Exhibit 99.1 

 

 

Shore Bancshares, Inc.

18 E. Dover Street

Easton, Maryland 21601

Phone 410-763-7800

 

PRESS RELEASE

 

Shore Bancshares Reports Second Quarter and First-Half Results

 

Easton, Maryland (07/24/2012) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $293 thousand or $0.03 per diluted common share for the second quarter of 2012, compared to a net loss of $3.0 million or $(0.36) per diluted common share for the first quarter of 2012, and a net loss of $233 thousand or $(0.03) per diluted common share for the second quarter of 2011. The Company reported a net loss of $2.7 million or $(0.32) per diluted common share for the first half of 2012, compared to a net loss of $1.3 million or $(0.16) per diluted common share for the first half of 2011.

 

When comparing the second quarter of 2012 to the first quarter of 2012, the primary reasons for the improved results were a decrease in the provision for credit losses of $4.8 million and a decrease in noninterest expense of $835 thousand. When comparing the second quarter of 2012 to the second quarter of 2011, the main reasons for the improved results were a decrease in the provision for credit losses of $1.9 million, which was partially offset by a decline in net interest income of $909 thousand. When comparing the first half of 2012 to the first half of 2011, the principal factors driving the difference were a decline in net interest income of $1.6 million and an increase in noninterest expense of $1.1 million.

 

“The operating environment remains tough as we are not yet seeing a meaningful upturn in the real estate related activities that drive the Delmarva economy. We continued to work diligently to resolve and dispose of problem loans, as reflected in a higher level of troubled debt restructurings this quarter,” said W. Moorhead Vermilye, chief executive officer. “The Company’s capital base remains strong and substantially above the regulatory levels to be considered well-capitalized. Our institution is both patient and resilient as we continue to ride out this unprecedented credit cycle.”

 

The Company’s return on average assets for the second quarter of 2012 was 0.10%, compared to (1.05)% and (0.08)% for the quarters ended March 31, 2012 and June 30, 2011, respectively. The return on average stockholders’ equity was 0.99% for the second quarter of 2012, compared to (10.04)% for the first quarter of 2012 and (0.77)% for the second quarter of 2011. The return on average tangible equity was 1.38% for the second quarter of 2012, compared to (11.33)% for the first quarter of 2012 and (0.60)% for the second quarter of 2011.

 

The Company’s return on average assets for the first six months of 2012 was (0.47)%, compared to (0.24)% for the first six months of 2011. The return on average stockholders’ equity was (4.59)% and (2.18)% for the first half of 2012 and 2011, respectively, while the return on average tangible equity was (5.06)% and (2.26)% for the first half of 2012 and 2011, respectively.

 

Total assets were $1.175 billion at June 30, 2012, a $17.1 million, or 1.5%, increase when compared to the $1.158 billion at the end of 2011. Total loans decreased 3.7% to $810.0 million while total earning assets increased 1.2% to $1.095 billion when compared to December 31, 2011. Total deposits increased 2.3 % to $1.033 billion while total stockholders’ equity decreased 1.5% from the end of 2011. The ratio of average equity to average assets was 10.35% and 10.80% for the first six months of 2012 and 2011, respectively, while the ratio of average tangible equity to average tangible assets was 9.05% and 9.32% for the first six 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 second quarter of 2012 was $9.0 million, a 1.8% decrease from the first quarter of 2012 and a 9.1% decrease from the same period last year. The decrease in net interest income when compared to the first quarter of 2012 and the second 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 3.36% for the second quarter of 2012, 3.42% for the first quarter of 2012 and 3.80% for the second quarter of 2011.

 

 

 

Page 2 of 11

  

The provision for credit losses was $3.5 million for the three months ended June 30, 2012. The comparable amounts were $8.4 million and $5.4 million for the three months ended March 31, 2012 and June 30, 2011, respectively. The ratio of the allowance for credit losses to period-end loans was 1.60% at June 30, 2012, compared to 1.65% at March 31, 2012 and 1.86% at June 30, 2011. Management believes that the provision for credit losses and the resulting allowance were adequate to provide for probable losses in our loan portfolio at June 30, 2012.

 

The lower level of provision for credit losses for the second quarter of 2012 when compared to the first quarter of 2012 and the second quarter of 2011 was primarily in response to loan charge-offs. Net charge-offs were $4.1 million for the second quarter of 2012, which was $5.0 million and $2.4 million less than the comparable amounts for the first quarter of 2012 and second quarter of 2011, respectively. A large portion of the loan charge-offs during the first quarter of 2012 was from one real estate loan relationship. The ratio of quarter-to-date annualized net charge-offs to average loans was 2.01% for the second quarter of 2012, 4.40% for the first quarter of 2012 and 2.96% for the second quarter of 2011. Nonperforming assets at June 30, 2012 increased $5.6 million when compared to March 31, 2012, which included a $7.2 million increase in accruing troubled debt restructurings net of a $1.4 million decline in nonaccrual loans. The change in the components of nonperforming assets reflected our continued effort to either develop concessionary workouts relating to problem loans or remove problem loans from our portfolio. Nonperforming assets at June 30, 2012 increased $20.2 million when compared to June 30, 2011, primarily due to an increase in troubled debt restructurings. The ratio of nonperforming assets to total assets was 8.53% at June 30, 2012, compared to 8.09% at March 31, 2012 and 7.12% at June 30, 2011.

