EX-99.1 2 v450804_ex99-1.htm EXHIBIT 99.1

Shore Bancshares Reports Third Quarter and Nine-Month Results

EASTON, Md., Oct. 20, 2016 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $2.411 million or $0.19 per diluted common share for the third quarter of 2016, compared to net income of $2.272 million or $0.18 per diluted common share for the second quarter of 2016, and net income of $1.909 million or $0.15 per diluted common share for the third quarter of 2015. The Company reported net income of $7.1 million or $0.56 per diluted common share for the first nine months of 2016, compared to net income of $4.9 million or $0.39 per diluted common share for the first nine months of 2015.

When comparing the third quarter of 2016 to the second quarter of 2016, the primary reasons for the improved results were due to an increase in net interest income of $275 thousand and lower noninterest expenses of $148 thousand, partially offset by an increase in the provision for credit losses of $230 thousand and lower noninterest income of $34 thousand. When comparing the third quarter of 2016 to the third quarter of 2015, improved results were due to an increase in net interest income of $648 thousand, attributed to significant loan growth between the periods, and higher noninterest income of $102 thousand coupled with lower noninterest expenses of $179 thousand. When comparing the first nine months of 2016 to the first nine months of 2015, improved earnings were due to increases in net interest income of $2.1 million and noninterest income of $811 thousand. Noninterest expenses decreased $479 thousand due to lower FDIC insurance premiums from the removal of the consent order for the former Talbot Bank along with a reduction in internal audit and legal fees.

"We are excited to report improved earnings as well as significant growth in our loan portfolio for the quarter." said Lloyd L. "Scott" Beatty, Jr., president and chief executive officer. "The loan growth experienced in the quarter positions us to potentially meet our goal of 8-10% growth for 2016. We continue to place an extraordinary emphasis on high credit quality standards when originating new loans allowing us to achieve maximum earning potential."

Balance Sheet Review

Total assets were $1.158 billion at September 30, 2016, a $22.7 million, or 2.0%, increase when compared to $1.135 billion at the end of 2015. The increase in total assets was primarily the result of an increase in gross loans of $65.4 million or 8.2%, which was partially funded by decreases in investment securities of $37.4 million.

Total deposits at September 30, 2016 increased $16.8 million, or 1.7%, when compared to December 31, 2015. The increase in total deposits was due to increases in noninterest-bearing and savings deposits of $26.9 million and $19.5 million, respectively, partially offset by a decline in interest-bearing demand deposits of $8.0 million and time deposits of $21.6 million. Total stockholders' equity increased $7.9 million, or 5.4%, when compared to the end of 2015. At September 30, 2016, the ratio of total equity to total assets was 13.37% and the ratio of total tangible equity to total tangible assets was 12.39%, higher than the 12.95% and 11.93%, respectively, at December 31, 2015.

Total assets at September 30, 2016 increased $40.1 million, or 3.6%, when compared to total assets at September 30, 2015. The increase in total assets was primarily due to an increase in gross loans of $83.5 million, or 10.7%. The increase was offset by a decrease in investment securities available for sale of $45.6 million, which was used to partially fund the loan growth. Total deposits increased $32.9 million, or 3.4%, when compared to September 30, 2015. The increase in total deposits were due to increases in non-interest bearing deposits of $35.6 million, money market and savings deposits of $25.0 million, and interest-bearing checking of $10.2 million, partially offset by a decrease in time deposits of $37.9 million. Total stockholders' equity increased $8.9 million, or 6.1%, when compared to September 30, 2015.

Review of Quarterly Financial Results

Net interest income was $9.7 million for the third quarter of 2016, compared to $9.4 million for the second quarter of 2016 and $9.0 million for the third quarter of 2015. The increase in net interest income when compared to the second quarter of 2016 and the third quarter of 2015 were primarily due to higher volumes on loans coupled with lower rates paid on interest-bearing deposits. Although loan volume increased in the third quarter of 2016 compared to the second quarter of 2016, continued downward repricing on loan renewals had a negative impact on loan yields of 6bps, partially offset by lower rates paid on interest-bearing deposits of 3bps, resulting in a net interest margin of 3.54% compared to 3.57%. Net interest margin improved for the third quarter of 2016 compared to the third quarter of 2015, primarily due to lower rates paid on interest-bearing deposits and improved credit quality in the loan portfolio which offset lower yields on loans.

The provision for credit losses was $605 thousand for the three months ended September 30, 2016. The comparable amounts were $375 thousand and $410 thousand for the three months ended June 30, 2016 and September 30, 2015, respectively. The increased level of provision for credit losses when comparing the third quarter of 2016 to the second quarter of 2016 and the third quarter of 2015 was the result of an increase in gross loans of $39.5 million and $83.5 million, respectively. Net charge-offs were $349 thousand for the third quarter of 2016, $326 thousand for the second quarter of 2016 and $229 thousand for the third quarter of 2015. The ratio of annualized net charge-offs to average loans was 0.17% for the third quarter of 2016, 0.16% for the second quarter of 2016 and 0.12% for the third quarter of 2015. The ratio of the allowance for credit losses to period-end loans was 1.00% at September 30, 2016, lower than 1.02% at June 30, 2016 and 1.04% at September 30, 2015, which reflects loan growth and management's assessment of the improved credit quality in the loan portfolio.

