Exhibit 99.1

 

Shore Bancshares, Inc.

18 E. Dover Street

Easton, Maryland 21601

Phone 410-763-7800

 

PRESS RELEASE

 

Shore Bancshares Reports 2011 Results

 

Easton, Maryland (1/25/2012) - Shore Bancshares, Inc. (NASDAQ - SHBI) today reported net income of $325 thousand, or $0.04 per diluted common share, for the fourth quarter of 2011, compared to net income of $94 thousand, or $0.01 per diluted common share, for the third quarter of 2011 and net income of $850 thousand, or $0.10 per diluted common share, for the fourth quarter of 2010. The Company reported a net loss of $897 thousand, or $(0.11) per diluted common share, for 2011, compared to a net loss of $1.7 million, or $(0.20) per diluted common share, for 2010.

 

When comparing the fourth quarter of 2011 to the third quarter of 2011, the increase in net income was primarily due to lower impairment charges of $1.3 million. 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. The decrease in impairment charges was mainly offset by a higher provision for credit losses ($385 thousand) and lower net interest income ($286 thousand) and investment securities gains ($226 thousand). When comparing the fourth quarter of 2011 to the fourth quarter of 2010, the main reason for the lower net income was a decline in net interest income of $1.0 million, which was partially offset by a decrease in the provision for credit losses of $357 thousand.

 

When comparing fiscal year 2011 to fiscal year 2010, the principal factors resulting in the lower net loss were a $1.7 million decrease in impairment charges and a $1.6 million decrease in the provision for credit losses, which were partially offset by a decline in net interest income of $2.9 million.

 

“Net income was modest for the final quarter of 2011, but we did produce an improvement over the linked third quarter of last year,” said W. Moorhead Vermilye, chief executive officer. “We were disappointed to show a loss for the full year of 2011, but encouraged that the loss narrowed to about half the amount we reported for the full year of 2010.”

 

“Our ratio of nonperforming assets to total assets was 7.66% at December 31, 2011, compared to 8.02% at September 30, 2011. Nonperforming assets decreased $4.2 million from where they stood at the end of the third quarter as two large credits totaling $8.2 million were brought current during the final three months of the year, and our ratio of the allowance for credit losses to period-end loans increased to 1.70% at December 31, 2011, up from 1.57% at September 30, 2011 and 1.59% at December 31, 2010.”

 

“All of these statistics are evidence of a very tough ongoing credit environment, but they do reflect that we are making gradual progress. Although we remain very cautious, evidence suggests to us that area real estate prices might have bottomed out, which, if true, should lead to better progress in resolving and disposing our problem assets. In the meantime, we believe our provision for credit losses and the resulting allowance as of year end are adequate to provide for probable losses in our loan portfolio.”

 

“As we have noted previously, it took a year or two more than in other regions for the Delmarva Peninsula micro-economy to fully experience the impact of this long-running national economic downturn, and we believe that the recovery in our market areas and our return to consistent profitability will likewise lag behind much of the regional community banking industry. As we work diligently to improve credit quality and our overall performance, it is important to note that our capital levels remain strong. For 2011, the Company’s ratio of average tangible equity to average tangible assets was 9.23% which compared very favorably to area peers,” said Vermilye.

 

 

Page 2 of 11

 

The Company’s return on average assets for the fourth quarter of 2011 was 0.11%, compared to 0.03% and 0.30% for the quarters ended September 30, 2011 and December 31, 2010, respectively. The return on average equity was 1.07% for the fourth quarter of 2011, compared to 0.31% for the third quarter of 2011 and 2.73% for the fourth quarter of 2010. The return on average tangible equity was 1.53% for the fourth quarter of 2011, compared to 4.21% for the third quarter of 2011 and 3.49% for the fourth quarter of 2010. The return on average tangible equity for the third quarter of 2011 was positively impacted by the impairment charges of $1.3 million. See the financial tables that follow for additional information.

 

The Company’s return on average assets for 2011 was (0.08)%, compared to (0.15)% for 2010. The return on average equity was (0.74)% and (1.33)% for 2011 and 2010, respectively, while the return on average tangible equity was 0.32% and 1.05% for 2011and 2010, respectively.

 

Total assets were $1.158 billion at December 31, 2011, a 2.5% increase when compared to the $1.130 billion at the end of 2010. Total loans decreased 6.1% to $841.1 million while total earning assets increased 2.1% to $1.082 billion when compared to December 31, 2010. Total deposits increased 3.1% to $1.010 billion while total stockholders’ equity decreased 1.0% from the end of 2010. The ratio of average equity to average assets was 10.66% and 11.05% for 2011 and 2010, respectively, while the ratio of average tangible equity to average tangible assets was 9.23% and 9.43% for 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 fourth quarter of 2011 was $9.8 million, a 2.8% decrease from the third quarter of 2011 and a 9.5% decrease from the same period last year. The decrease in net interest income when compared to the third quarter of 2011 and the fourth quarter of 2010 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 3.60% for the fourth quarter of 2011, 3.77% for the third quarter of 2011 and 4.09% for the fourth quarter of 2010.

