offs to average loans		3.07			2.95			12			3.17			2.45			72
Allowance for credit losses to period-end loans		1.60			1.57			3
Allowance for credit losses to nonaccrual loans		32.85			27.31			554
Allowance for credit losses to nonperforming loans		13.65			16.31			(266	)
Nonaccrual loans to total loans		4.88			5.75			(87	)
Nonaccrual loans to total assets		3.35			4.28			(93	)
Nonperforming assets to total loans+other real estate and
other assets owned		12.65			10.65			200
Nonperforming assets to total assets		8.77			8.02			75

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

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

										September 30, 2012			September 30, 2012
	September 30,			December 31,			September 30,			compared to			compared to
	2012			2011			2011			December 31, 2011			September 30, 2011
ASSETS
Cash and due from banks	$	22,005		$	22,986		$	26,519			(4.3	)%		(17.0	)%
Interest-bearing deposits with other banks		138,422			99,776			92,293			38.7			50.0
Federal funds sold		23,021			4,980			9,966			362.3			131.0
Investments available for sale (at fair value)		126,372			129,780			105,804			(2.6	)		19.4
Investments held to maturity		4,075			6,480			6,524			(37.1	)		(37.5	)

Loans		808,030			841,050			862,566			(3.9	)		(6.3	)
Less: allowance for credit losses		(12,955	)		(14,288	)		(13,540	)		(9.3	)		(4.3	)
Loans, net		795,075			826,762			849,026			(3.8	)		(6.4	)

Premises and equipment, net		15,537			14,662			14,236			6.0			9.1
Goodwill		12,454			12,454			12,454			-			-
Other intangible assets, net		3,890			4,208			4,334			(7.6	)		(10.2	)
Other real estate and other assets owned, net		8,418			9,385			9,865			(10.3	)		(14.7	)
Other assets		29,364			26,720			26,515			9.9			10.7

Total assets	$	1,178,633		$	1,158,193		$	1,157,536			1.8			1.8

LIABILITIES
Noninterest-bearing deposits	$	156,579		$	133,801		$	135,822			17.0			15.3
Interest-bearing deposits		881,935			876,118			876,097			0.7			0.7
Total deposits		1,038,514			1,009,919			1,011,919			2.8			2.6

Short-term borrowings		13,079			17,817			15,292			(26.6	)		(14.5	)
Accrued expenses and other liabilities		8,422			8,753			8,407			(3.8	)		0.2
Long-term debt		455			455			932			-			(51.2	)
Total liabilities		1,060,470			1,036,944			1,036,550			2.3			2.3

STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares		85			85			85			-			-
Warrant		-			-			1,543			-			(100.0	)
Additional paid in capital		32,120			32,052			30,438			0.2			5.5
Retained earnings		86,152			90,801			90,560			(5.1	)		(4.9	)
Accumulated other comprehensive loss		(194	)		(1,689	)		(1,640	)		88.5			88.2
Total stockholders' equity		118,163			121,249			120,986			(2.5	)		(2.3	)

Total liabilities and stockholders' equity	$	1,178,633		$	1,158,193		$	1,157,536			1.8			1.8

Period-end common shares outstanding		8,457			8,457			8,457			-			-
Book value per common share	$	13.97		$	14.34		$	14.31			(2.6	)		(2.4	)

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,
	2012			2011		%Change			2012			2011			%Change
INTEREST INCOME
Interest and fees on loans	$	10,604		$	12,003		(11.7	)%	$	32,505		$	35,900			(9.5	)%
Interest and dividends on investment securities:
Taxable		685			795		(13.8	)		2,149			2,234			(3.8	)
Tax-exempt		22			38		(42.1	)		92			116			(20.7	)
Interest on federal funds sold		3			3		-			7			24			(70.8	)
Interest on deposits with other banks		79			29		172.4			188			47			300.0
Total interest income		11,393			12,868		(11.5	)		34,941			38,321			(8.8	)

INTEREST EXPENSE
Interest on deposits		2,647			2,720		(2.7	)		7,931			8,322			(4.7	)
Interest on short-term borrowings		10			15		(33.3	)		36			41			(12.2	)
Interest on long-term debt		6			10		(40.0	)		16			31			(48.4	)
Total interest expense		2,663			2,745		(3.0	)		7,983			8,394			(4.9	)