At September 30, 2016, nonperforming assets were $13.8 million, a decrease of $1.7 million, or 10.9%, when compared to June 30, 2016. Additionally, accruing troubled debt restructurings ("TDRs") decreased $65 thousand, or less than 1.0% compared to June 30, 2016. When comparing September 30, 2016 to September 30, 2015, nonperforming assets decreased $2.3 million, or 14.2%, and accruing TDRs decreased $3.2 million, or 19.2%. The positive trend in nonperforming assets and TDRs when comparing September 30, 2016 to September 30, 2015 resulted from the Company's continued workout efforts and modest improvement in economic conditions in the Company's market area. The ratio of nonperforming assets to total assets was 1.19%, 1.37% and 1.43% at September 30, 2016, June 30, 2016 and September 30, 2015, respectively. In addition, the ratio of accruing TDRs to total assets at September 30, 2016 was 1.15%, compared to 1.18% at June 30, 2016 and 1.47% at September 30, 2015.

Total noninterest income for the third quarter of 2016 decreased $34 thousand, or less than 1%, when compared to the second quarter of 2016 and increased $102 thousand, or 2.6%, when compared to the third quarter of 2015. The decrease from the second quarter of 2016 was primarily due to a loss on other real estate owned, partially offset by an increase in insurance agency commissions. The increase from the third quarter of 2015 was due to higher service charges and fees on deposit accounts, partially offset by lower insurance agency commissions.

Total noninterest expense for the third quarter of 2016 decreased $148 thousand, or 1.6%, when compared to the second quarter of 2016 and decreased $179 thousand, or 1.9%, when compared to the third quarter of 2015. The decreases in noninterest expenses from the second quarter of 2016 were primarily due to lower than expected FDIC insurance premium expense of $164 thousand, lower legal and professional fees of $169 thousand and a decrease in write-downs of other real estate owned property of $64 thousand. The decrease in FDIC insurance premium expense was the result of a nonrecurring adjustment to the annual assessment in the third quarter of 2016. Legal and professional fees were higher in the second quarter of 2016 when compared to the third quarter of 2016 due to legal expenses incurred in preparation of the consolidation of the former bank subsidiaries. These decreases were partially offset by increased costs in data processing fees and other expenses due to the consolidation of the former bank subsidiaries of $279 thousand. The decreases in noninterest expenses from the third quarter of 2016 compared to the third quarter of 2015 were primarily due to a decline in salaries and wages, reduced FDIC insurance assessments and lower legal and professional expenses.

Review of Nine-Month Financial Results

Net interest income for the first nine months of 2016 was $28.3 million, an increase of 7.8% when compared to the first nine months of 2015. The increase was primarily due to significant growth of average loans of approximately $76.3 million and the shift of average deposits from time deposits to demand and money market accounts offering lower rates. The decrease in the average yield on loans was offset by the transition of lower yielding securities to new loan growth allowing the yield on total earning assets to remain unchanged. The lower rates paid on interest-bearing deposits resulted in an improved net interest margin to 3.54% from 3.43%.

The provisions for credit losses for the nine months ended September 30, 2016 and 2015 were $1.4 million and $1.6 million, respectively, while net charge-offs were $1.1 million and $1.2 million, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 0.19% for the first nine months of 2016 and 0.22% for the first nine months of 2015.

Total noninterest income for the nine months ended September 30, 2016 increased $811 thousand, or 6.9%, when compared to the same period in 2015, primarily due to increases in service charges on deposit accounts of $521 thousand, insurance agency commissions of $240 thousand and other noninterest income of $226 thousand, partially offset by a decline in trust and investment fee income of $206 thousand. The increase in other noninterest income consisted of bank service and loan fees of $197 thousand.

Total noninterest expense for the nine months ended September 30, 2016 decreased $479 thousand, or 1.7%, when compared to the same period in 2015. The decrease was primarily due to a decline in legal and professional fees of $506 thousand and reduced FDIC insurance premiums of $279 thousand, partially offset by an increase in consolidation expenses for the former bank subsidiaries of $362 thousand. The increased legal and professional fees in 2015 were the direct result of management outsourcing its internal audit function which resulted in significant implementation costs. In addition, the lower FDIC insurance premiums over the prior period are the direct result of the upgraded regulatory status and financial performance of the former Talbot Bank of Easton in the second quarter of 2015 and an adjustment of the annual assessment in the third quarter of 2016.

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 Shore United Bank; one retail insurance producer firm, The Avon-Dixon Agency, LLC ("Avon-Dixon"), with two specialty lines, Elliott Wilson Insurance (Trucking) and Jack Martin Associates (Marine); and an insurance premium finance company, Mubell Finance, LLC ("Mubell"). Shore Bancshares Inc. engages in trust and wealth management services through Wye Financial & Trust, a division of Shore United Bank. Additional information is available at www.shorebancshares.com.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. 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."

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.


Shore Bancshares, Inc.