 

The provision for credit losses was $4.0 million for the three months ended December 31, 2011. The comparable amounts were $3.7 million and $4.4 million for the three months ended September 30, 2011 and December 31, 2010, respectively. The ratio of the allowance for credit losses to period-end loans was 1.70% at December 31, 2011, increasing from 1.57% at September 30, 2011 and 1.59% at December 31, 2010. Management believes that the provision for credit losses and the resulting allowance were adequate at December 31, 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, nonperforming loans and a weak economy. Net charge-offs were $3.3 million for the fourth quarter of 2011, lower than the $6.5 million for the third quarter of 2011 and even with the amount for the fourth quarter of 2010. The ratio of quarter-to-date annualized net charge-offs to average loans was 1.53% for the fourth quarter of 2011, 2.95% for the third quarter of 2011 and 1.46% for the fourth quarter of 2010. Nonperforming assets decreased $4.2 million when compared to the end of September 2011 but increased $19.1 million when compared to the end of December 2010. The decrease from the end of the prior quarter was primarily in loans 90 days past due and still accruing. This decrease was mainly due to two large credits totaling $8.2 million which were brought current during the fourth quarter of 2011. The ratio of nonperforming assets to total assets was 7.66% at December 31, 2011, compared to 8.02% at September 30, 2011 and 6.16% at December 31, 2010.

 

Total noninterest income for the fourth quarter of 2011 decreased $504 thousand, or 11.1%, when compared to the third quarter of 2011. The decrease was primarily due to a $251 thousand decline in insurance agency commissions and a $226 thousand decline in gains on sales of investment securities. Noninterest income for the fourth quarter of 2011 increased $71 thousand, or 1.8%, when compared to the fourth quarter of 2010. The increase was primarily due to gains on sales of investment securities of $128 thousand and an increase in other noninterest income of $75 thousand, partially offset by a $99 thousand decline in service charges on deposit accounts. Included in other noninterest income for the fourth quarter of 2011 was a $56 thousand gain relating to proceeds from a life insurance policy on a former CNB director. The lower service charges on deposit accounts were due to a decrease in customer use of overdraft protection programs. 

 

 

Page 3 of 11

 

Total noninterest expense for the fourth quarter of 2011 decreased $1.3 million, or 11.9%, when compared to the third quarter of 2011 mainly due to the $1.3 million goodwill and other intangible assets impairment charges recorded in the third quarter of 2011. When compared to the fourth quarter of 2010, total noninterest expense for the fourth quarter of 2011 increased $323 thousand, or 3.6%, primarily due to higher expenses related to other real estate owned activities included in other noninterest expenses.

 

Review of 2011 Financial Results

Net interest income for 2011 was $39.8 million, a decrease of 6.7% when compared to 2010. As with the quarterly results, the 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 3.74% for 2011 and 4.02% for 2010.

 

The provisions for credit losses for 2011 and 2010 were $19.5 million and $21.1 million, respectively. Net charge-offs were $19.4 million and $17.8 million for 2011 and 2010, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 2.22% for 2011 and 1.96% for 2010.

 

Total noninterest income for 2011 declined $723 thousand when compared to the same period in 2010. The decrease in noninterest income was mainly due to declines in insurance agency commissions, service charges on deposit accounts and other noninterest income. Other noninterest income for 2010 included a $224 thousand gain relating to the surrender of directors’ life insurance policies. These decreases in noninterest income were partially offset by $563 thousand in gains on sales of investment securities

 