 

Total noninterest income for the second quarter of 2012 remained relatively unchanged when compared to the first quarter of 2012 and increased $196 thousand, or 4.5%, when compared to the second quarter of 2011. The slightly higher amount when compared to the first quarter of 2012 was primarily the result of an increase in other noninterest income which included a $217 thousand gain on the sale of a bank branch building. The increase in other noninterest income was mainly offset by a decrease in insurance agency commissions due to the fact that contingency payments are typically received in the first quarter of the year. The increase in noninterest income during the second quarter of 2012 when compared to the second quarter of 2011 was primarily due to the $217 thousand gain on the sale of a bank branch building. This increase was partially offset by a decline in insurance agency commissions and service charges on deposit accounts which were impacted by a decrease in customer use of overdraft protection programs.

 

Total noninterest expense for the second quarter of 2012 decreased $835 thousand, or 8.0%, when compared to the first quarter of 2012, primarily due to lower employee benefits and other noninterest expenses. Other employee benefits decreased $214 thousand, mainly due to lower payroll taxes. Other noninterest expenses decreased $539 thousand mostly due to lower expenses related to other real estate owned activities ($323 thousand) and employee training ($96 thousand), primarily on the use of upgraded insurance software during the first quarter of 2012. When compared to the second quarter of 2011, total noninterest expense for the second quarter of 2012 increased $469 thousand, or 5.1%, primarily due to higher salaries and wages and other noninterest expenses. Salaries and wages increased $272 thousand, mainly due 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 increased $212 thousand, primarily due to higher expenses related to other real estate owned activities.

 

Review of Six-Month Financial Results

Net interest income for the first six months of 2012 was $18.2 million, a decrease of 8.0% when compared to the first six months of 2011. 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 3.39% for the first half of 2012 and 3.79% for the first half of 2011.

 

 

 

Page 3 of 11

 

The provisions for credit losses for the six months ended June 30, 2012 and 2011 were $11.9 million and $11.8 million, respectively. Net charge-offs were $13.1 million and $9.7 million for the six months ended June 30, 2012 and 2011, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 3.22% for the first half of 2012 and 2.20% for the first half of 2011.

 

Total noninterest income for the six months ended June 30, 2012 increased $375 thousand, or 4.3%, when compared to the same period in 2011, primarily due to higher insurance agency commissions ($110 thousand) and other noninterest income ($449 thousand). Other noninterest income included the $217 thousand gain on the sale of a bank branch building and a $96 thousand increase in rental income from other real estated owned properties. Partially offsetting the increase in noninterest income was a decline in service charges on deposit accounts.

 

Total noninterest expense for the six months ended June 30, 2012 increased $1.1 million, or 5.6%, when compared to the same period in 2011. The increase was primarily due to higher salaries and wages and other noninterest expenses which included larger expenses relating to other real estate owned activities and employee training. These expenses were partially offset by lower FDIC insurance premiums and data processing charges due to the merger of The Felton Bank into CNB during the first quarter of 2011.

 

Shore Bancshares Information

Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland’s Eastern Shore. It is the parent company of two banks, The Talbot Bank of Easton, Maryland, and CNB; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin and Associates, Inc; a wholesale insurance company, TSGIA, Inc; two insurance premium finance companies, Mubell Finance, LLC and ESFS, Inc; and a registered investment adviser firm, Wye Financial Services, LLC. Shore Bancshares, Inc. engages in the mortgage broker business under the name “Wye Mortgage Group” through a minority series investment in an unrelated Delaware limited liability company. Additional information is available at www.shbi.com.

 

Forward-Looking Statements

This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but statements about management’s beliefs, plans and objectives. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

 

For further information contact: W. Moorhead Vermilye, Chief Executive Officer, 410-763-7800

 

 

 

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

 

 