Page 5 of 12

Financial Highlights






(Dollars in thousands, except per share data)
































   For the Three Months Ended


For the Nine Months Ended



September 30,


September 30,



2016


2015

 Change


2016


2015

 Change


PROFITABILITY FOR THE PERIOD













     Net interest income

$            9,658


$             9,010


7.2

%

$       28,284


$       26,232


7.8

%

     Provision for credit losses

605


410


47.6


1,430


1,600


(10.6)


     Noninterest income

4,007


3,905


2.6


12,589


11,778


6.9


     Noninterest expense

9,217


9,396


(1.9)


27,921


28,400


(1.7)


     Income before income taxes

3,843


3,109


23.6


11,522


8,010


43.8


     Income tax expense 

1,432


1,200


19.3


4,379


3,065


42.9


     Net income 

$            2,411


$             1,909


26.3


$         7,143


$         4,945


44.4




























     Return on average assets 

0.83

%

0.68

%

15

bp

0.84

%

0.60

%

24

bp

     Return on average equity 

6.23


5.23


100


6.30


4.61


169


     Return on average tangible equity (1)

6.86


5.81


105


6.96


5.14


182


     Net interest margin

3.54


3.43


11


3.54


3.43


11


     Efficiency ratio - GAAP 

67.10


72.66


(556)


68.09


74.61


(652)


     Efficiency ratio - Non-GAAP (1)

67.00


72.39


(539)


67.90


74.34


(644)




























PER SHARE DATA













     Basic net income per common share

$              0.19


$               0.15


26.7

%

$           0.56


$           0.39


43.6

%

     Diluted net income per common share

0.19


0.15


26.7


0.56


0.39


43.6


     Dividends paid per common share

0.03


0.02


50.0


0.09


0.02


350.0


     Book value per common share at period end

12.23


11.55


5.9








     Tangible book value per common share at period end (1)

11.20


10.51


6.6








     Market value at period end

11.78


9.72


21.2








     Market range:













       High

11.95


9.72


22.9


12.59


9.94


26.7


       Low

11.32


9.37


20.8


10.23


8.51


20.2




























AVERAGE BALANCE SHEET DATA













     Loans

$       836,955


$        763,306


9.6

%

$     811,747


$     735,474


10.4

%

     Investment securities

190,475


230,222


(17.3)


203,226


238,684


(14.9)


     Earning assets

1,092,105


1,044,230


4.6


1,073,157


1,024,744


4.7


     Assets

1,152,309


1,111,361


3.7


1,135,102


1,094,962


3.7


     Deposits

984,940


953,826


3.3


971,161


939,387


3.4


     Stockholders' equity

153,985


144,897


6.3


151,438


143,360


5.6




























CREDIT QUALITY DATA AT PERIOD END













     Net charge-offs

$               349


$                229


52.4

%

$         1,132


$         1,197


(5.4)

%














     Nonaccrual loans 

$          11,490


$          13,143


(12.6)








     Loans 90 days past due and still accruing

64


4


1,500.0








     Other real estate owned

2,197


2,884


(23.8)








     Total nonperforming assets 

13,751


16,031


(14.2)








     Accruing troubled debt restructurings (TDRs) 

13,273


16,431


(19.2)








     Total nonperforming assets and accruing TDRs 

$          27,024


$          32,462


(16.8)


































CAPITAL AND CREDIT QUALITY RATIOS













     Period-end equity to assets

13.37

%

13.05

%

32

bp







     Period-end tangible equity to tangible assets (1)

12.39


12.02


37





















     Annualized net charge-offs to average loans

0.17


0.12


5


0.19

%

0.22

%

(3)

bp














     Allowance for credit losses as a percent of:













     Period-end loans

1.00


1.04


(4)








     Nonaccrual loans 

74.97


61.61


1,336








     Nonperforming assets 

62.64


50.51


1,213








     Accruing TDRs 

64.90


49.28


1,562








     Nonperforming assets and accruing TDRs 

31.88


24.95


693





















     As a percent of total loans:













     Nonaccrual loans 

1.34


1.69


(35)








     Accruing TDRs  

1.54


2.11


(57)








     Nonaccrual loans and accruing TDRs 

2.88


3.80


(92)





















     As a percent of total loans+other real estate owned:













     Nonperforming assets

1.59


2.06


(47)








     Nonperforming assets and accruing TDRs 

3.13


4.16


(103)





















     As a percent of total assets:













     Nonaccrual loans 

0.99


1.18


(19)








     Nonperforming assets 

1.19


1.43


(24)








     Accruing TDRs 

1.15


1.47


(32)








     Nonperforming assets and accruing TDRs 

2.34


2.90


(56)





















(1)  See the reconciliation table on page 12 of 12.


























Shore Bancshares, Inc.




Page 6 of 12


Consolidated Balance Sheets







(In thousands, except per share data)




































September 30, 2016


September 30, 2016



September 30,


December 31,


September 30,


compared to


compared to



2016


2015


2015


December 31, 2015


September 30, 2015


ASSETS











    Cash and due from banks

$            17,896


$          15,080


$            17,401


18.7

%

2.8

%

    Interest-bearing deposits with other banks

57,203


54,223


41,345


5.5


38.4


    Federal funds sold

26


4,508


7,430


(99.4)


(99.7)


  Cash and cash equivalents

75,125


73,811


66,176


1.8


13.5













    Investment securities available for sale (at fair value)

174,788


212,165


220,434


(17.6)


(20.7)


    Investment securities held to maturity 

3,809


4,191


4,192


(9.1)


(9.1)













    Loans

860,553


795,114


777,062


8.2


10.7


    Less: allowance for credit losses

(8,614)


(8,316)


(8,098)


3.6


6.4


    Loans, net

851,939


786,798


768,964


8.3


10.8













    Premises and equipment, net

16,680


16,864


16,958


(1.1)


(1.6)


    Goodwill

11,931


11,931


11,931


-


-


    Other intangible assets, net

1,112


1,211


1,231


(8.2)