Total noninterest expense for 2011 decreased $2.6 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 expenses related to other real estate owned activities and 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 December 31,												For the Twelve Months Ended December 31,
		2011				2010				Change				2011				2010				Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	9,837			$	10,866				(9.5	)%		$	39,764			$	42,639				(6.7	)%
Provision for credit losses			4,035				4,392				(8.1	)			19,470				21,119				(7.8	)
Noninterest income			4,019				3,948				1.8				17,318				18,041				(4.0	)
Noninterest expense			9,405				9,082				3.6				39,167				41,720				(6.1	)
Income (loss) before income taxes			416				1,340				(69.0	)			(1,555	)			(2,159	)			28.0
Income tax expense (benefit)			91				490				(81.4	)			(658	)			(492	)			(33.7	)
Net income (loss)		$	325			$	850				(61.8	)		$	(897	)		$	(1,667	)			46.2
Return on average assets			0.11	%			0.30	%			(19	)bp			(0.08	)%			(0.15	)%			7	bp
Return on average equity			1.07				2.73				(166	)			(0.74	)			(1.33	)			59
Return on average tangible equity (1)			1.53				3.49				(196	)			0.32				1.05				(73	)
Net interest margin			3.60				4.09				(49	)			3.74				4.02				(28	)
Efficiency ratio - GAAP			67.62				61.03				659				68.35				68.46				(11	)
Efficiency ratio - Non-GAAP (1)			67.61				60.17				744				65.83				62.83				300
PER SHARE DATA
Basic net income (loss) per common share		$	0.04			$	0.10				(60.0	)%		$	(0.11	)		$	(0.20	)			45.0	%
Diluted net income (loss) per common share			0.04				0.10				(60.0	)			(0.11	)			(0.20	)			45.0
Dividends paid per common share			0.01				0.06				(83.3	)			0.09				0.24				(62.5	)
Book value per common share at period end			14.34				14.51				(1.2	)
Tangible book value per common share at period end (1)			12.37				12.32				0.4
Market value at period end			5.15				10.54				(51.1	)
Market range:
High			6.13				10.73				(42.9	)			11.11				14.80				(24.9	)
Low			4.20				9.25				(54.6	)			3.95				9.20				(57.1	)
PERIOD-END BALANCE SHEET DATA
Loans		$	841,050			$	895,404				(6.1	)%
Securities			136,260				105,782				28.8
Assets			1,158,193				1,130,311				2.5
Deposits			1,009,919				979,516				3.1
Stockholders' equity			121,249				122,513				(1.0	)
AVERAGE BALANCE SHEET DATA
Loans		$	854,302			$	903,075				(5.4	)%		$	873,155			$	906,732				(3.7	)%
Securities			122,725				103,600				18.5				113,568				107,242				5.9
Earning assets			1,089,078				1,060,645				2.7				1,069,458				1,068,264				0.1
Assets			1,160,652				1,128,517				2.8				1,139,943				1,136,916				0.3
Deposits			1,013,848				978,444				3.6				992,071				980,332				1.2
Stockholders' equity			121,020				123,341				(1.9	)			121,496				125,586				(3.3	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.43	%			10.93	%			(50	)bp			10.66	%			11.05	%			(39	)bp
Average tangible equity to average tangible assets (1)			9.12				9.50				(38	)			9.23				9.43				(20	)
Annualized net charge-offs to average loans			1.53				1.46				7				2.22				1.96				26
Allowance for credit losses to period-end loans			1.70				1.59				11
Allowance for credit losses to nonaccrual loans			27.81				39.26				(1,145	)
Allowance for credit losses to nonperforming loans (2)			18.02				21.59				(357	)
Nonaccrual loans to total loans			6.11				4.05				206
Nonaccrual loans to total assets			4.44				3.21				123
Nonperforming assets to total loans+other real estate and other assets owned (3)			10.43				7.74				269
Nonperforming assets to total assets			7.66				6.16				150

  

(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)

 