NET INTEREST INCOME		8,730			10,123		(13.8	)		26,958			29,927			(9.9	)
Provision for credit losses		6,200			3,650		69.9			18,095			15,435			17.2

NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		2,530			6,473		(60.9	)		8,863			14,492			(38.8	)

NONINTEREST INCOME
Service charges on deposit accounts		628			697		(9.9	)		1,898			2,145			(11.5	)
Trust and investment fee income		410			389		5.4			1,279			1,183			8.1
Investment securities gains		278			354		(21.5	)		278			435			(36.1	)
Insurance agency commissions		2,427			2,312		5.0			7,522			7,297			3.1
Other noninterest income		258			771		(66.5	)		2,175			2,239			(2.9	)
Total noninterest income		4,001			4,523		(11.5	)		13,152			13,299			(1.1	)

NONINTEREST EXPENSE
Salaries and wages		4,386			4,097		7.1			13,178			12,447			5.9
Employee benefits		945			878		7.6			3,071			2,917			5.3
Occupancy expense		625			585		6.8			1,950			1,749			11.5
Furniture and equipment expense		265			262		1.1			728			825			(11.8	)
Data processing		703			661		6.4			2,063			2,192			(5.9	)
Directors' fees		131			198		(33.8	)		367			417			(12.0	)
Goodwill and other intangible assets impairment		-			1,344		(100.0	)		-			1,344			(100.0	)
Amortization of intangible assets		96			129		(25.6	)		318			386			(17.6	)
Insurance agency commissions expense		275			250		10.0			1,004			982			2.2
FDIC insurance premium expense		376			180		108.9			993			1,044			(4.9	)
Other noninterest expenses		1,907			2,093		(8.9	)		6,198			5,459			13.5
Total noninterest expense		9,709			10,677		(9.1	)		29,870			29,762			0.4

(Loss) income before income taxes		(3,178	)		319		(1,096.2	)		(7,855	)		(1,971	)		(298.5	)
Income tax (benefit) expense		(1,357	)		225		(703.1	)		(3,291	)		(749	)		(339.4	)

NET (LOSS) INCOME	$	(1,821	)	$	94		(2,037.2	)	$	(4,564	)	$	(1,222	)		(273.5	)

Weighted average shares outstanding - basic		8,457			8,457		-			8,457			8,449			0.1
Weighted average shares outstanding - diluted		8,457			8,457		-			8,457			8,449			0.1

Basic net (loss) income per common share	$	(0.22	)	$	0.01		(2,300.0	)	$	(0.54	)	$	(0.14	)		(285.7	)
Diluted net (loss) income per common share		(0.22	)		0.01		(2,300.0	)		(0.54	)		(0.14	)		(285.7	)
Dividends paid per common share		-			0.01		(100.0	)		0.01			0.08			(87.5	)

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,
	2012						2011						2012						2011
	Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/
	balance			rate			balance			rate			balance			rate			balance			rate
Earning assets
Loans	$	808,244			5.23	%	$	869,221			5.49	%	$	819,088			5.31	%	$	879,509			5.47	%
Investment securities
Taxable		135,257			2.01			109,498			2.88			131,863			2.18			105,939			2.82
Tax-exempt		2,614			5.07			4,440			5.12			3,548			5.27			4,543			5.16
Federal funds sold		11,971			0.11			15,905			0.07			10,992			0.09			28,896			0.11
Interest-bearing deposits		150,170			0.21			70,572			0.16			128,756			0.19			43,959			0.14
Total earning assets		1,108,256			4.10	%		1,069,636			4.79	%		1,094,247			4.28	%		1,062,846			4.84	%
Cash and due from banks		20,158						20,414						19,920						19,356
Other assets		69,921						69,394						69,514						67,588
Allowance for credit losses		(14,189	)					(16,856	)					(14,523	)					(16,826	)
Total assets	$	1,184,146					$	1,142,588					$	1,169,158					$	1,132,964