(9.7)


    Other real estate owned, net

2,197


4,252


2,884


(48.3)


(23.8)


    Other assets

20,285


23,920


25,043


(15.2)


(19.0)













                         Total assets

$      1,157,866


$    1,135,143


$       1,117,813


2.0


3.6













LIABILITIES











    Noninterest-bearing deposits

$          256,559


$        229,686


$          220,945


11.7


16.1


    Interest-bearing deposits

735,736


745,778


738,489


(1.3)


(0.4)


                Total deposits

992,295


975,464


959,434


1.7


3.4













    Short-term borrowings

5,000


6,672


6,480


(25.1)


(22.8)


    Accrued expenses and other liabilities

5,736


6,040


6,012


(5.0)


(4.6)


                          Total liabilities

1,003,031


988,176


971,926


1.5


3.2













STOCKHOLDERS' EQUITY











    Common stock, par value $0.01; authorized  











       35,000,000 shares

127


126


126


0.8


0.8


    Additional paid in capital

64,129


63,815


63,767


0.5


0.6


    Retained earnings

89,102


83,097


81,187


7.2


9.7


    Accumulated other comprehensive (loss) income

1,477


(71)


807


2,180.3


83.0


                          Total stockholders' equity

154,835


146,967


145,887


5.4


6.1













                          Total liabilities and stockholders' equity

$      1,157,866


$    1,135,143


$       1,117,813


2.0


3.6













Period-end common shares outstanding

12,663


12,631


12,630


0.3


0.3


Book value per common share

$              12.23


$            11.64


$              11.55


5.1


5.9













Shore Bancshares, Inc.



Page 7 of 12


Consolidated Statements of Operations






(In thousands, except per share data)





























For the Three Months Ended


For the Nine Months Ended



September 30,


September 30,



2016


2015

% Change


2016


2015

% Change


INTEREST INCOME











    Interest and fees on loans 

$      9,398


$      8,912

5.5

%

$    27,476


$    25,984

5.7

%

    Interest and dividends on investment securities:











        Taxable

754


892

(15.5)


2,448


2,748

(10.9)


        Tax-exempt 

2


2

-


6


8

(25.0)


    Interest on federal funds sold

1


1

-


6


2

200.0


    Interest on deposits with other banks

81


30

170.0


211


82

157.3


                   Total interest income

10,236


9,837

4.1


30,147


28,824

4.6













INTEREST EXPENSE











    Interest on deposits

574


824

(30.3)


1,852


2,581

(28.2)


    Interest on short-term borrowings

4


3

33.3


11


11

-


                   Total interest expense

578


827

(30.1)


1,863


2,592

(28.1)













NET INTEREST INCOME

9,658


9,010

7.2


28,284


26,232

7.8


Provision for credit losses

605


410

47.6


1,430


1,600

(10.6)













NET INTEREST INCOME AFTER PROVISION 











  FOR CREDIT LOSSES

9,053


8,600

5.3


26,854


24,632

9.0













NONINTEREST INCOME











    Service charges on deposit accounts

899


769

16.9


2,582


2,061

25.3


    Trust and investment fee income

358


360

(0.6)


1,073


1,279

(16.1)


    Investment securities gains 

30


-

-


30


-

-


    Insurance agency commissions

2,054


2,107

(2.5)


6,754


6,514

3.7


    Other noninterest income

666


669

(0.4)


2,150


1,924

11.7


                      Total noninterest income

4,007


3,905

2.6


12,589


11,778

6.9













NONINTEREST EXPENSE











    Salaries and wages

4,346


4,468

(2.7)


13,245


13,174

0.5


    Employee benefits

1,009


935

7.9


3,087


3,015

2.4


    Occupancy expense 

643


600

7.2


1,839


1,837

0.1


    Furniture and equipment expense

245


223

9.9


728


711

2.4


    Data processing

976


800

22.0


2,639


2,451

7.7


    Directors' fees

120


117

2.6


355


356

(0.3)


    Amortization of intangible assets

33


34

(2.9)


99


100

(1.0)


    FDIC insurance premium expense

104


243

(57.2)


654


933

(29.9)


    Write-downs of other real estate owned

2


7

(71.4)


75


88

(14.8)


    Legal and professional fees

440


641

(31.4)


1,434


1,940

(26.1)


    Other noninterest expenses

1,299


1,328

(2.2)


3,766


3,795

(0.8)


                      Total noninterest expense

9,217


9,396

(1.9)


27,921


28,400

(1.7)













Income before income taxes

3,843


3,109

23.6


11,522


8,010

43.8


Income tax expense 

1,432


1,200

19.3


4,379


3,065

42.9













NET INCOME 

$      2,411


$      1,909

26.3


$      7,143


$      4,945

44.4













Weighted average shares outstanding - basic

12,661


12,630

0.2


12,648


12,627

0.2


Weighted average shares outstanding - diluted

12,676


12,640

0.3


12,663


12,637

0.2













Basic net income per common share

$        0.19


$        0.15

26.7


$        0.56


$        0.39

43.6


Diluted net income per common share

0.19


0.15

26.7


0.56


0.39

43.6


Dividends paid per common share

0.03


0.02

50.0


0.09


0.02

350.0













Shore Bancshares, Inc.