										December 31, 2011
		December 31,				December 31,				compared to
		2011				2010				December 31, 2010
ASSETS
Cash and due from banks		$	22,986			$	19,680				16.8	%
Interest-bearing deposits with other banks			99,776				21,593				362.1
Federal funds sold			4,980				36,691				(86.4	)
Investments available for sale (at fair value)			129,780				99,055				31.0
Investments held to maturity			6,480				6,727				(3.7	)
Loans			841,050				895,404				(6.1	)
Less: allowance for credit losses			(14,288	)			(14,227	)			0.4
Loans, net			826,762				881,177				(6.2	)
Premises and equipment, net			14,662				14,483				1.2
Goodwill			12,454				13,678				(8.9	)
Other intangible assets, net			4,208				4,840				(13.1	)
Other real estate and other assets owned, net			9,385				3,702				153.5
Other assets			26,720				28,685				(6.9	)
Total assets		$	1,158,193			$	1,130,311				2.5
LIABILITIES
Noninterest-bearing deposits		$	133,801			$	124,188				7.7
Interest-bearing deposits			876,118				855,328				2.4
Total deposits			1,009,919				979,516				3.1
Short-term borrowings			17,817				16,041				11.1
Accrued expenses and other liabilities			8,753				11,309				(22.6	)
Long-term debt			455				932				(51.2	)
Total liabilities			1,036,944				1,007,798				2.9
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized 35,000,000 shares			85				84				1.2
Warrant			-				1,543				(100.0	)
Additional paid in capital			32,052				30,242				6.0
Retained earnings			90,801				92,458				(1.8	)
Accumulated other comprehensive loss			(1,689	)			(1,814	)			6.9
Total stockholders' equity			121,249				122,513				(1.0	)
Total liabilities and stockholders' equity		$	1,158,193			$	1,130,311				2.5
Period-end common shares outstanding			8,457				8,443				0.2
Book value per common share		$	14.34			$	14.51				(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 Twelve Months Ended
		December 31,												December 31,
		2011				2010				% Change				2011				2010				% Change
INTEREST INCOME
Interest and fees on loans		$	11,649			$	12,958				(10.1	)%		$	47,549			$	51,962				(8.5	)%
Interest and dividends on investment securities:
Taxable			797				804				(0.9	)			3,031				3,209				(5.5	)
Tax-exempt			38				47				(19.1	)			154				212				(27.4	)
Interest on federal funds sold			1				13				(92.3	)			25				60				(58.3	)
Interest on deposits with other banks			46				7				557.1				93				18				416.7
Total interest income			12,531				13,829				(9.4	)			50,852				55,461				(8.3	)
INTEREST EXPENSE
Interest on deposits			2,673				2,937				(9.0	)			10,995				12,681				(13.3	)
Interest on short-term borrowings			15				15				-				56				83				(32.5	)
Interest on long-term debt			6				11				(45.5	)			37				58				(36.2	)
Total interest expense			2,694				2,963				(9.1	)			11,088				12,822				(13.5	)
NET INTEREST INCOME			9,837				10,866				(9.5	)			39,764				42,639				(6.7	)
Provision for credit losses			4,035				4,392				(8.1	)			19,470				21,119				(7.8	)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			5,802				6,474				(10.4	)			20,294				21,520				(5.7	)
NONINTEREST INCOME
Service charges on deposit accounts			700				799				(12.4	)			2,845				3,257				(12.6	)
Trust and investment fee income			380				358				6.1				1,563				1,503				4.0
Investment securities gains			128				-				-				563				-				-
Insurance agency commissions			2,061				2,116				(2.6	)			9,358				10,113				(7.5	)
Other noninterest income			750				675				11.1				2,989				3,168				(5.7	)
Total noninterest income			4,019				3,948				1.8				17,318				18,041				(4.0	)
NONINTEREST EXPENSE
Salaries and wages			4,378				4,220				3.7				16,825				17,477				(3.7	)
Employee benefits			923				893				3.4				3,840				3,829				0.3
Occupancy expense			563				562				0.2				2,312				2,328				(0.7	)
Furniture and equipment expense			234				262				(10.7	)			1,059				1,200				(11.8	)
Data processing			660				620				6.5				2,852				2,607				9.4
Directors' fees			83				68				22.1				500				412				21.4
Goodwill and other intangible assets impairment			-				-				-				1,344				3,051				(55.9	)
Amortization of intangible assets			126				129				(2.3	)			512				515				(0.6	)
Insurance agency commissions expense			285				339				(15.9	)			1,267				1,569				(19.2	)
FDIC insurance premium expense			254				445				(42.9	)			1,298				1,834				(29.2	)
Other noninterest expenses			1,899				1,544				23.0				7,358				6,898				6.7
Total noninterest expense			9,405				9,082				3.6				39,167				41,720				(6.1	)
Income (loss) before income taxes			416				1,340				(69.0	)			(1,555	)			(2,159	)			28.0
Income tax expense (benefit)			91				490				(81.4	)			(658	)			(492	)			(33.7	)
NET INCOME (LOSS)		$	325			$	850				(61.8	)		$	(897	)		$	(1,667	)			46.2
Weighted average shares outstanding - basic			8,457				8,443				0.2				8,451				8,442				0.1
Weighted average shares outstanding - diluted			8,457				8,443				0.2				8,451				8,442				0.1
Basic net income (loss) per common share		$	0.04			$	0.10				(60.0	)		$	(0.11	)		$	(0.20	)			45.0
Diluted net income (loss) per common share			0.04				0.10				(60.0	)			(0.11	)			(0.20	)			45.0
Dividends paid per common share			0.01				0.06				(83.3	)			0.09				0.24				(62.5	)

 

 

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

 

		For the Three Months Ended																For the Twelve Months Ended
		December 31,																December 31,
		2011								2010								2011								2010
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	854,302				5.42	%		$	903,075				5.71	%		$	873,155				5.46	%		$	906,732				5.75	%
Investment securities
Taxable			118,315				2.67				98,378				3.24				109,059				2.78				101,162				3.17
Tax-exempt			4,410				5.27				5,222				5.40				4,509				5.19				6,080				5.29
Federal funds sold			8,709				0.05				34,018				0.16				23,808				0.10				39,770				0.15
Interest-bearing deposits			103,342				0.18				19,952				0.12				58,927				0.16				14,520				0.12
Total earning assets			1,089,078				4.58	%			1,060,645				5.20	%			1,069,458				4.78	%			1,068,264				5.22	%
Cash and due from banks			18,728								19,867								19,198								16,567
Other assets			68,014								62,305								67,695								65,774
Allowance for credit losses			(15,168	)							(14,300	)							(16,408	)							(13,689	)
Total assets		$	1,160,652							$	1,128,517							$	1,139,943							$	1,136,916
Interest-bearing liabilities
Demand deposits		$	157,657				0.19	%		$	128,592				0.22	%		$	145,533				0.21	%		$	130,297				0.24	%
Money market and savings deposits			273,906				1.07				258,713				0.84				265,910				1.00				258,650				0.76
Certificates of deposit $100,000 or more			241,810				1.46				256,167				1.77				245,214				1.62				256,393				2.00
Other time deposits			201,249				1.91				208,808				2.23				205,154				1.99				214,121				2.46
Interest-bearing deposits			874,622				1.21				852,280				1.37				861,811				1.28				859,461				1.48
Short-term borrowings			16,421				0.37				15,381				0.39				15,319				0.37				16,348				0.51
Long-term debt			466				4.46				932				4.46				814				4.50				1,304				4.41
Total interest-bearing liabilities			891,509				1.20	%			868,593				1.35	%			877,944				1.26	%			877,113				1.46	%
Noninterest-bearing deposits			139,226								126,164								130,260								120,871
Accrued expenses and other liabilities			8,897								10,419								10,243								13,346
Stockholders' equity			121,020								123,341								121,496								125,586
Total liabilities and stockholders' equity		$	1,160,652							$	1,128,517							$	1,139,943							$	1,136,916
Net interest spread							3.38	%							3.85	%							3.52	%							3.76	%
Net interest margin							3.60	%							4.09	%							3.74	%							4.02	%