Interest-bearing liabilities
Demand deposits	$	167,423			0.18	%	$	154,685			0.20	%	$	157,835			0.18	%	$	141,447			0.21	%
Money market and savings deposits (1)		279,003			1.19			266,871			1.03			278,297			1.16			263,216			0.97
Certificates of deposit $100,000 or more		238,624			1.46			235,362			1.63			240,595			1.46			246,362			1.67
Other time deposits		207,547			1.66			204,836			1.91			204,789			1.74			206,470			2.01
Interest-bearing deposits		892,597			1.18			861,754			1.25			881,516			1.20			857,495			1.30
Short-term borrowings		14,909			0.27			15,640			0.37			15,448			0.31			14,947			0.36
Long-term debt		455			4.58			932			4.46			455			4.61			932			4.51
Total interest-bearing liabilities		907,961			1.17	%		878,326			1.24	%		897,419			1.19	%		873,374			1.29	%
Noninterest-bearing deposits		148,096						133,214						142,874						127,238
Accrued expenses and other liabilities		8,768						9,721						8,949						10,696
Stockholders' equity		119,321						121,327						119,916						121,656
Total liabilities and stockholders' equity	$	1,184,146					$	1,142,588					$	1,169,158					$	1,132,964

Net interest spread					2.93	%					3.55	%					3.09	%					3.55	%
Net interest margin					3.15	%					3.77	%					3.31	%					3.79	%

(1)

Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits associated with them. This adjustment increased interest expense $524 thousand and $348 thousand for the third quarter of 2012 and 2011, respectively, and $1.5 million and $907 thousand for the first nine months of 2012 and 2011, respectively.

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 12			3Q 12
	2012			2012			2012			2011			2011			compared to			compared to
	(3Q 12)			(2Q 12)			(1Q 12)			(4Q 11)			(3Q 11)			2Q 12			3Q 11
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income	$	8,769		$	9,077		$	9,243		$	9,889		$	10,172			(3.4	)%		(13.8	)%
Less: Taxable-equivalent adjustment		39			44			48			52			49			(11.4	)		(20.4	)
Net interest income		8,730			9,033			9,195			9,837			10,123			(3.4	)		(13.8	)
Provision for credit losses		6,200			3,525			8,370			4,035			3,650			75.9			69.9
Noninterest income		4,001			4,577			4,574			4,019			4,523			(12.6	)		(11.5	)
Noninterest expense		9,709			9,663			10,498			9,405			10,677			0.5			(9.1	)
(Loss) income before income taxes		(3,178	)		422			(5,099	)		416			319			(853.1	)		(1,096.2	)
Income tax (benefit) expense		(1,357	)		129			(2,063	)		91			225			(1,151.9	)		(703.1	)
Net (loss) income	$	(1,821	)	$	293		$	(3,036	)	$	325		$	94			(721.5	)		(2,037.2	)


Return on average assets		(0.61	)%		0.10	%		(1.05	)%		0.11	%		0.03	%		(71	)bp		(64	)bp
Return on average equity		(6.07	)		0.99			(10.04	)		1.07			0.31			(706	)		(638	)
Return on average tangible equity (1)		(6.82	)		1.38			(11.33	)		1.53			4.21			(820	)		(1,103	)
Net interest margin		3.15			3.36			3.42			3.60			3.77			(21	)		(62	)
Efficiency ratio - GAAP		76.03			70.77			75.98			67.62			72.66			526			337
Efficiency ratio - Non-GAAP (1)		76.95			71.20			75.07			67.61			64.18			575			1,277


PER SHARE DATA
Basic net (loss) income per common share	$	(0.22	)	$	0.03		$	(0.36	)	$	0.04		$	0.01			(833.3	)%		(2,300.0	)%
Diluted net (loss) income per common share		(0.22	)		0.03			(0.36	)		0.04			0.01			(833.3	)		(2,300.0	)
Dividends paid per common share		-			-			0.01			0.01			0.01			-			(100.0	)
Book value per common share at period end		13.97			14.13			14.02			14.34			14.31			(1.1	)		(2.4	)
Tangible book value per common share at period end (1)		12.04			12.18			12.07			12.37			12.32			(1.1	)		(2.3	)
Market value at period end		6.02			5.98			7.09			5.15			4.36			0.7			38.1
Market range:
High		6.33			7.45			7.40			6.13			7.06			(15.0	)		(10.3	)
Low		4.98			5.51			4.91			4.20			3.95			(9.6	)		26.1