Page 8 of 12

Consolidated Average Balance Sheets










(Dollars in thousands)
















































For the Three Months Ended


                          For the Nine Months Ended



September 30,


September 30,



2016


2015


2016


2015



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/



balance


rate 


balance


rate 


balance


rate


balance


rate


Earning assets

















  Loans 

$     836,955


4.50

%

$     763,306


4.64

%

$     811,747


4.54

%

$     735,474


4.73

%

  Investment securities

















   Taxable

190,265


1.59


229,979


1.55


203,016


1.61


238,316


1.54


   Tax-exempt

210


5.30


243


5.01


210


5.30


368


4.39


  Federal funds sold

511


0.37


2,341


0.10


2,347


0.34


2,689


0.09


  Interest-bearing deposits

64,164


0.50


48,361


0.25


55,837


0.50


47,897


0.23


    Total earning assets

1,092,105


3.75

%

1,044,230


3.74

%

1,073,157


3.77

%

1,024,744


3.77

%

Cash and due from banks

15,678




17,434




15,554




19,128




Other assets

52,836




57,891




54,850




59,172




Allowance for credit losses

(8,310)




(8,194)




(8,459)




(8,082)




Total assets

$ 1,152,309




$ 1,111,361




$ 1,135,102




$ 1,094,962






































Interest-bearing liabilities

















  Demand deposits

$     199,116


0.12

%

$     184,471


0.13

%

$     192,803


0.12

%

$     177,633


0.13

%

  Money market and savings deposits 

268,183


0.13


242,830


0.14


262,818


0.13


239,605


0.14


  Certificates of deposit $100,000 or more

125,265


0.61


148,617


0.92


129,060


0.67


152,389


0.96


  Other time deposits

147,780


0.64


163,224


0.82


151,032


0.68


166,338


0.86


    Interest-bearing deposits

740,344


0.31


739,142


0.44


735,713


0.34


735,965


0.47


  Short-term borrowings

7,075


0.25


6,501


0.24


6,372


0.24


6,235


0.25


    Total interest-bearing liabilities

747,419


0.31

%

745,643


0.44

%

742,085


0.34

%

742,200


0.47

%

Noninterest-bearing deposits

244,596




214,684




235,448




203,422




Accrued expenses and other liabilities

6,309




6,137




6,131




5,980




Stockholders' equity

153,985




144,897




151,438




143,360




Total liabilities and stockholders' equity

$ 1,152,309




$ 1,111,361




$ 1,135,102




$ 1,094,962





















Net interest spread



3.44

%



3.30

%



3.43

%



3.30

%

Net interest margin



3.54

%



3.43

%



3.54

%



3.43

%


















Shore Bancshares, Inc.










Page 9 of 12


Financial Highlights By Quarter












(Dollars in thousands, except per share data)









































3rd quarter


2nd quarter


1st quarter


4th quarter


3rd quarter


3Q 16


3Q 16



2016


2016


2016


2015


2015


compared to


compared to



(3Q 16)


(2Q 16)


(1Q 16)


(4Q 15)


(3Q 15)


2Q 16


3Q 15


PROFITABILITY FOR THE PERIOD















     Taxable-equivalent net interest income

$             9,730


$            9,415


$            9,273


$            9,315


$              9,027


3.3

%

7.8

%

     Less:  Taxable-equivalent adjustment

72


32


30


22


17


125.0


323.5


     Net interest income

9,658


9,383


9,243


9,293


9,010


2.9


7.2


     Provision for credit losses

605


375


450


475


410


61.3


47.6


     Noninterest income

4,007


4,041


4,541


3,638


3,905


(0.8)


2.6


     Noninterest expense

9,217


9,365


9,339


8,950


9,396


(1.6)


(1.9)


     Income before income taxes

3,843


3,684


3,995


3,506


3,109


4.3


23.6


     Income tax expense 

1,432


1,412


1,535


1,343


1,200


1.4


19.3


     Net income

$             2,411


$            2,272


$            2,460


$            2,163


$              1,909


6.1


26.3
































     Return on average assets 

0.83

%

0.81

%

0.88

%

0.76

%

0.68

%

2

bp

15

bp

     Return on average equity 

6.23


6.04


6.64


5.85


5.23


19


100


     Return on average tangible equity (1)

6.86


6.67


7.34


6.49


5.81


19


105


     Net interest margin

3.54


3.57


3.50


3.45


3.43


(3)


11


     Efficiency ratio - GAAP 

67.10


69.60


67.61


69.10


72.66


(250)


(556)


     Efficiency ratio - Non-GAAP (1)

67.00


69.35


67.37


68.84


72.39


(235)


(539)
































PER SHARE DATA















     Basic net income per common share

$               0.19


$              0.18


$              0.19


$              0.17


$                0.15


5.6

%

26.7

%

     Diluted net income per common share

0.19


0.18


0.19


0.17


0.15


5.6


26.7


     Dividends paid per common share

0.03


0.03


0.03


0.02


0.02


-


100.0


     Book value per common share at period end

12.23


12.04


11.88


11.64


11.55


1.6


5.9


     Tangible book value per common share at period end (1)

11.20


11.00


10.84


10.59


10.51


1.8


6.6


     Market value at period end

11.78


11.75


11.98


10.88


9.72


0.3


21.2


     Market range:















        High

11.95


12.50


12.08


11.00


9.72


(4.4)


22.9


        Low

11.32


10.23


11.95


10.64


9.37


10.7


20.8
































AVERAGE BALANCE SHEET DATA















     Loans

$        836,955


$       807,231


$       790,777


$       785,572


$          763,306


3.7

%

9.6

%

     Investment securities

190,475


204,357


214,988


213,307


230,222


(6.8)


