Shore Bancshares, Inc.

 18 E. Dover Street

Easton, Maryland 21601

 Phone 410-763-7800

 

PRESS RELEASE

 

Shore Bancshares Reports First Quarter 2013 Financial Results

 

Easton, Maryland (04/23/2013) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $222 thousand or $0.03 per diluted common share for the first quarter of 2013, compared to a net loss of $5.1 million or ($0.60) per diluted common share for the fourth quarter of 2012, and a net loss of $3.0 million or $(0.36) per diluted common share for the first quarter of 2012.

 

When comparing the first quarter of 2013 to the fourth quarter of 2012, the primary reasons for the difference in results were a $7.5 million decrease in the provision for credit losses and a $1.9 million increase in noninterest income, which were partially offset by an $806 thousand increase in noninterest expenses. The increase in noninterest income was mainly due to a $1.3 million loss incurred during the fourth quarter of 2012 to terminate the ineffective portion of an interest rate cap instrument. When comparing the first quarter of 2013 to the first quarter of 2012, the principal factors driving the difference were a $6.2 million decrease in the provision for credit losses partially offset by a $718 thousand decrease in net interest income.

 

“We are cautiously optimistic that the modest profitability we achieved during the first three months of 2013 will provide a platform on which we can continue to produce favorable results. The Delmarva economy remains quite soft with many businesses that traditionally service the real estate industry still on the sidelines or permanently out of the market,” said W. Moorhead Vermilye, chief executive officer. “The provision for credit losses was $2.2 million for the first quarter, compared to $9.7 million and $8.4 million for the three months ended December 31, 2012 and March 31, 2012, respectively, and we are encouraged that nonperforming assets this quarter declined $4.2 million compared to the linked fourth quarter. We are acutely focused on achieving ongoing progress resolving troubled assets.”

 

Balance Sheet Review

Total assets were $1.105 billion at March 31, 2013, a 6.8% decrease when compared to the $1.186 billion at the end of 2012. Total loans increased slightly to $785.8 million when compared to December 31, 2012, while total earning assets decreased 7.2% to $1.027 billion primarily due to a decline in interest-bearing deposits with other banks. Total deposits decreased 7.5% to $970.2 million mainly due to a decline in money market deposit accounts associated with the Company’s participation in the Promontory Insured Network Deposits Program (“IND Program”). In December 2012, the Company decided to partially exit the IND Program as a way to decrease its excess liquidity. Total stockholders’ equity remained relatively unchanged from the end of 2012. For the first three months of 2013, the ratio of average equity to average assets was 10.18% and the ratio of average tangible equity to average tangible assets was 8.86%, evidence that our capital levels remain well above regulatory minimums to be considered well-capitalized.

 

Page 2 of 11

 

Review of Quarterly Financial Results

Net interest income was $8.5 million for the first quarter of 2013, compared to $8.4 million for the fourth quarter of 2012 and $9.2 million for the first quarter of 2012. The increase in net interest income when compared to the fourth quarter of 2012 was primarily due to a decline in interest expense that was more than enough to offset the decline in interest income. The reduced interest expense was mainly the result of lower balances in money market and savings deposits due to partially exiting the IND Program, and lower rates paid on these deposits due to terminating a portion of the interest rate caps associated with these deposits. The decrease in net interest income when compared to the first quarter of 2012 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 3.30% for the first quarter of 2013, 3.02% for the fourth quarter of 2012 and 3.42% for the first quarter of 2012.

 

The provision for credit losses was $2.2 million for the three months ended March 31, 2013. The comparable amounts were $9.7 million and $8.4 million for the three months ended December 31, 2012 and March 31, 2012, respectively. The lower level of provision for credit losses was primarily due to a lower level of loan charge-offs and a decrease in nonaccrual loans. Net charge-offs were $2.4 million for the first quarter of 2013, $6.6 million for the fourth quarter of 2012 and $9.1 million for the first quarter of 2012. The charge offs in all three quarters were mainly real estate related loans. The ratio of quarter-to-date annualized net charge-offs to average loans was 1.25% for the first quarter of 2013, 3.29% for the fourth quarter of 2012 and 4.40% for the first quarter of 2012. The ratio of the allowance for credit losses to period-end loans was 2.00% at March 31, 2013, compared to 2.04% at December 31, 2012 and 1.65% at March 31, 2012.