AVERAGE BALANCE SHEET DATA
Loans	$	808,244		$	816,553		$	832,585		$	854,302		$	869,221			(1.0	)%		(7.0	)%
Securities		137,871			134,299			134,037			122,725			113,938			2.7			21.0
Earning assets		1,108,256			1,086,223			1,088,106			1,089,078			1,069,636			2.0			3.6
Assets		1,184,146			1,163,598			1,159,566			1,160,652			1,142,588			1.8			3.6
Deposits		1,040,693			1,021,130			1,011,170			1,013,848			994,968			1.9			4.6
Stockholders' equity		119,321			118,774			121,658			121,020			121,327			0.5			(1.7	)


CREDIT QUALITY DATA AT PERIOD END
Net charge-offs	$	6,235		$	4,079		$	9,114		$	3,287		$	6,468			52.9	%		(3.6	)%

Nonaccrual loans	$	39,442		$	47,958		$	49,405		$	51,370		$	49,581			(17.8	)		(20.4	)
Loans 90 days past due and still accruing		4,675			3,519			3,796			2,723			10,516			32.9			(55.5	)
Accruing troubled debt restructurings		50,785			37,231			30,010			25,208			22,929			36.4			121.5
Total nonperforming loans		94,902			88,708			83,211			79,301			83,026			7.0			14.3
Other real estate and other assets owned, net		8,418			11,499			11,418			9,385			9,865			(26.8	)		(14.7	)
Total nonperforming assets	$	103,320		$	100,207		$	94,629		$	88,686		$	92,891			3.1			11.2


CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets		10.08	%		10.21	%		10.49	%		10.43	%		10.62	%		(13	)bp		(54	)bp
Average tangible equity to average tangible assets (1)		8.81			8.92			9.19			9.12			9.17			(11	)		(36	)
Annualized net charge-offs to average loans		3.07			2.01			4.40			1.53			2.95			106			12
Allowance for credit losses to period-end loans		1.60			1.60			1.65			1.70			1.57			-			3
Allowance for credit losses to nonaccrual loans		32.85			27.09			27.41			27.81			27.31			576			554
Allowance for credit losses to nonperforming loans		13.65			14.64			16.28			18.02			16.31			(99	)		(266	)
Nonaccrual loans to total loans		4.88			5.92			6.03			6.11			5.75			(104	)		(87	)
Nonaccrual loans to total assets		3.35			4.08			4.22			4.44			4.28			(73	)		(93	)
Nonperforming assets to total loans+other real estate and
other assets owned		12.65			12.20			11.40			10.43			10.65			45			200
Nonperforming assets to total assets		8.77			8.53			8.09			7.66			8.02			24			75


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

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



													3Q 12			3Q 12
													compared to			compared to
	3Q 12			2Q 12		1Q 12			4Q 11		3Q 11		2Q 12			3Q 11
INTEREST INCOME
Interest and fees on loans	$	10,604		$	10,890	$	11,011		$	11,649	$	12,003		(2.6	)%		(11.7	)%
Interest and dividends on investment securities:
Taxable		685			707		757			797		795		(3.1	)		(13.8	)
Tax-exempt		22			32		38			38		38		(31.3	)		(42.1	)
Interest on federal funds sold		3			2		2			1		3		50.0			-
Interest on deposits with other banks		79			61		48			46		29		29.5			172.4
Total interest income		11,393			11,692		11,856			12,531		12,868		(2.6	)		(11.5	)

INTEREST EXPENSE
Interest on deposits		2,647			2,643		2,641			2,673		2,720		0.2			(2.7	)
Interest on short-term borrowings		10			11		15			15		15		(9.1	)		(33.3	)
Interest on long-term debt		6			5		5			6		10		20.0			(40.0	)
Total interest expense		2,663			2,659		2,661			2,694		2,745		0.2			(3.0	)