		For the Three Months Ended												For the Six Months Ended
		June 30,												June 30,
		2012				2011				Change				2012				2011				Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	9,033			$	9,942				(9.1	)%		$	18,228			$	19,804				(8.0	)%
Provision for credit losses			3,525				5,395				(34.7	)			11,895				11,785				0.9
Noninterest income			4,577				4,381				4.5				9,151				8,776				4.3
Noninterest expense			9,663				9,194				5.1				20,161				19,085				5.6
Income (loss) before income taxes			422				(266	)			258.6				(4,677	)			(2,290	)			(104.2	)
Income tax expense (benefit)			129				(33	)			490.9				(1,934	)			(974	)			(98.6	)
Net income (loss)		$	293			$	(233	)			225.8			$	(2,743	)		$	(1,316	)			(108.4	)
Return on average assets			0.10	%			(0.08	)%			18	bp			(0.47	)%			(0.24	)%			(23	)bp
Return on average equity			0.99				(0.77	)			176				(4.59	)			(2.18	)			(241	)
Return on average tangible equity (1)			1.38				(0.60	)			198				(5.06	)			(2.26	)			(280	)
Net interest margin			3.36				3.80				(44	)			3.39				3.79				(40	)
Efficiency ratio - GAAP			70.77				63.93				684				73.39				66.50				689
Efficiency ratio - Non-GAAP (1)			71.20				63.05				815				73.16				65.79				737
PER SHARE DATA
Basic net income (loss) per common share		$	0.03			$	(0.03	)			200.0	%		$	(0.32	)		$	(0.16	)			(100.0	)%
Diluted net income (loss) per common share			0.03				(0.03	)			200.0				(0.32	)			(0.16	)			(100.0	)
Dividends paid per common share			-				0.01				(100.0	)			0.01				0.07				(85.7	)
Book value per common share at period end			14.13				14.30				(1.2	)
Tangible book value per common share at period end (1)			12.18				12.14				0.3
Market value at period end			5.98				6.98				(14.3	)
Market range:
High			7.45				10.21				(27.0	)			7.45				11.11				(32.9	)
Low			5.51				6.51				(15.4	)			4.91				6.51				(24.6	)
AVERAGE BALANCE SHEET DATA
Loans		$	816,553			$	881,976				(7.4	)%		$	824,569			$	884,738				(6.8	)%
Securities			134,299				111,190				20.8				134,168				108,727				23.4
Earning assets			1,086,223				1,056,658				2.8				1,087,165				1,059,396				2.6
Assets			1,163,598				1,125,213				3.4				1,161,582				1,128,115				3.0
Deposits			1,021,130				976,840				4.5				1,016,149				979,531				3.7
Stockholders' equity			118,774				121,187				(2.0	)			120,216				121,823				(1.3	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	4,079			$	6,508				(37.3	)%		$	13,193			$	9,654				36.7	%
Nonaccrual loans		$	47,958			$	48,476				(1.1	)
Loans 90 days past due and still accruing			3,519				990				255.5
Accruing troubled debt restructurings			37,231				22,659				64.3
Total nonperforming loans			88,708				72,125				23.0
Other real estate and other assets owned, net			11,499				7,877				46.0
Total nonperforming assets		$	100,207			$	80,002				25.3
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.21	%			10.77	%			(56	)bp			10.35	%			10.80	%			(45	)bp
Average tangible equity to average tangible assets (1)			8.92				9.29				(37	)			9.05				9.32				(27	)
Annualized net charge-offs to average loans			2.01				2.96				(95	)			3.22				2.20				102
Allowance for credit losses to period-end loans			1.60				1.86				(26	)
Allowance for credit losses to nonaccrual loans			27.09				33.74				(665	)
Allowance for credit losses to nonperforming loans			14.64				22.68				(804	)
Nonaccrual loans to total loans			5.92				5.53				39
Nonaccrual loans to total assets			4.08				4.31				(23	)
Nonperforming assets to total loans+other real estate and
other assets owned			12.20				9.04				316
Nonperforming assets to total assets			8.53				7.12				141
(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)

 