 

 

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

 

		4th quarter				3rd quarter				2nd quarter				1st quarter				4th quarter				4Q 11				4Q 11
		2011				2011				2011				2011				2010				compared to				compared to
		(4Q 11)				(3Q 11)				(2Q 11)				(1Q 11)				(4Q 10)				3Q 11				4Q 10
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	9,889			$	10,172			$	10,001			$	9,921			$	10,932				(2.8	)%			(9.5	)%
Less: Taxable-equivalent adjustment			52				49				59				59				66				6.1				(21.2	)
Net interest income			9,837				10,123				9,942				9,862				10,866				(2.8	)			(9.5	)
Provision for credit losses			4,035				3,650				5,395				6,390				4,392				10.5				(8.1	)
Noninterest income			4,019				4,523				4,381				4,395				3,948				(11.1	)			1.8
Noninterest expense			9,405				10,677				9,194				9,891				9,082				(11.9	)			3.6
Income (loss) before income taxes			416				319				(266	)			(2,024	)			1,340				30.4				(69.0	)
Income tax expense (benefit)			91				225				(33	)			(941	)			490				(59.6	)			(81.4	)
Net income (loss)		$	325			$	94			$	(233	)		$	(1,083	)		$	850				245.7				(61.8	)
Return on average assets			0.11	%			0.03	%			(0.08	)%			(0.39	)%			0.30	%			8	bp			(19	)bp
Return on average equity			1.07				0.31				(0.77	)			(3.59	)			2.73				76				(166	)
Return on average tangible equity (1)			1.53				4.21				(0.60	)			(3.92	)			3.49				(268	)			(196	)
Net interest margin			3.60				3.77				3.80				3.79				4.09				(17	)			(49	)
Efficiency ratio - GAAP			67.62				72.66				63.93				69.09				61.03				(504	)			659
Efficiency ratio - Non-GAAP (1)			67.61				64.18				63.05				68.57				60.17				343				744
PER SHARE DATA
Basic net income (loss) per common share		$	0.04			$	0.01			$	(0.03	)		$	(0.13	)		$	0.10				300.0	%			(60.0	)%
Diluted net income (loss) per common share			0.04				0.01				(0.03	)			(0.13	)			0.10				300.0				(60.0	)
Dividends paid per common share			0.01				0.01				0.01				0.06				0.06				-				(83.3	)
Book value per common share at period end			14.34				14.31				14.30				14.32				14.51				0.2				(1.2	)
Tangible book value per common share at period end (1)			12.37				12.32				12.14				12.14				12.32				0.4				0.4
Market value at period end			5.15				4.36				6.98				9.75				10.54				18.1				(51.1	)
Market range:
High			6.13				7.06				10.21				11.11				10.73				(13.2	)			(42.9	)
Low			4.20				3.95				6.51				9.42				9.25				6.3				(54.6	)
PERIOD-END BALANCE SHEET DATA
Loans		$	841,050			$	862,566			$	877,331			$	884,715			$	895,404				(2.5	)%			(6.1	)%
Securities			136,260				112,328				113,271				106,920				105,782				21.3				28.8
Assets			1,158,193				1,157,536				1,124,191				1,131,334				1,130,311				0.1				2.5
Deposits			1,009,919				1,011,919				973,442				986,486				979,516				(0.2	)			3.1
Stockholders' equity			121,249				120,986				120,941				120,926				122,513				0.2				(1.0	)
AVERAGE BALANCE SHEET DATA
Loans		$	854,302			$	869,221			$	881,976			$	887,531			$	903,075				(1.7	)%			(5.4	)%
Securities			122,725				113,938				111,190				106,235				103,600				7.7				18.5
Earning assets			1,089,078				1,069,636				1,056,658				1,062,164				1,060,645				1.8				2.7
Assets			1,160,652				1,142,588				1,125,213				1,131,259				1,128,517				1.6				2.8
Deposits			1,013,848				994,968				976,840				982,249				978,444				1.9				3.6
Stockholders' equity			121,020				121,327				121,187				122,466				123,341				(0.3	)			(1.9	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.43	%			10.62	%			10.77	%			10.83	%			10.93	%			(19	)bp			(50	)bp
Average tangible equity to average tangible assets (1)			9.12				9.17				9.29				9.35				9.50				(6	)			(38	)
Annualized net charge-offs to average loans			1.53				2.95				2.96				1.44				1.46				(142	)			7
Allowance for credit losses to period-end loans			1.70				1.57				1.86				1.97				1.59				13				11
Allowance for credit losses to nonaccrual loans			27.81				27.31				33.74				35.83				39.26				50				(1,145	)
Allowance for credit losses to nonperforming loans (2)			18.02				16.31				22.68				21.16				21.59				171				(357	)
Nonaccrual loans to total loans			6.11				5.75				5.53				5.51				4.05				36				206
Nonaccrual loans to total assets			4.44				4.28				4.31				4.31				3.21				16				123
Nonperforming assets to total loans+other real estate and other assets owned (3)			10.43				10.65				9.04				9.82				7.74				(22	)			269
Nonperforming assets to total assets			7.66				8.02				7.12				7.72				6.16				(36	)			150