NET INTEREST INCOME		8,730			9,033		9,195			9,837		10,123		(3.4	)		(13.8	)
Provision for credit losses		6,200			3,525		8,370			4,035		3,650		75.9			69.9

NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		2,530			5,508		825			5,802		6,473		(54.1	)		(60.9	)

NONINTEREST INCOME
Service charges on deposit accounts		628			622		648			700		697		1.0			(9.9	)
Trust and investment fee income		410			446		423			380		389		(8.1	)		5.4
Investment securities gains		278			-		-			128		354		-			(21.5	)
Insurance agency commissions		2,427			2,406		2,689			2,061		2,312		0.9			5.0
Other noninterest income		258			1,103		814			750		771		(76.6	)		(66.5	)
Total noninterest income		4,001			4,577		4,574			4,019		4,523		(12.6	)		(11.5	)

NONINTEREST EXPENSE
Salaries and wages		4,386			4,376		4,416			4,378		4,097		0.2			7.1
Employee benefits		945			956		1,170			923		878		(1.2	)		7.6
Occupancy expense		625			638		687			563		585		(2.0	)		6.8
Furniture and equipment expense		265			212		251			234		262		25.0			1.1
Data processing		703			694		666			660		661		1.3			6.4
Directors' fees		131			127		109			83		198		3.1			(33.8	)
Goodwill and other intangible assets impairment		-			-		-			-		1,344		-			(100.0	)
Amortization of intangible assets		96			96		126			126		129		-			(25.6	)
Insurance agency commissions expense		275			344		385			285		250		(20.1	)		10.0
FDIC insurance premium expense		376			344		273			254		180		9.3			108.9
Other noninterest expenses		1,907			1,876		2,415			1,899		2,093		1.7			(8.9	)
Total noninterest expense		9,709			9,663		10,498			9,405		10,677		0.5			(9.1	)

(Loss) income before income taxes		(3,178	)		422		(5,099	)		416		319		(853.1	)		(1,096.2	)
Income tax (benefit) expense		(1,357	)		129		(2,063	)		91		225		(1,151.9	)		(703.1	)

NET (LOSS) INCOME	$	(1,821	)	$	293	$	(3,036	)	$	325	$	94		(721.5	)		(2,037.2	)

Weighted average shares outstanding - basic		8,457			8,457		8,457			8,457		8,457		-			-
Weighted average shares outstanding - diluted		8,457			8,457		8,457			8,457		8,457		-			-

Basic net (loss) income per common share	$	(0.22	)	$	0.03	$	(0.36	)	$	0.04	$	0.01		(833.3	)		(2,300.0	)
Diluted net (loss) income per common share		(0.22	)		0.03		(0.36	)		0.04		0.01		(833.3	)		(2,300.0	)
Dividends paid per common share		-			-		0.01			0.01		0.01		-			(100.0	)

Shore Bancshares, Inc.

Page 10 of 11

Consolidated Average Balance Sheets By Quarter

(Dollars in thousands)

																															Average balance
																															3Q 12			3Q 12
																															compared to			compared to
	3Q 12						2Q 12						1Q 12						4Q 11						3Q 11						2Q 12			3Q 11
	Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/			Average			Yield/
	balance			rate			balance			rate			balance			rate			balance			rate			balance			rate
Earning assets
Loans	$	808,244			5.23	%	$	816,553			5.38	%	$	832,585			5.33	%	$	854,302			5.42	%	$	869,221			5.49	%		(1.0	)%		(7.0	)%
Investment securities
Taxable		135,257			2.01			130,528			2.18			129,767			2.35			118,315			2.67			109,498			2.88			3.6			23.5
Tax-exempt		2,614			5.07			3,771			5.32			4,270			5.36			4,410			5.27			4,440			5.12			(30.7	)		(41.1	)
Federal funds sold		11,971			0.11			11,200			0.10			9,794			0.06			8,709			0.05			15,905			0.07			6.9			(24.7	)
Interest-bearing deposits		150,170			0.21			124,171			0.20			111,690			0.17			103,342			0.18			70,572			0.16			20.9			112.8
Total earning assets		1,108,256			4.10	%		1,086,223			4.35	%		1,088,106			4.40	%		1,089,078			4.58	%		1,069,636			4.79	%		2.0			3.6
Cash and due from banks		20,158						21,424						18,174						18,728						20,414						(5.9	)		(1.3	)
Other assets		69,921						70,458						68,163						68,014						69,394						(0.8	)		0.8
Allowance for credit losses		(14,189	)					(14,507	)					(14,877	)					(15,168	)					(16,856	)					(2.2	)		(15.8	)
Total assets	$	1,184,146					$	1,163,598					$	1,159,566					$	1,160,652					$	1,142,588						1.8			3.6