 

Nonperforming assets at March 31, 2013 decreased $4.2 million when compared to December 31, 2012. This decrease included a $5.1 million decline in nonaccrual and 90 days past due and still accruing loans, net of a $707 thousand increase in other real estate owned and a $192 thousand increase in accruing troubled debt restructurings. The change in the components of nonperforming assets reflected our continued effort either to develop concessionary workouts relating to problem loans or remove problem loans from our portfolio. Nonperforming assets at March 31, 2013 decreased $1.9 million when compared to March 31, 2012. Nonaccrual and 90 days past due and still accruing loans, and other real estate owned declined in aggregate $24.4 million while troubled debt restructurings increased $22.5 million. The ratio of nonperforming assets to total assets was 8.40% at March 31, 2013, compared to 8.18% at December 31, 2012 and 8.09% at March 31, 2012.

 

Total noninterest income for the first quarter of 2013 increased $1.9 million when compared to the fourth quarter of 2012 and declined $84 thousand when compared to the first quarter of 2012. The increase when compared to the fourth quarter of 2012 was primarily a result of the previously mentioned $1.3 million loss incurred during the fourth quarter of 2012 to terminate a portion of an interest rate cap instrument. Also contributing to the increase were higher insurance agency commissions of $521 thousand, due to contingency payments which are typically received in the first quarter of each year and are based on the prior year’s performance. The decrease in noninterest income during the first quarter of 2013 when compared to the first quarter of 2012 was primarily due to lower service charges on deposit accounts ($76 thousand) and other noninterest income ($99 thousand) which was partially offset by an increase in insurance agency commissions ($124 thousand), resulting from higher contingency payments. The change in other noninterest income was mainly due to a decline in income from other real estate owned.

 

Page 3 of 11

 

Total noninterest expense for the first quarter of 2013 increased $806 thousand when compared to the fourth quarter of 2012 and remained flat when compared to the first quarter of 2012. The change from the fourth quarter of 2012 was mainly due to employee benefits which increased $211 thousand and other noninterest expenses which increased $433 thousand. Employee benefits included higher payroll taxes ($128 thousand) and group insurance costs ($87 thousand) while other noninterest expenses included higher write-downs of other real estate owned ($421 thousand).

 