 

(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)

 

																						4Q 11				4Q 11
																						compared to				compared to
		4Q 11				3Q 11				2Q 11				1Q 11				4Q 10				3Q 11				4Q 10
INTEREST INCOME
Interest and fees on loans		$	11,649			$	12,003			$	11,896			$	12,001			$	12,958				(2.9	)%			(10.1	)%
Interest and dividends on investment securities:
Taxable			797				795				782				657				804				0.3				(0.9	)
Tax-exempt			38				38				40				38				47				-				(19.1	)
Interest on federal funds sold			1				3				5				16				13				(66.7	)			(92.3	)
Interest on deposits with other banks			46				29				12				6				7				58.6				557.1
Total interest income			12,531				12,868				12,735				12,718				13,829				(2.6	)			(9.4	)
INTEREST EXPENSE
Interest on deposits			2,673				2,720				2,769				2,833				2,937				(1.7	)			(9.0	)
Interest on short-term borrowings			15				15				13				13				15				-				-
Interest on long-term debt			6				10				11				10				11				(40.0	)			(45.5	)
Total interest expense			2,694				2,745				2,793				2,856				2,963				(1.9	)			(9.1	)
NET INTEREST INCOME			9,837				10,123				9,942				9,862				10,866				(2.8	)			(9.5	)
Provision for credit losses			4,035				3,650				5,395				6,390				4,392				10.5				(8.1	)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			5,802				6,473				4,547				3,472				6,474				(10.4	)			(10.4	)
NONINTEREST INCOME
Service charges on deposit accounts			700				697				744				704				799				0.4				(12.4	)
Trust and investment fee income			380				389				418				376				358				(2.3	)			6.1
Investment securities gains			128				354				2				79				-				(63.8	)			-
Insurance agency commissions			2,061				2,312				2,475				2,510				2,116				(10.9	)			(2.6	)
Other noninterest income			750				771				742				726				675				(2.7	)			11.1
Total noninterest income			4,019				4,523				4,381				4,395				3,948				(11.1	)			1.8
NONINTEREST EXPENSE
Salaries and wages			4,378				4,097				4,104				4,246				4,220				6.9				3.7
Employee benefits			923				878				886				1,153				893				5.1				3.4
Occupancy expense			563				585				568				596				562				(3.8	)			0.2
Furniture and equipment expense			234				262				291				272				262				(10.7	)			(10.7	)
Data processing			660				661				680				851				620				(0.2	)			6.5
Directors' fees			83				198				112				107				68				(58.1	)			22.1
Goodwill and other intangible assets impairment			-				1,344				-				-				-				(100.0	)			-
Amortization of intangible assets			126				129				128				129				129				(2.3	)			(2.3	)
Insurance agency commissions expense			285				250				357				375				339				14.0				(15.9	)
FDIC insurance premium expense			254				180				404				460				445				41.1				(42.9	)
Other noninterest expenses			1,899				2,093				1,664				1,702				1,544				(9.3	)			23.0
Total noninterest expense			9,405				10,677				9,194				9,891				9,082				(11.9	)			3.6
Income (loss) before income taxes			416				319				(266	)			(2,024	)			1,340				30.4				(69.0	)
Income tax expense (benefit)			91				225				(33	)			(941	)			490				(59.6	)			(81.4	)
NET INCOME (LOSS)		$	325			$	94			$	(233	)		$	(1,083	)		$	850				245.7				(61.8	)
Weighted average shares outstanding - basic			8,457				8,457				8,446				8,443				8,443				-				0.2
Weighted average shares outstanding - diluted			8,457				8,457				8,446				8,443				8,443				-				0.2
Basic net income (loss) per common share		$	0.04			$	0.01			$	(0.03	)		$	(0.13	)		$	0.10				300.0				(60.0	)
Diluted net income (loss) per common share			0.04				0.01				(0.03	)			(0.13	)			0.10				300.0				(60.0	)
Dividends paid per common share			0.01				0.01				0.01				0.06				0.06				-				(83.3	)