Interest-bearing liabilities
Demand deposits	$	167,423			0.18	%	$	152,685			0.18	%	$	153,291			0.19	%	$	157,657			0.19	%	$	154,685			0.20	%		9.7			8.2
Money market and savings deposits (1)		279,003			1.19			276,527			1.18			279,355			1.12			273,906			1.07			266,871			1.03			0.9			4.5
Certificates of deposit $100,000 or more		238,624			1.46			242,662			1.46			240,521			1.46			241,810			1.46			235,362			1.63			(1.7	)		1.4
Other time deposits		207,547			1.66			205,046			1.73			201,743			1.83			201,249			1.91			204,836			1.91			1.2			1.3
Interest-bearing deposits		892,597			1.18			876,920			1.21			874,910			1.21			874,622			1.21			861,754			1.25			1.8			3.6
Short-term borrowings		14,909			0.27			13,818			0.31			17,621			0.35			16,421			0.37			15,640			0.37			7.9			(4.7	)
Long-term debt		455			4.58			455			4.63			455			4.63			466			4.46			932			4.46			-			(51.2	)
Total interest-bearing liabilities		907,961			1.17	%		891,193			1.20	%		892,986			1.20	%		891,509			1.20	%		878,326			1.24	%		1.9			3.4
Noninterest-bearing deposits		148,096						144,210						136,260						139,226						133,214						2.7			11.2
Accrued expenses and other liabilities		8,768						9,421						8,662						8,897						9,721						(6.9	)		(9.8	)
Stockholders' equity		119,321						118,774						121,658						121,020						121,327						0.5			(1.7	)
Total liabilities and stockholders' equity	$	1,184,146					$	1,163,598					$	1,159,566					$	1,160,652					$	1,142,588						1.8			3.6


Net interest spread					2.93	%					3.15	%					3.20	%					3.38	%					3.55	%
Net interest margin					3.15	%					3.36	%					3.42	%					3.60	%					3.77	%

(1)

Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits associated with them. This adjustment increased interest expense $524 thousand for the third quarter of 2012, $502 thousand for the second quarter of 2012, $460 thousand for the first quarter of 2012, $405 thousand for the fourth quarter of 2011 and $348 thousand for the third quarter of 2011.

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


																YTD			YTD
	3Q 12			2Q 12			1Q 12			4Q 11			3Q 11			9/30/2012			9/30/2011

The following reconciles return on average equity and return on
average tangible equity (Note 1):

Net (loss) income	$	(1,821	)	$	293		$	(3,036	)	$	325		$	94		$	(4,564	)	$	(1,222	)
Net (loss) income - annualized (A)	$	(7,244	)	$	1,178		$	(12,211	)	$	1,289		$	373		$	(6,096	)	$	(1,634	)

Net (loss) income, excluding net amortization and
impairment charges of intangible assets	$	(1,763	)	$	351		$	(2,960	)	$	401		$	1,094		$	(4,371	)	$	(66	)

Net (loss) income, excluding net amortization and
impairment charges of intangible assets - annualized (B)	$	(7,014	)	$	1,412		$	(11,905	)	$	1,591		$	4,340		$	(5,839	)	$	(88	)

Average stockholders' equity (C)	$	119,321		$	118,774		$	121,658		$	121,020		$	121,327		$	119,916		$	121,656
Less: Average goodwill and other intangible assets		(16,401	)		(16,497	)		(16,606	)		(16,732	)		(18,190	)		(16,501	)		(18,329	)
Average tangible equity (D)	$	102,920		$	102,277		$	105,052		$	104,288		$	103,137		$	103,415		$	103,327