Shore Bancshares Information

Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland’s Eastern Shore. It is the parent company of two banks, The Talbot Bank of Easton, Maryland, and CNB; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin and Associates, Inc; a wholesale insurance company, TSGIA, Inc; an insurance premium finance company, Mubell Finance, LLC; and a registered investment adviser firm, Wye Financial Services, LLC. 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
		March 31,
		2013				2012				Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	8,477			$	9,195				(7.8	)%
Provision for credit losses			2,150				8,370				(74.3	)
Noninterest income			4,490				4,574				(1.8	)
Noninterest expense			10,491				10,498				(0.1	)
Income (loss) before income taxes			326				(5,099	)			106.4
Income tax expense (benefit)			104				(2,063	)			105.0
Net income (loss)		$	222			$	(3,036	)			107.3
Return on average assets			0.08	%			(1.05	)%			113	bp
Return on average equity			0.79				(10.04	)			1,083
Return on average tangible equity (1)			1.11				(11.33	)			1,244
Net interest margin			3.30				3.42				(12	)
Efficiency ratio - GAAP			80.74				75.98				476
Efficiency ratio - Non-GAAP (1)			80.17				75.07				510
PER SHARE DATA
Basic net income (loss) per common share		$	0.03			$	(0.36	)			108.3	%
Diluted net income (loss) per common share			0.03				(0.36	)			108.3
Dividends paid per common share			-				0.01				(100.0	)
Book value per common share at period end			13.51				14.02				(3.6	)
Tangible book value per common share at period end (1)			11.60				12.07				(3.9	)
Market value at period end			6.79				7.09				(4.2	)
Market range:
High			6.91				7.40				(6.6	)
Low			5.20				4.91				5.9
AVERAGE BALANCE SHEET DATA
Loans		$	783,757			$	832,585				(5.9	)%
Securities			146,756				134,037				9.5
Earning assets			1,044,755				1,088,106				(4.0	)
Assets			1,122,310				1,159,566				(3.2	)
Deposits			987,325				1,011,170				(2.4	)
Stockholders' equity			114,250				121,658				(6.1	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	2,406			$	9,114				(73.6	)%
Nonaccrual loans		$	31,813			$	49,405				(35.6	)
Loans 90 days past due and still accruing			22				3,796				(99.4	)
Accruing troubled debt restructurings			52,545				30,010				75.1
Total nonperforming loans			84,380				83,211				1.4
Other real estate and other assets owned, net			8,366				11,418				(26.7	)
Total nonperforming assets		$	92,746			$	94,629				(2.0	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.18	%			10.49	%			(31	)bp
Average tangible equity to average tangible assets (1)			8.86				9.19				(33	)
Annualized net charge-offs to average loans			1.25				4.40				(315	)
Allowance for credit losses to period-end loans			2.00				1.65				35
Allowance for credit losses to nonaccrual loans			49.46				27.41				2,205
Allowance for credit losses to nonperforming loans			18.65				16.28				237
Nonaccrual loans to total loans			4.05				6.03				(198	)
Nonaccrual loans to total assets			2.88				4.22				(134	)
Nonperforming assets to total loans+other real estate and
other assets owned			11.68				11.40				28
Nonperforming assets to total assets			8.40				8.09				31
(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)
														March 31, 2013				March 31, 2013
		March 31,				December 31,				March 31,				compared to				compared to
		2013				2012				2012				December 31, 2012				March 31, 2012
ASSETS
Cash and due from banks		$	24,808			$	26,579			$	19,168				(6.7	)%			29.4
Interest-bearing deposits with other banks			94,090				164,864				130,641				(42.9	)			(28.0	)
Federal funds sold			2,789				8,750				16,190				(68.1	)			(82.8	)
Investments available for sale (at fair value)			142,238				145,508				121,093				(2.2	)			17.5
Investments held to maturity			2,594				2,657				6,056				(2.4	)			(57.2	)
Loans			785,753				785,082				819,015				0.1				(4.1	)
Less: allowance for credit losses			(15,735	)			(15,991	)			(13,544	)			(1.6	)			16.2
Loans, net			770,018				769,091				805,471				0.1				(4.4	)
Premises and equipment, net			15,502				15,593				15,243				(0.6	)			1.7
Goodwill			12,454				12,454				12,454				-				-
Other intangible assets, net			3,742				3,816				4,082				(1.9	)			(8.3	)
Other real estate and other assets owned, net			8,366				7,659				11,418				9.2				(26.7	)
Other assets			28,010				28,836				27,905				(2.9	)			0.4
Total assets		$	1,104,611			$	1,185,807			$	1,169,721				(6.8	)			(5.6	)
LIABILITIES
Noninterest-bearing deposits		$	155,412			$	153,992			$	143,800				0.9				8.1
Interest-bearing deposits			814,747				895,281				884,271				(9.0	)			(7.9	)
Total deposits			970,159				1,049,273				1,028,071				(7.5	)			(5.6	)
Short-term borrowings			11,088				13,761				13,683				(19.4	)			(19.0	)
Accrued expenses and other liabilities			9,016				8,747				8,928				3.1				1.0
Long-term debt			-				-				455				-				(100.0	)
Total liabilities			990,263				1,071,781				1,051,137				(7.6	)			(5.8	)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares			85				85				85				-				-
Additional paid in capital			32,151				32,155				32,066				-				0.3
Retained earnings			81,300				81,078				87,680				0.3				(7.3	)
Accumulated other comprehensive income (loss)			812				708				(1,247	)			14.7				165.1
Total stockholders' equity			114,348				114,026				118,584				0.3				(3.6	)
Total liabilities and stockholders' equity		$	1,104,611			$	1,185,807			$	1,169,721				(6.8	)			(5.6	)
Period-end common shares outstanding			8,461				8,457				8,457				-				-
Book value per common share		$	13.51			$	13.48			$	14.02				0.2				(3.6	)