(17.3)


     Earning assets

1,092,105


1,061,645


1,065,514


1,072,728


1,044,230


2.9


4.6


     Assets

1,152,309


1,122,568


1,130,238


1,137,430


1,111,361


2.6


3.7


     Deposits

984,940


959,397


968,991


978,049


953,826


2.7


3.3


     Stockholders' equity

153,985


151,270


149,032


146,597


144,897


1.8


6.3
































CREDIT QUALITY DATA AT PERIOD END















     Net charge-offs

$                349


$               326


$               457


$               257


$                 229


7.1

%

52.4

%
















     Nonaccrual loans 

$           11,490


$          13,531


$          11,925


$          12,093


$            13,143


(15.1)


(12.6)


     Loans 90 days past due and still accruing

64


6


35


7


4


966.7


1,500.0


     Other real estate owned

2,197


1,897


3,896


4,252


2,884


15.8


(23.8)


     Total nonperforming assets 

$           13,751


$          15,434


$          15,856


$          16,352


$            16,031


(10.9)


(14.2)

















     Accruing troubled debt restructurings (TDRs) 

$           13,273


$          13,338


$          14,753


$          15,495


$            16,431


(0.5)


(19.2)

















     Total nonperforming assets and accruing TDRs 

$           27,024


$          28,772


$          30,609


$          31,847


$            32,462


(6.1)


(16.8)
































CAPITAL AND CREDIT QUALITY RATIOS















     Period-end equity to assets

13.37

%

13.53

%

13.27

%

12.95

%

13.05

%

(16)

bp

32

bp

     Period-end tangible equity to tangible assets (1)

12.39


12.52


12.25


11.93


12.02


(13)


37

















     Annualized net charge-offs to average loans

0.17


0.16


0.23


0.13


0.12


1


5

















     Allowance for credit losses as a percent of:















     Period-end loans      

1.00


1.02


1.04


1.05


1.04


(2)


(4)


     Nonaccrual loans 

74.97


61.77


69.68


68.77


61.61


1,320


1,336


     Nonperforming assets 

62.64


54.15


52.40


50.86


50.51


849


1,213


     Accruing TDRs 

64.90


62.66


56.32


53.67


49.28


224


1,562


     Nonperforming assets and accruing TDRs 

31.88


29.05


27.15


26.11


24.95


283


693

















    As a percent of total loans:















    Nonaccrual loans 

1.34


1.65


1.49


1.52


1.69


(31)


(35)


    Accruing TDRs 

1.54


1.62


1.85


1.95


2.11


(8)


(57)


    Nonaccrual loans and accruing TDRs 

2.88


3.27


3.34


3.47


3.80


(39)


(92)

















    As a percent of total loans+other real estate owned:















    Nonperforming assets 

1.59


1.88


1.98


2.05


2.06


(29)


(47)


    Nonperforming assets and accruing TDRs 

3.13


3.50


3.81


3.98


4.16


(37)


(103)
































    As a percent of total assets:















    Nonaccrual loans 

0.99


1.20


1.05


1.07


1.18


(21)


(19)


    Nonperforming assets 

1.19


1.37


1.40


1.44


1.43


(18)


(24)


    Accruing TDRs 

1.15


1.18


1.30


1.37


1.47


(3)


(32)


    Nonperforming assets and accruing TDRs 

2.34


2.55


2.70


2.81


2.90


(21)


(56)

















(1)  See the reconciliation table on page 12 of 12.






























Shore Bancshares, Inc.








Page 10 of 12

Consolidated Statements of Operations By Quarter









(In thousands, except per share data)



















































3Q 16


3Q 16













compared to


compared to



3Q 16


2Q 16


1Q 16


4Q 15


3Q 15


2Q 16


3Q 15


INTEREST INCOME















    Interest and fees on loans 

$         9,398


$         9,117


$         8,961


$         9,142


$         8,912


3.1

%

5.5

%

    Interest and dividends on investment securities:















        Taxable

754


824


870


854


892


(8.5)


(15.5)


        Tax-exempt

2


2


2


2


2


-


-


    Interest on federal funds sold

1


2


3


1


1


(50.0)


-


    Interest on deposits with other banks

81


58


72


48


30


39.7


170.0


                   Total interest income

10,236


10,003


9,908


10,047


9,837


2.3


4.1

















INTEREST EXPENSE















    Interest on deposits

574


617


661


750


824


(7.0)


(30.3)


    Interest on short-term borrowings

4


3


4


4


3


33.3


33.3


                   Total interest expense

578


620


665


754


827


(6.8)


(30.1)

















NET INTEREST INCOME

9,658


9,383


9,243


9,293


9,010


2.9


7.2


Provision for credit losses

605


375


450


475


410


61.3


47.6

















NET INTEREST INCOME AFTER PROVISION















  FOR CREDIT LOSSES

9,053


9,008


8,793


8,818


8,600


0.5


5.3

















NONINTEREST INCOME















    Service charges on deposit accounts

899


870


813


806


769


3.3


16.9


    Trust and investment fee income

358


364


351


348


360


(1.6)


(0.6)


    Insurance agency commissions 

2,054


1,941


2,759


1,760


2,107


5.8


(2.5)


    Other noninterest income

666


866


618


724


669


(23.1)