														June 30, 2012				June 30, 2012
		June 30,				December 31,				June 30,				compared to				compared to
		2012				2011				2011				December 31, 2011				June 30, 2011
ASSETS
Cash and due from banks		$	23,037			$	22,986			$	21,234				0.2	%			8.5	%
Interest-bearing deposits with other banks			137,267				99,776				45,598				37.6				201.0
Federal funds sold			9,269				4,980				13,881				86.1				(33.2	)
Investments available for sale (at fair value)			133,244				129,780				106,742				2.7				24.8
Investments held to maturity			5,168				6,480				6,529				(20.2	)			(20.8	)
Loans			809,958				841,050				877,331				(3.7	)			(7.7	)
Less: allowance for credit losses			(12,990	)			(14,288	)			(16,358	)			(9.1	)			(20.6	)
Loans, net			796,968				826,762				860,973				(3.6	)			(7.4	)
Premises and equipment, net			15,398				14,662				14,377				5.0				7.1
Goodwill			12,454				12,454				13,678				-				(8.9	)
Other intangible assets, net			3,986				4,208				4,583				(5.3	)			(13.0	)
Other real estate and other assets owned, net			11,499				9,385				7,877				22.5				46.0
Other assets			27,043				26,720				28,719				1.2				(5.8	)
Total assets		$	1,175,333			$	1,158,193			$	1,124,191				1.5				4.5
LIABILITIES
Noninterest-bearing deposits		$	149,472			$	133,801			$	130,789				11.7				14.3
Interest-bearing deposits			883,231				876,118				842,653				0.8				4.8
Total deposits			1,032,703				1,009,919				973,442				2.3				6.1
Short-term borrowings			13,826				17,817				18,251				(22.4	)			(24.2	)
Accrued expenses and other liabilities			8,882				8,753				10,625				1.5				(16.4	)
Long-term debt			455				455				932				-				(51.2	)
Total liabilities			1,055,866				1,036,944				1,003,250				1.8				5.2
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			32,087				32,052				30,334				0.1				5.8
Retained earnings			87,973				90,801				90,551				(3.1	)			(2.8	)
Accumulated other comprehensive loss			(678	)			(1,689	)			(1,572	)			59.9				56.9
Total stockholders' equity			119,467				121,249				120,941				(1.5	)			(1.2	)
Total liabilities and stockholders' equity		$	1,175,333			$	1,158,193			$	1,124,191				1.5				4.5
Period-end common shares outstanding			8,457				8,457				8,457				-				-
Book value per common share		$	14.13			$	14.34			$	14.30				(1.5	)			(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 Six Months Ended
		June 30,												June 30,
		2012				2011				% Change				2012				2011				% Change
INTEREST INCOME
Interest and fees on loans		$	10,890			$	11,896				(8.5	)%		$	21,901			$	23,897				(8.4	)%
Interest and dividends on investment securities:
Taxable			707				782				(9.6	)			1,464				1,439				1.7
Tax-exempt			32				40				(20.0	)			70				78				(10.3	)
Interest on federal funds sold			2				5				(60.0	)			4				21				(81.0	)
Interest on deposits with other banks			61				12				408.3				109				18				505.6
Total interest income			11,692				12,735				(8.2	)			23,548				25,453				(7.5	)
INTEREST EXPENSE
Interest on deposits			2,643				2,769				(4.6	)			5,284				5,602				(5.7	)
Interest on short-term borrowings			11				13				(15.4	)			26				26				-
Interest on long-term debt			5				11				(54.5	)			10				21				(52.4	)
Total interest expense			2,659				2,793				(4.8	)			5,320				5,649				(5.8	)
NET INTEREST INCOME			9,033				9,942				(9.1	)			18,228				19,804				(8.0	)
Provision for credit losses			3,525				5,395				(34.7	)			11,895				11,785				0.9
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			5,508				4,547				21.1				6,333				8,019				(21.0	)
NONINTEREST INCOME
Service charges on deposit accounts			622				744				(16.4	)			1,270				1,448				(12.3	)
Trust and investment fee income			446				418				6.7				869				794				9.4
Investment securities gains			-				2				(100.0	)			-				81				(100.0	)
Insurance agency commissions			2,406				2,475				(2.8	)			5,095				4,985				2.2
Other noninterest income			1,103				742				48.7				1,917				1,468				30.6
Total noninterest income			4,577				4,381				4.5				9,151				8,776				4.3
NONINTEREST EXPENSE
Salaries and wages			4,376				4,104				6.6				8,792				8,350				5.3
Employee benefits			956				886				7.9				2,126				2,039				4.3
Occupancy expense			638				568				12.3				1,325				1,164				13.8
Furniture and equipment expense			212				291				(27.1	)			463				563				(17.8	)
Data processing			694				680				2.1				1,360				1,531				(11.2	)
Directors' fees			127				112				13.4				236				219				7.8
Amortization of intangible assets			96				128				(25.0	)			222				257				(13.6	)
Insurance agency commissions expense			344				357				(3.6	)			729				732				(0.4	)
FDIC insurance premium expense			344				404				(14.9	)			617				864				(28.6	)
Other noninterest expenses			1,876				1,664				12.7				4,291				3,366				27.5
Total noninterest expense			9,663				9,194				5.1				20,161				19,085				5.6
Income (loss) before income taxes			422				(266	)			258.6				(4,677	)			(2,290	)			(104.2	)
Income tax expense (benefit)			129				(33	)			490.9				(1,934	)			(974	)			(98.6	)
NET INCOME (LOSS)		$	293			$	(233	)			225.8			$	(2,743	)		$	(1,316	)			(108.4	)
Weighted average shares outstanding - basic			8,457				8,446				0.1				8,457				8,445				0.1
Weighted average shares outstanding - diluted			8,457				8,446				0.1				8,457				8,445				0.1
Basic net income (loss) per common share		$	0.03			$	(0.03	)			200.0			$	(0.32	)		$	(0.16	)			(100.0	)
Diluted net income (loss) per common share			0.03				(0.03	)			200.0				(0.32	)			(0.16	)			(100.0	)
Dividends paid per common share			-				0.01				(100.0	)			0.01				0.07				(85.7	)

 

 

Shore Bancshares, Inc.

Page 7 of 11

Consolidated Average Balance Sheets

(Dollars in thousands)

  