 

 

 

 

Shore Bancshares, Inc.										Page 6 of 11
Consolidated Statements of Operations
(In thousands, except per share data)
		For the Three Months Ended
		March 31,
		2013				2012				% Change
INTEREST INCOME
Interest and fees on loans		$	9,907			$	11,011				(10.0	)%
Interest and dividends on investment securities:
Taxable			643				757				(15.1	)
Tax-exempt			5				38				(86.8	)
Interest on federal funds sold			2				2				-
Interest on deposits with other banks			50				48				4.2
Total interest income			10,607				11,856				(10.5	)
INTEREST EXPENSE
Interest on deposits			2,122				2,641				(19.7	)
Interest on short-term borrowings			8				15				(46.7	)
Interest on long-term debt			-				5				(100.0	)
Total interest expense			2,130				2,661				(20.0	)
NET INTEREST INCOME			8,477				9,195				(7.8	)
Provision for credit losses			2,150				8,370				(74.3	)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			6,327				825				666.9
NONINTEREST INCOME
Service charges on deposit accounts			572				648				(11.7	)
Trust and investment fee income			390				423				(7.8	)
Investment securities gains			-				-				-
Insurance agency commissions			2,813				2,689				4.6
Other noninterest income			715				814				(12.2	)
Total noninterest income			4,490				4,574				(1.8	)
NONINTEREST EXPENSE
Salaries and wages			4,283				4,416				(3.0	)
Employee benefits			1,134				1,170				(3.1	)
Occupancy expense			597				687				(13.1	)
Furniture and equipment expense			250				251				(0.4	)
Data processing			703				666				5.6
Directors' fees			121				109				11.0
Amortization of intangible assets			74				126				(41.3	)
Insurance agency commissions expense			461				385				19.7
FDIC insurance premium expense			366				273				34.1
Other noninterest expenses			2,502				2,415				3.6
Total noninterest expense			10,491				10,498				(0.1	)
Income (loss) before income taxes			326				(5,099	)			106.4
Income tax expense (benefit)			104				(2,063	)			105.0
NET INCOME (LOSS)		$	222			$	(3,036	)			107.3
Weighted average shares outstanding - basic			8,458				8,457				-
Weighted average shares outstanding - diluted			8,458				8,457				-
Basic net income (loss) per common share		$	0.03			$	(0.36	)			108.3
Diluted net income (loss) per common share			0.03				(0.36	)			108.3
Dividends paid per common share			-				0.01				(100.0	)

 

 

 

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

 

		For the Three Months Ended
		March 31,
		2013								2012
		Average				Yield/				Average				Yield/
		balance				rate				balance				rate
Earning assets
Loans		$	783,757				5.14	%		$	832,585				5.33	%
Investment securities
Taxable			146,176				1.78				129,767				2.35
Tax-exempt			580				4.85				4,270				5.36
Federal funds sold			8,184				0.11				9,794				0.06
Interest-bearing deposits			106,058				0.19				111,690				0.17
Total earning assets			1,044,755				4.13	%			1,088,106				4.40	%
Cash and due from banks			24,966								18,174
Other assets			69,185								68,163
Allowance for credit losses			(16,596	)							(14,877	)
Total assets		$	1,122,310							$	1,159,566
Interest-bearing liabilities
Demand deposits		$	173,714				0.17	%		$	153,291				0.19	%
Money market and savings deposits (1)			244,182				0.97				279,355				1.12
Certificates of deposit $100,000 or more			216,288				1.39				240,521				1.46
Other time deposits			201,171				1.47				201,743				1.83
Interest-bearing deposits			835,355				1.03				874,910				1.21
Short-term borrowings			11,987				0.27				17,621				0.35
Long-term debt			-				-				455				4.63
Total interest-bearing liabilities			847,342				1.02	%			892,986				1.20	%
Noninterest-bearing deposits			151,970								136,260
Accrued expenses and other liabilities			8,748								8,662
Stockholders' equity			114,250								121,658
Total liabilities and stockholders' equity		$	1,122,310							$	1,159,566
Net interest spread							3.11	%							3.20	%
Net interest margin							3.30	%							3.42	%

 

 

(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 $416 thousand and $460 thousand for the first

 

 

Shore Bancshares, Inc.