(0.4)


                      Total noninterest income

4,007


4,041


4,541


3,638


3,905


(0.8)


2.6

















NONINTEREST EXPENSE















    Salaries and wages

4,346


4,422


4,477


4,366


4,468


(1.7)


(2.7)


    Employee benefits

1,009


964


1,114


890


935


4.7


7.9


    Occupancy expense 

643


583


613


583


600


10.3


7.2


    Furniture and equipment expense

245


248


235


215


223


(1.2)


9.9


    Data processing

976


854


809


809


800


14.3


22.0


    Directors' fees

120


131


104


114


117


(8.4)


2.6


    Amortization of intangible assets

33


33


33


33


34


-


(2.9)


    FDIC insurance premium expense

104


268


282


281


243


(61.2)


(57.2)


    Write-downs of other real estate owned

2


66


7


39


7


(97.0)


(71.4)


    Legal and professional fees

440


609


385


440


642


(27.8)


(31.5)


    Other noninterest expenses

1,299


1,187


1,280


1,180


1,327


9.4


(2.1)


                      Total noninterest expense

9,217


9,365


9,339


8,950


9,396


(1.6)


(1.9)

















Income before income taxes

3,843


3,684


3,995


3,506


3,109


4.3


23.6


Income tax expense 

1,432


1,412


1,535


1,343


1,200


1.4


19.3

















NET INCOME 

$         2,411


$         2,272


$         2,460


$         2,163


$         1,909


6.1


26.3

















Weighted average shares outstanding - basic

12,661


12,648


12,635


12,631


12,630


0.1


0.2


Weighted average shares outstanding - diluted

12,676


12,665


12,649


12,645


12,640


0.1


0.3

















Basic net income per common share

$            0.19


$            0.18


$            0.19


$            0.17


$            0.15


5.6


26.7


Diluted net income per common share

0.19


0.18


0.19


0.17


0.15


5.6


26.7


Dividends paid per common share

0.03


0.03


0.03


0.02


0.02


-


50.0

















Shore Bancshares, Inc.

















Page 11 of 12

Consolidated Average Balance Sheets By Quarter

















(Dollars in thousands)




























































































Average balance























3Q 16


3Q 16























compared to


compared to



3Q 16


2Q 16


1Q 16


4Q 15




3Q 15




2Q 16


3Q 15



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/







balance


rate


balance


rate


balance


rate


balance


rate


balance


rate






Earning assets

























  Loans 

$       836,955


4.50

%

$       807,231


4.56

%

$       790,777


4.57

%

$       785,572


4.63

%

$       763,306


4.64

%

3.7

%

9.6

%

  Investment securities

























   Taxable

190,265


1.59


204,147


1.61


214,778


1.62


213,097


1.60


229,979


1.55


(6.8)


(17.3)


   Tax-exempt

210


5.30


210


5.30


210


5.30


210


5.30


243


5.01


-


(13.6)


  Federal funds sold

511


0.37


2,910


0.34


3,640


0.33


3,886


0.12


2,341


0.10


(82.4)


(78.2)


  Interest-bearing deposits

64,164


0.50


47,147


0.50


56,109


0.51


69,963


0.27


48,361


0.25


36.1


32.7


    Total earning assets

1,092,105


3.75

%

1,061,645


3.80

%

1,065,514


3.75

%

1,072,728


3.72

%

1,044,230


3.74

%

2.9


4.6


Cash and due from banks

15,678




14,776




16,205




16,628




17,434




6.1


(10.1)


Other assets

52,836




54,699




57,037




56,512




57,891




(3.4)


(8.7)


Allowance for credit losses

(8,310)




(8,552)




(8,518)




(8,438)




(8,194)




(2.8)


1.4


Total assets

$    1,152,309




$    1,122,568




$    1,130,238




$    1,137,430




$    1,111,361




2.6


3.7




















































Interest-bearing liabilities

























  Demand deposits

$       199,116


0.12

%

$       186,137


0.12

%

$       193,087


0.12

%

$       190,237


0.13

%

$       184,471


0.13

%

7.0


7.9


  Money market and savings deposits 

268,183


0.13


261,495


0.13


258,715


0.13


255,974


0.14


242,830


0.14


2.6


10.4


  Certificates of deposit $100,000 or more

125,265


0.61


129,544


0.69


132,412


0.71


139,663


0.80


148,617


0.92


(3.3)


(15.7)


  Other time deposits

147,780


0.64


151,577


0.68


153,774


0.74


158,011


0.80


163,224


0.82


(2.5)


(9.5)


    Interest-bearing deposits

740,344


0.31


728,753


0.34


737,988


0.36


743,885


0.40


739,142


0.44


1.6


0.2


  Short-term borrowings

7,075


0.25


5,792


0.24


6,242


0.24


6,199


0.23


6,501


0.24


22.2


8.8


    Total interest-bearing liabilities

747,419


0.31

%

734,545


0.34

%

744,230


0.36

%

750,084


0.40

%

745,643


0.44

%

1.8


0.2


Noninterest-bearing deposits

244,596




230,644




231,003




234,164




214,684




6.0


13.9


Accrued expenses and other liabilities

6,309




6,109




5,973




6,585




6,137




3.3


2.8


Stockholders' equity

153,985




151,270




149,032




146,597




144,897




1.8


6.3


Total liabilities and stockholders' equity

$    1,152,309




$    1,122,568




$    1,130,238




$    1,137,430




$    1,111,361




2.6


3.7



























Net interest spread



3.44

%



3.46

%



3.39

%



3.32

%



3.30

%





Net interest margin



3.54

%



3.57

%



3.50

%



3.45

%



3.43

%






























Shore Bancshares, Inc.