		For the Three Months Ended																For the Six Months Ended
		June 30,																June 30,
		2012								2011								2012								2011
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	816,553				5.38	%		$	881,976				5.43	%		$	824,569				5.35	%		$	884,738				5.46	%
Investment securities
Taxable			130,528				2.18				106,609				2.94				130,148				2.26				104,131				2.79
Tax-exempt			3,771				5.32				4,581				5.27				4,020				5.34				4,596				5.18
Federal funds sold			11,200				0.10				24,310				0.09				10,497				0.08				35,499				0.12
Interest-bearing deposits			124,171				0.20				39,182				0.12				117,931				0.19				30,432				0.12
Total earning assets			1,086,223				4.35	%			1,056,658				4.86	%			1,087,165				4.37	%			1,059,396				4.87	%
Cash and due from banks			21,424								18,327								19,799								18,819
Other assets			70,458								68,190								69,310								66,711
Allowance for credit losses			(14,507	)							(17,962	)							(14,692	)							(16,811	)
Total assets		$	1,163,598							$	1,125,213							$	1,161,582							$	1,128,115
Interest-bearing liabilities
Demand deposits		$	152,685				0.18	%		$	137,775				0.22	%		$	152,988				0.19	%		$	134,719				0.22	%
Money market and savings deposits (1)			276,527				1.18				261,869				0.97				277,941				1.15				261,358				0.95
Certificates of deposit $100,000 or more			242,662				1.46				244,805				1.67				241,591				1.46				251,953				1.69
Other time deposits			205,046				1.73				206,310				2.02				203,394				1.78				207,300				2.06
Interest-bearing deposits			876,920				1.21				850,759				1.31				875,914				1.21				855,330				1.32
Short-term borrowings			13,818				0.31				15,020				0.36				15,720				0.33				14,595				0.36
Long-term debt			455				4.63				932				4.51				455				4.63				932				4.53
Total interest-bearing liabilities			891,193				1.20	%			866,711				1.29	%			892,089				1.20	%			870,857				1.31	%
Noninterest-bearing deposits			144,210								126,081								140,235								124,201
Accrued expenses and other liabilities			9,421								11,234								9,042								11,234
Stockholders' equity			118,774								121,187								120,216								121,823
Total liabilities and stockholders' equity		$	1,163,598							$	1,125,213							$	1,161,582							$	1,128,115
Net interest spread							3.15	%							3.57	%							3.17	%							3.56	%
Net interest margin							3.36	%							3.80	%							3.39	%							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 $502 thousand and $299 thousand for the second quarter of 2012 and 2011, respectively, and $962 thousand and $559 thousand for the first six months of 2012 and 2011, respectively.

 

 

 

Shore Bancshares, Inc.

Page 8 of 11

Financial Highlights By Quarter

(Dollars in thousands, except per share data)

 

		2nd quarter				1st quarter				4th quarter				3rd quarter				2nd quarter				2Q 12				2Q 12
		2012				2012				2011				2011				2011				compared to				compared to
		(2Q 12)				(1Q 12)				(4Q 11)				(3Q 11)				(2Q 11)				1Q 12				2Q 11
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	9,077			$	9,243			$	9,889			$	10,172			$	10,001				(1.8	)%			(9.2	)%
Less:  Taxable-equivalent adjustment			44				48				52				49				59				(8.3	)			(25.4	)
Net interest income			9,033				9,195				9,837				10,123				9,942				(1.8	)			(9.1	)
Provision for credit losses			3,525				8,370				4,035				3,650				5,395				(57.9	)			(34.7	)
Noninterest income			4,577				4,574				4,019				4,523				4,381				0.1				4.5
Noninterest expense			9,663				10,498				9,405				10,677				9,194				(8.0	)			5.1
Income (loss) before income taxes			422				(5,099	)			416				319				(266	)			108.3				258.6
Income tax expense (benefit)			129				(2,063	)			91				225				(33	)			106.3				490.9
Net income (loss)		$	293			$	(3,036	)		$	325			$	94			$	(233	)			109.7				225.8
Return on average assets			0.10	%			(1.05	)%			0.11	%			0.03	%			(0.08	)%			115	bp			18	bp
Return on average equity			0.99				(10.04	)			1.07				0.31				(0.77	)			1,103				176
Return on average tangible equity (1)			1.38				(11.33	)			1.53				4.21				(0.60	)			1,271				198
Net interest margin			3.36				3.42				3.60				3.77				3.80				(6	)			(44	)
Efficiency ratio - GAAP			70.77				75.98				67.62				72.66				63.93				(521	)			684
Efficiency ratio - Non-GAAP (1)			71.20				75.07				67.61				64.18				63.05				(387	)			815
PER SHARE DATA
Basic net income (loss) per common share		$	0.03			$	(0.36	)		$	0.04			$	0.01			$	(0.03	)			108.3	%			200.0	%
Diluted net income (loss) per common share			0.03				(0.36	)			0.04				0.01				(0.03	)			108.3				200.0
Dividends paid per common share			-				0.01				0.01				0.01				0.01				(100.0	)			(100.0	)
Book value per common share at period end			14.13				14.02				14.34				14.31				14.30				0.8				(1.2	)
Tangible book value per common share at period end (1)			12.18				12.07				12.37				12.32				12.14				0.9				0.3
Market value at period end			5.98				7.09				5.15				4.36				6.98				(15.7	)			(14.3	)
Market range:
High			7.45				7.40				6.13				7.06				10.21				0.7				(27.0	)
Low			5.51				4.91				4.20				3.95				6.51				12.2				(15.4	)
AVERAGE BALANCE SHEET DATA
Loans		$	816,553			$	832,585			$	854,302			$	869,221			$	881,976				(1.9	)%			(7.4	)%
Securities			134,299				134,037				122,725				113,938				111,190				0.2				20.8
Earning assets			1,086,223				1,088,106				1,089,078				1,069,636				1,056,658				(0.2	)			2.8
Assets			1,163,598				1,159,566				1,160,652				1,142,588				1,125,213				0.3				3.4
Deposits			1,021,130				1,011,170				1,013,848				994,968				976,840				1.0				4.5
Stockholders' equity			118,774				121,658				121,020				121,327				121,187				(2.4	)			(2.0	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	4,079			$	9,114			$	3,287			$	6,468			$	6,508				(55.2	)%			(37.3	)%
Nonaccrual loans		$	47,958			$	49,405			$	51,370			$	49,581			$	48,476				(2.9	)			(1.1	)
Loans 90 days past due and still accruing			3,519				3,796				2,723				10,516				990				(7.3	)			255.5
Accruing troubled debt restructurings			37,231				30,010				25,208				22,929				22,659				24.1				64.3
Total nonperforming loans			88,708				83,211				79,301				83,026				72,125				6.6				23.0
Other real estate and other assets owned, net			11,499				11,418				9,385				9,865				7,877				0.7				46.0
Total nonperforming assets		$	100,207			$	94,629			$	88,686			$	92,891			$	80,002				5.9				25.3
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.21	%			10.49	%			10.43	%			10.62	%			10.77	%			(28	)bp			(56	)bp
Average tangible equity to average tangible assets (1)			8.92				9.19				9.12				9.17				9.29				(27	)			(37	)
Annualized net charge-offs to average loans			2.01				4.40				1.53				2.95				2.96				(239	)			(95	)
Allowance for credit losses to period-end loans			1.60				1.65				1.70				1.57				1.86				(5	)			(26	)
Allowance for credit losses to nonaccrual loans			27.09				27.41				27.81				27.31				33.74				(32	)			(665	)
Allowance for credit losses to nonperforming loans			14.64				16.28				18.02				16.31				22.68				(164	)			(804	)
Nonaccrual loans to total loans			5.92				6.03				6.11				5.75				5.53				(11	)			39
Nonaccrual loans to total assets			4.08				4.22				4.44				4.28				4.31				(14	)			(23	)
Nonperforming assets to total loans+other real estate and
other assets owned			12.20				11.40				10.43				10.65				9.04				80				316
Nonperforming assets to total assets			8.53				8.09				7.66				8.02				7.12				44				141