 

 

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

 

																																										Average balance
		4Q 11								3Q 11								2Q 11								1Q 11								4Q 10								4Q 11				4Q 11
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/				compared to				compared to
		balance				rate				balance				rate				balance				rate				balance				rate				balance				rate				3Q 11				4Q 10
Earning assets
Loans		$	854,302				5.42	%		$	869,221				5.49	%		$	881,976				5.43	%		$	887,531				5.50	%		$	903,075				5.71	%			(1.7	)%			(5.4	)%
Investment securities
Taxable			118,315				2.67				109,498				2.88				106,609				2.94				101,625				2.62				98,378				3.24				8.1				20.3
Tax-exempt			4,410				5.27				4,440				5.12				4,581				5.27				4,610				5.08				5,222				5.40				(0.7	)			(15.5	)
Federal funds sold			8,709				0.05				15,905				0.07				24,310				0.09				46,813				0.14				34,018				0.16				(45.2	)			(74.4	)
Interest-bearing deposits			103,342				0.18				70,572				0.16				39,182				0.12				21,585				0.12				19,952				0.12				46.4				418.0
Total earning assets			1,089,078				4.58	%			1,069,636				4.79	%			1,056,658				4.86	%			1,062,164				4.88	%			1,060,645				5.20	%			1.8				2.7
Cash and due from banks			18,728								20,414								18,327								19,316								19,867								(8.3	)			(5.7	)
Other assets			68,014								69,394								68,190								65,426								62,305								(2.0	)			9.2
Allowance for credit losses			(15,168	)							(16,856	)							(17,962	)							(15,647	)							(14,300	)							(10.0	)			6.1
Total assets		$	1,160,652							$	1,142,588							$	1,125,213							$	1,131,259							$	1,128,517								1.6				2.8
Interest-bearing liabilities
Demand deposits		$	157,657				0.19	%		$	154,685				0.20	%		$	137,775				0.22	%		$	131,628				0.22	%		$	128,592				0.22	%			1.9				22.6
Money market and savings deposits			273,906				1.07				266,871				1.03				261,869				0.97				260,841				0.93				258,713				0.84				2.6				5.9
Certificates of deposit $100,000 or more			241,810				1.46				235,362				1.63				244,805				1.67				259,179				1.70				256,167				1.77				2.7				(5.6	)
Other time deposits			201,249				1.91				204,836				1.91				206,310				2.02				208,301				2.10				208,808				2.23				(1.8	)			(3.6	)
Interest-bearing deposits			874,622				1.21				861,754				1.25				850,759				1.31				859,949				1.34				852,280				1.37				1.5				2.6
Short-term borrowings			16,421				0.37				15,640				0.37				15,020				0.36				14,165				0.37				15,381				0.39				5.0				6.8
Long-term debt			466				4.46				932				4.46				932				4.51				932				4.56				932				4.46				(50.0	)			(50.0	)
Total interest-bearing liabilities			891,509				1.20	%			878,326				1.24	%			866,711				1.29	%			875,046				1.32	%			868,593				1.35	%			1.5				2.6
Noninterest-bearing deposits			139,226								133,214								126,081								122,300								126,164								4.5				10.4
Accrued expenses and other liabilities			8,897								9,721								11,234								11,447								10,419								(8.5	)			(14.6	)
Stockholders' equity			121,020								121,327								121,187								122,466								123,341								(0.3	)			(1.9	)
Total liabilities and stockholders' equity		$	1,160,652							$	1,142,588							$	1,125,213							$	1,131,259							$	1,128,517								1.6				2.8
Net interest spread							3.38	%							3.55	%							3.57	%							3.56	%							3.85	%
Net interest margin							3.60	%							3.77	%							3.80	%							3.79	%							4.09	%

  

 