Return on average equity (GAAP) (A)/(C)		(6.07	)%		0.99	%		(10.04	)%		1.07	%		0.31	%		(5.08	)%		(1.34	)%
Return on average tangible equity (Non-GAAP) (B)/(D)		(6.82	)%		1.38	%		(11.33	)%		1.53	%		4.21	%		(5.65	)%		(0.09	)%


The following reconciles GAAP efficiency ratio and non-GAAP
efficiency ratio (Note 2):

Noninterest expense (E)	$	9,709		$	9,663		$	10,498		$	9,405		$	10,677		$	29,870		$	29,762
Less: Amortization of intangible assets		(96	)		(96	)		(126	)		(126	)		(129	)		(318	)		(386	)
Impairment charges		-			-			-			-			(1,344	)		-			(1,344	)
Adjusted noninterest expense (F)	$	9,613		$	9,567		$	10,372		$	9,279		$	9,204		$	29,552		$	28,032

Taxable-equivalent net interest income (G)	$	8,769		$	9,077		$	9,243		$	9,889		$	10,172		$	27,089		$	30,094

Noninterest income (H)	$	4,001		$	4,577		$	4,574		$	4,019		$	4,523		$	13,152		$	13,299
Less: Investment securities (gains)/losses		(278	)		-			-			(128	)		(354	)		(278	)		(435	)
Other nonrecurring (gains)/losses		-			(217	)		-			(56	)		-			(217	)		-
Adjusted noninterest income (I)	$	3,723		$	4,360		$	4,574		$	3,835		$	4,169		$	12,657		$	12,864

Efficiency ratio (GAAP) (E)/(G)+(H)		76.03	%		70.77	%		75.98	%		67.62	%		72.66	%		74.23	%		68.59	%
Efficiency ratio (Non-GAAP) (F)/(G)+(I)		76.95	%		71.20	%		75.07	%		67.61	%		64.18	%		74.35	%		65.25	%


The following reconciles book value per common share and tangible
book value per common share (Note 1):

Stockholders' equity (J)	$	118,163		$	119,467		$	118,584		$	121,249		$	120,986
Less: Goodwill and other intangible assets		(16,344	)		(16,440	)		(16,536	)		(16,662	)		(16,788	)
Tangible equity (K)	$	101,819		$	103,027		$	102,048		$	104,587		$	104,198

Shares outstanding (L)		8,457			8,457			8,457			8,457			8,457

Book value per common share (GAAP) (J)/(L)	$	13.97		$	14.13		$	14.02		$	14.34		$	14.31
Tangible book value per common share (Non-GAAP) (K)/(L)	$	12.04		$	12.18		$	12.07		$	12.37		$	12.32


The following reconciles average equity to average assets and
average tangible equity to average tangible assets (Note 1):

Average stockholders' equity (M)	$	119,321		$	118,774		$	121,658		$	121,020		$	121,327		$	119,916		$	121,656
Less: Average goodwill and other intangible assets		(16,401	)		(16,497	)		(16,606	)		(16,732	)		(18,190	)		(16,501	)		(18,329	)
Average tangible equity (N)	$	102,920		$	102,277		$	105,052		$	104,288		$	103,137		$	103,415		$	103,327

Average assets (O)	$	1,184,146		$	1,163,598		$	1,159,566		$	1,160,652		$	1,142,588		$	1,169,158		$	1,132,964
Less: Average goodwill and other intangible assets		(16,401	)		(16,497	)		(16,606	)		(16,732	)		(18,190	)		(16,501	)		(18,329	)
Average tangible assets (P)	$	1,167,745		$	1,147,101		$	1,142,960		$	1,143,920		$	1,124,398		$	1,152,657		$	1,114,635

Average equity/average assets (GAAP) (M)/(O)		10.08	%		10.21	%		10.49	%		10.43	%		10.62	%		10.26	%		10.74	%
Average tangible equity/average tangible assets (Non-GAAP) (N)/(P)		8.81	%		8.92	%		9.19	%		9.12	%		9.17	%		8.97	%		9.27	%

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.