 

(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)

 

																						2Q 12				2Q 12
																						compared to				compared to
		2Q 12				1Q 12				4Q 11				3Q 11				2Q 11				1Q 12				2Q 11
INTEREST INCOME
Interest and fees on loans		$	10,890			$	11,011			$	11,649			$	12,003			$	11,896				(1.1	)%			(8.5	)%
Interest and dividends on investment securities:
Taxable			707				757				797				795				782				(6.6	)			(9.6	)
Tax-exempt			32				38				38				38				40				(15.8	)			(20.0	)
Interest on federal funds sold			2				2				1				3				5				-				(60.0	)
Interest on deposits with other banks			61				48				46				29				12				27.1				408.3
Total interest income			11,692				11,856				12,531				12,868				12,735				(1.4	)			(8.2	)
INTEREST EXPENSE
Interest on deposits			2,643				2,641				2,673				2,720				2,769				0.1				(4.6	)
Interest on short-term borrowings			11				15				15				15				13				(26.7	)			(15.4	)
Interest on long-term debt			5				5				6				10				11				-				(54.5	)
Total interest expense			2,659				2,661				2,694				2,745				2,793				(0.1	)			(4.8	)
NET INTEREST INCOME			9,033				9,195				9,837				10,123				9,942				(1.8	)			(9.1	)
Provision for credit losses			3,525				8,370				4,035				3,650				5,395				(57.9	)			(34.7	)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			5,508				825				5,802				6,473				4,547				567.6				21.1
NONINTEREST INCOME
Service charges on deposit accounts			622				648				700				697				744				(4.0	)			(16.4	)
Trust and investment fee income			446				423				380				389				418				5.4				6.7
Investment securities gains			-				-				128				354				2				-				(100.0	)
Insurance agency commissions			2,406				2,689				2,061				2,312				2,475				(10.5	)			(2.8	)
Other noninterest income			1,103				814				750				771				742				35.5				48.7
Total noninterest income			4,577				4,574				4,019				4,523				4,381				0.1				4.5
NONINTEREST EXPENSE
Salaries and wages			4,376				4,416				4,378				4,097				4,104				(0.9	)			6.6
Employee benefits			956				1,170				923				878				886				(18.3	)			7.9
Occupancy expense			638				687				563				585				568				(7.1	)			12.3
Furniture and equipment expense			212				251				234				262				291				(15.5	)			(27.1	)
Data processing			694				666				660				661				680				4.2				2.1
Directors' fees			127				109				83				198				112				16.5				13.4
Goodwill and other intangible assets impairment			-				-				-				1,344				-				-				-
Amortization of intangible assets			96				126				126				129				128				(23.8	)			(25.0	)
Insurance agency commissions expense			344				385				285				250				357				(10.6	)			(3.6	)
FDIC insurance premium expense			344				273				254				180				404				26.0				(14.9	)
Other noninterest expenses			1,876				2,415				1,899				2,093				1,664				(22.3	)			12.7
Total noninterest expense			9,663				10,498				9,405				10,677				9,194				(8.0	)			5.1
Income (loss) before income taxes			422				(5,099	)			416				319				(266	)			108.3				258.6
Income tax expense (benefit)			129				(2,063	)			91				225				(33	)			106.3				490.9
NET INCOME (LOSS)		$	293			$	(3,036	)		$	325			$	94			$	(233	)			109.7				225.8
Weighted average shares outstanding - basic			8,457				8,457				8,457				8,457				8,446				-				0.1
Weighted average shares outstanding - diluted			8,457				8,457				8,457				8,457				8,446				-				0.1
Basic net income (loss) per common share		$	0.03			$	(0.36	)		$	0.04			$	0.01			$	(0.03	)			108.3				200.0
Diluted net income (loss) per common share			0.03				(0.36	)			0.04				0.01				(0.03	)			108.3				200.0
Dividends paid per common share			-				0.01				0.01				0.01				0.01				(100.0	)			(100.0	)