Page 12 of 12

Reconciliation of Generally Accepted Accounting Principles (GAAP) 








  and Non-GAAP Measures









(In thousands, except per share data)




































YTD


YTD



3Q 16


2Q 16


1Q 16


4Q 15


3Q 15


9/30/2016


9/30/2015

















The following reconciles return on average equity and return on















  average tangible equity (Note 1):






























Net income

$          2,411


$         2,272


$         2,460


$         2,163


$         1,909


$         7,143


$        4,945


Net income - annualized (A)

$          9,592


$         9,138


$         9,894


$         8,581


$         7,574


$         9,541


$        6,611

















Net income, excluding net amortization of intangible assets

$          2,431


$         2,292


$         2,480


$         2,183


$         1,930


$         7,203


$        5,006

















Net income, excluding net amortization of intangible 















  assets - annualized (B)

$          9,671


$         9,218


$         9,975


$         8,661


$         7,657


$         9,622


$        6,693

















Average stockholders' equity (C)

$       153,985


$     151,270


$     149,032


$     146,597


$     144,897


$     151,438


$    143,360


Less:  Average goodwill and other intangible assets

(13,063)


(13,096)


(13,129)


(13,155)


(13,182)


(13,096)


(13,215)


Average tangible equity (D)

$       140,922


$     138,174


$     135,903


$     133,442


$     131,715


$     138,342


$    130,145

















Return on average equity (GAAP)  (A)/(C)

6.23

%

6.04

%

6.64

%

5.85

%

5.23

%

6.30

%

4.61

%

Return on average tangible equity (Non-GAAP)  (B)/(D)

6.86

%

6.67

%

7.34

%

6.49

%

5.81

%

6.96

%

5.14

%































The following reconciles GAAP efficiency ratio and non-GAAP 















  efficiency ratio (Note 2):






























Noninterest expense (E)

$          9,217


$         9,365


$         9,339


$         8,950


$         9,396


$       27,921


$      28,400


Less:  Amortization of intangible assets

(33)


(33)


(33)


(33)


(34)


(99)


(100)


Adjusted noninterest expense (F)

$          9,184


$         9,332


$         9,306


$         8,917


$         9,362


$       27,822


$      28,300

















Taxable-equivalent net interest income (G)

$          9,730


$         9,415


$         9,273


$         9,315


$         9,027


$       28,418


$      26,289


Taxable-equivalent net interest income excluding nonrecurring adjustment (H)

$          9,730


$         9,415


$         9,273


$         9,315


$         9,027


$       28,418


$      26,289

















Noninterest income (I)

$          4,007


$         4,041


$         4,541


$         3,638


$         3,905


$       12,589


$      11,778


Adjusted noninterest income (J)

$          3,977


$         4,041


$         4,541


$         3,638


$         3,905


$       12,559


$      11,778

















Efficiency ratio (GAAP)  (E)/(G)+(I) 

67.10

%

69.60

%

67.61

%

69.10

%

72.66

%

68.09

%

74.61

%

Efficiency ratio (Non-GAAP)  (F)/(H)+(J)

67.00

%

69.35

%

67.37

%

68.84

%

72.39

%

67.90

%

74.34

%































The following reconciles book value per common share and tangible 















  book value per common share (Note 1):






























Stockholders' equity (K)

$       154,835


$     152,321


$     150,109


$     146,967


$     145,887






Less:  Goodwill and other intangible assets

(13,043)


(13,076)


(13,109)


(13,142)


(13,162)






Tangible equity (L)

$       141,792


$     139,245


$     137,000


$     133,825


$     132,725





















Shares outstanding (M)

12,663


12,655


12,640


12,631


12,630





















Book value per common share (GAAP)  (K)/(M)

$          12.23


$         12.04


$         11.88


$         11.64


$         11.55






Tangible book value per common share (Non-GAAP)  (L)/(M)

$          11.20


$         11.00


$         10.84


$         10.59


$         10.51




































The following reconciles equity to assets and















  tangible equity to tangible assets (Note 1):






























Stockholders' equity (N)

$       154,835


$     152,321


$     150,109


$     146,967


$     145,887






Less:  Goodwill and other intangible assets

(13,043)


(13,076)


(13,109)


(13,142)


(13,162)






Tangible equity (O)

$       141,792


$     139,245


$     137,000


$     133,825


$     132,725





















Assets (P)

$    1,157,866


$  1,125,690


$  1,131,175


$  1,135,143


$  1,117,813






Less:  Goodwill and other intangible assets

(13,043)


(13,076)


(13,109)


(13,142)


(13,162)






Tangible assets (Q)

$    1,144,823


$  1,112,614


$  1,118,066


$  1,122,001


$  1,104,651





















Period-end equity/assets (GAAP)  (N)/(P)

13.37

%

13.53

%

13.27

%

12.95

%

13.05

%





Period-end tangible equity/tangible assets (Non-GAAP)  (O)/(Q)

12.39

%

12.52

%

12.25

%

11.93

%

12.02

%



































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.  






































CONTACT: For further information contact: Edward Allen, Chief Financial Officer, 410-763-7800