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
		4Q 11				3Q 11				2Q 11				1Q 11				4Q 10				12/31/2011				12/31/2010
The following reconciles return on average equity and return on  average tangible equity (Note 1):
Net income (loss)		$	325			$	94			$	(233	)		$	(1,083	)		$	850			$	(897	)		$	(1,667	)
Net income (loss) - annualized (A)		$	1,289			$	373			$	(935	)		$	(4,392	)		$	3,372			$	(897	)		$	(1,667	)
Net income (loss), excluding net amortization and   impairment charges of intangible assets		$	401			$	1,094			$	(155	)		$	(1,005	)		$	928			$	335			$	1,101
Net income (loss), excluding net amortization and impairment charges of intangible assets - annualized (B)		$	1,591			$	4,340			$	(622	)		$	(4,076	)		$	3,682			$	335			$	1,101
Average stockholders' equity (C)		$	121,020			$	121,327			$	121,187			$	122,466			$	123,341			$	121,496			$	125,586
Less: Average goodwill and other intangible assets			(16,732	)			(18,190	)			(18,334	)			(18,465	)			(17,877	)			(17,926	)			(20,337	)
Average tangible equity (D)		$	104,288			$	103,137			$	102,853			$	104,001			$	105,464			$	103,570			$	105,249
Return on average equity (GAAP) (A)/(C)			1.07	%			0.31	%			(0.77	)%			(3.59	)%			2.73	%			(0.74	)%			(1.33	)%
Return on average tangible equity (Non-GAAP) (B)/(D)			1.53	%			4.21	%			(0.60	)%			(3.92	)%			3.49	%			0.32	%			1.05	%
The following reconciles GAAP efficiency ratio and non-GAAP   efficiency ratio (Note 2):
Noninterest expense (E)		$	9,405			$	10,677			$	9,194			$	9,891			$	9,082			$	39,167			$	41,720
Less: Amortization of intangible assets			(126	)			(129	)			(128	)			(129	)			(129	)			(512	)			(515	)
Impairment charges			-				(1,344	)			-				-				-				(1,344	)			(3,051	)
Adjusted noninterest expense (F)		$	9,279			$	9,204			$	9,066			$	9,762			$	8,953			$	37,311			$	38,154
Taxable-equivalent net interest income (G)		$	9,889			$	10,172			$	10,001			$	9,921			$	10,932			$	39,983			$	42,904
Noninterest income (H)		$	4,019			$	4,523			$	4,381			$	4,395			$	3,948			$	17,318			$	18,041
Less: Investment securities (gains)/losses			(128	)			(354	)			(2	)			(79	)			-				(563	)			-
Other nonrecurring (gains)/losses			(56	)			-				-				-				-				(56	)			(224	)
Adjusted noninterest income (I)		$	3,835			$	4,169			$	4,379			$	4,316			$	3,948			$	16,699			$	17,817
Efficiency ratio (GAAP) (E)/(G)+(H)			67.62	%			72.66	%			63.93	%			69.09	%			61.03	%			68.35	%			68.46	%
Efficiency ratio (Non-GAAP) (F)/(G)+(I)			67.61	%			64.18	%			63.05	%			68.57	%			60.17	%			65.83	%			62.83	%
The following reconciles book value per common share and tangible   book value per common share (Note 1):
Stockholders' equity (J)		$	121,249			$	120,986			$	120,941			$	120,926			$	122,513
Less: Goodwill and other intangible assets			(16,662	)			(16,788	)			(18,261	)			(18,389	)			(18,518	)
Tangible equity (K)		$	104,587			$	104,198			$	102,680			$	102,537			$	103,995
Shares outstanding (L)			8,457				8,457				8,457				8,443				8,443
Book value per common share (GAAP) (J)/(L)		$	14.34			$	14.31			$	14.30			$	14.32			$	14.51
Tangible book value per common share (Non-GAAP) (K)/(L)		$	12.37			$	12.32			$	12.14			$	12.14			$	12.32
The following reconciles average equity to average assets and  average tangible equity to average tangible assets (Note 1):
Average stockholders' equity (M)		$	121,020			$	121,327			$	121,187			$	122,466			$	123,341			$	121,496			$	125,586
Less: Average goodwill and other intangible assets			(16,732	)			(18,190	)			(18,334	)			(18,465	)			(17,877	)			(17,926	)			(20,337	)
Average tangible equity (N)		$	104,288			$	103,137			$	102,853			$	104,001			$	105,464			$	103,570			$	105,249
Average assets (O)		$	1,160,652			$	1,142,588			$	1,125,213			$	1,131,259			$	1,128,517			$	1,139,943			$	1,136,916
Less: Average goodwill and other intangible assets			(16,732	)			(18,190	)			(18,334	)			(18,465	)			(17,877	)			(17,926	)			(20,337	)
Average tangible assets (P)		$	1,143,920			$	1,124,398			$	1,106,879			$	1,112,794			$	1,110,640			$	1,122,017			$	1,116,579
Average equity/average assets (GAAP) (M)/(O)			10.43	%			10.62	%			10.77	%			10.83	%			10.93	%			10.66	%			11.05	%
Average tangible equity/average tangible assets (Non-GAAP) (N)/(P)			9.12	%			9.17	%			9.29	%			9.35	%			9.50	%			9.23	%			9.43	%

   

 

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.