 

   

Shore Bancshares, Inc.

Page 10 of 11

Consolidated Average Balance Sheets By Quarter

(Dollars in thousands)

  

																																										Average balance
																																										2Q 12				2Q 12
																																										compared to				compared to
		2Q 12								1Q 12								4Q 11								3Q 11								2Q 11								1Q 12				2Q 11
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	816,553				5.38	%		$	832,585				5.33	%		$	854,302				5.42	%		$	869,221				5.49	%		$	881,976				5.43	%			(1.9	)%			(7.4	)%
Investment securities
Taxable			130,528				2.18				129,767				2.35				118,315				2.67				109,498				2.88				106,609				2.94				0.6				22.4
Tax-exempt			3,771				5.32				4,270				5.36				4,410				5.27				4,440				5.12				4,581				5.27				(11.7	)			(17.7	)
Federal funds sold			11,200				0.10				9,794				0.06				8,709				0.05				15,905				0.07				24,310				0.09				14.4				(53.9	)
Interest-bearing deposits			124,171				0.20				111,690				0.17				103,342				0.18				70,572				0.16				39,182				0.12				11.2				216.9
Total earning assets			1,086,223				4.35	%			1,088,106				4.40	%			1,089,078				4.58	%			1,069,636				4.79	%			1,056,658				4.86	%			(0.2	)			2.8
Cash and due from banks			21,424								18,174								18,728								20,414								18,327								17.9				16.9
Other assets			70,458								68,163								68,014								69,394								68,190								3.4				3.3
Allowance for credit losses			(14,507	)							(14,877	)							(15,168	)							(16,856	)							(17,962	)							(2.5	)			(19.2	)
Total assets		$	1,163,598							$	1,159,566							$	1,160,652							$	1,142,588							$	1,125,213								0.3				3.4
Interest-bearing liabilities
Demand deposits		$	152,685				0.18	%		$	153,291				0.19	%		$	157,657				0.19	%		$	154,685				0.20	%		$	137,775				0.22	%			(0.4	)			10.8
Money market and savings deposits (1)			276,527				1.18				279,355				1.12				273,906				1.07				266,871				1.03				261,869				0.97				(1.0	)			5.6
Certificates of deposit $100,000 or more			242,662				1.46				240,521				1.46				241,810				1.46				235,362				1.63				244,805				1.67				0.9				(0.9	)
Other time deposits			205,046				1.73				201,743				1.83				201,249				1.91				204,836				1.91				206,310				2.02				1.6				(0.6	)
Interest-bearing deposits			876,920				1.21				874,910				1.21				874,622				1.21				861,754				1.25				850,759				1.31				0.2				3.1
Short-term borrowings			13,818				0.31				17,621				0.35				16,421				0.37				15,640				0.37				15,020				0.36				(21.6	)			(8.0	)
Long-term debt			455				4.63				455				4.63				466				4.46				932				4.46				932				4.51				-				(51.2	)
Total interest-bearing liabilities			891,193				1.20	%			892,986				1.20	%			891,509				1.20	%			878,326				1.24	%			866,711				1.29	%			(0.2	)			2.8
Noninterest-bearing deposits			144,210								136,260								139,226								133,214								126,081								5.8				14.4
Accrued expenses and other liabilities			9,421								8,662								8,897								9,721								11,234								8.8				(16.1	)
Stockholders' equity			118,774								121,658								121,020								121,327								121,187								(2.4	)			(2.0	)
Total liabilities and stockholders' equity		$	1,163,598							$	1,159,566							$	1,160,652							$	1,142,588							$	1,125,213								0.3				3.4
Net interest spread							3.15	%							3.20	%							3.38	%							3.55	%							3.57	%
Net interest margin							3.36	%							3.42	%							3.60	%							3.77	%							3.80	%

 

(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 $502 thousand for the second quarter of 2012, $460 thousand for the first quarter of 2012, $405 thousand for the fourth quarter of 2011, $348 thousand for the third quarter of 2011 and $299 thousand for the second 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
		2Q 12				1Q 12				4Q 11				3Q 11				2Q 11				6/30/2012				6/30/2011
The following reconciles return on average equity and return on
average tangible equity (Note 1):
Net income (loss)		$	293			$	(3,036	)		$	325			$	94			$	(233	)		$	(2,743	)		$	(1,316	)
Net income (loss) - annualized (A)		$	1,178			$	(12,211	)		$	1,289			$	373			$	(935	)		$	(5,516	)		$	(2,654	)
Net income (loss), excluding net amortization and
impairment charges of intangible assets		$	351			$	(2,960	)		$	401			$	1,094			$	(155	)		$	(2,609	)		$	(1,160	)
Net income (loss), excluding net amortization and
impairment charges of intangible assets - annualized (B)		$	1,412			$	(11,905	)		$	1,591			$	4,340			$	(622	)		$	(5,247	)		$	(2,339	)
Average stockholders' equity (C)		$	118,774			$	121,658			$	121,020			$	121,327			$	121,187			$	120,216			$	121,823
Less:  Average goodwill and other intangible assets			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(18,334	)			(16,551	)			(18,399	)
Average tangible equity (D)		$	102,277			$	105,052			$	104,288			$	103,137			$	102,853			$	103,665			$	103,424
Return on average equity (GAAP)  (A)/(C)			0.99	%			(10.04	)%			1.07	%			0.31	%			(0.77	)%			(4.59	)%			(2.18	)%
Return on average tangible equity (Non-GAAP)  (B)/(D)			1.38	%			(11.33	)%			1.53	%			4.21	%			(0.60	)%			(5.06	)%			(2.26	)%
The following reconciles GAAP efficiency ratio and non-GAAP
efficiency ratio (Note 2):
Noninterest expense (E)		$	9,663			$	10,498			$	9,405			$	10,677			$	9,194			$	20,161			$	19,085
Less:  Amortization of intangible assets			(96	)			(126	)			(126	)			(129	)			(128	)			(222	)			(257	)
Impairment charges			-				-				-				(1,344	)			-				-				-
Adjusted noninterest expense (F)		$	9,567			$	10,372			$	9,279			$	9,204			$	9,066			$	19,939			$	18,828
Taxable-equivalent net interest income (G)		$	9,077			$	9,243			$	9,889			$	10,172			$	10,001			$	18,320			$	19,922
Noninterest income (H)		$	4,577			$	4,574			$	4,019			$	4,523			$	4,381			$	9,151			$	8,776
Less:  Investment securities (gains)/losses			-				-				(128	)			(354	)			(2	)			-				(81	)
Other nonrecurring (gains)/losses			(217	)			-				(56	)			-				-				(217	)			-
Adjusted noninterest income (I)		$	4,360			$	4,574			$	3,835			$	4,169			$	4,379			$	8,934			$	8,695
Efficiency ratio (GAAP)  (E)/(G)+(H)			70.77	%			75.98	%			67.62	%			72.66	%			63.93	%			73.39	%			66.50	%
Efficiency ratio (Non-GAAP)  (F)/(G)+(I)			71.20	%			75.07	%			67.61	%			64.18	%			63.05	%			73.16	%			65.79	%
The following reconciles book value per common share and tangible
book value per common share (Note 1):
Stockholders' equity (J)		$	119,467			$	118,584			$	121,249			$	120,986			$	120,941
Less:  Goodwill and other intangible assets			(16,440	)			(16,536	)			(16,662	)			(16,788	)			(18,261	)
Tangible equity (K)		$	103,027			$	102,048			$	104,587			$	104,198			$	102,680
Shares outstanding (L)			8,457				8,457				8,457				8,457				8,457
Book value per common share (GAAP)  (J)/(L)		$	14.13			$	14.02			$	14.34			$	14.31			$	14.30
Tangible book value per common share (Non-GAAP)  (K)/(L)		$	12.18			$	12.07			$	12.37			$	12.32			$	12.14
The following reconciles average equity to average assets and
average tangible equity to average tangible assets (Note 1):
Average stockholders' equity (M)		$	118,774			$	121,658			$	121,020			$	121,327			$	121,187			$	120,216			$	121,823
Less:  Average goodwill and other intangible assets			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(18,334	)			(16,551	)			(18,399	)
Average tangible equity (N)		$	102,277			$	105,052			$	104,288			$	103,137			$	102,853			$	103,665			$	103,424
Average assets (O)		$	1,163,598			$	1,159,566			$	1,160,652			$	1,142,588			$	1,125,213			$	1,161,582			$	1,128,115
Less:  Average goodwill and other intangible assets			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(18,334	)			(16,551	)			(18,399	)
Average tangible assets (P)		$	1,147,101			$	1,142,960			$	1,143,920			$	1,124,398			$	1,106,879			$	1,145,031			$	1,109,716
Average equity/average assets (GAAP)  (M)/(O)			10.21	%			10.49	%			10.43	%			10.62	%			10.77	%			10.35	%			10.80	%
Average tangible equity/average tangible assets (Non-GAAP)  (N)/(P)			8.92	%			9.19	%			9.12	%			9.17	%			9.29	%			9.05	%			9.32	%

 

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.