Page 8 of 11

Financial Highlights By Quarter

(Dollars in thousands, except per share data)

 

		1st quarter				4th quarter				3rd quarter				2nd quarter				1st quarter				1Q 13				1Q 13
		2013				2012				2012				2012				2012				compared to				compared to
		(1Q 13)				(4Q 12)				(3Q 12)				(2Q 12)				(1Q 12)				4Q 12				1Q 12
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	8,504			$	8,413			$	8,769			$	9,077			$	9,243				1.1	%			(8.0	)%
Less:  Taxable-equivalent adjustment			27				32				39				44				48				(15.6	)			(43.8	)
Net interest income			8,477				8,381				8,730				9,033				9,195				1.1				(7.8	)
Provision for credit losses			2,150				9,650				6,200				3,525				8,370				(77.7	)			(74.3	)
Noninterest income			4,490				2,606				4,001				4,577				4,574				72.3				(1.8	)
Noninterest expense			10,491				9,685				9,709				9,663				10,498				8.3				(0.1	)
Income (loss) before income taxes			326				(8,348	)			(3,178	)			422				(5,099	)			103.9				106.4
Income tax expense (benefit)			104				(3,274	)			(1,357	)			129				(2,063	)			103.2				105.0
Net income (loss)		$	222			$	(5,074	)		$	(1,821	)		$	293			$	(3,036	)			104.4				107.3
Return on average assets			0.08	%			(1.71	)%			(0.61	)%			0.10	%			(1.05	)%			179	bp			113	bp
Return on average equity			0.79				(17.15	)			(6.07	)			0.99				(10.04	)			1,794				1,083
Return on average tangible equity (1)			1.11				(19.73	)			(6.82	)			1.38				(11.33	)			2,084				1,244
Net interest margin			3.30				3.02				3.15				3.36				3.42				28				(12	)
Efficiency ratio - GAAP			80.74				87.89				76.03				70.77				75.98				(715	)			476
Efficiency ratio - Non-GAAP (1)			80.17				77.77				76.95				71.20				75.07				240				510
PER SHARE DATA
Basic net income (loss) per common share		$	0.03			$	(0.60	)		$	(0.22	)		$	0.03			$	(0.36	)			105.0	%			108.3	%
Diluted net income (loss) per common share			0.03				(0.60	)			(0.22	)			0.03				(0.36	)			105.0				108.3
Dividends paid per common share			-				-				-				-				0.01				-				(100.0	)
Book value per common share at period end			13.51				13.48				13.97				14.13				14.02				0.2				(3.6	)
Tangible book value per common share at period end (1)			11.60				11.56				12.04				12.18				12.07				0.3				(3.9	)
Market value at period end			6.79				5.39				6.02				5.98				7.09				26.0				(4.2	)
Market range:
High			6.91				6.98				6.33				7.45				7.40				(1.0	)			(6.6	)
Low			5.20				4.65				4.98				5.51				4.91				11.8				5.9
AVERAGE BALANCE SHEET DATA
Loans		$	783,757			$	799,512			$	808,244			$	816,553			$	832,585				(2.0	)%			(5.9	)%
Securities			146,756				144,459				137,871				134,299				134,037				1.6				9.5
Earning assets			1,044,755				1,108,585				1,108,256				1,086,223				1,088,106				(5.8	)			(4.0	)
Assets			1,122,310				1,183,135				1,184,146				1,163,598				1,159,566				(5.1	)			(3.2	)
Deposits			987,325				1,042,842				1,040,693				1,021,130				1,011,170				(5.3	)			(2.4	)
Stockholders' equity			114,250				117,700				119,321				118,774				121,658				(2.9	)			(6.1	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	2,406			$	6,614			$	6,235			$	4,079			$	9,114				(63.6	)%			(73.6	)%
Nonaccrual loans		$	31,813			$	36,474			$	39,442			$	47,958			$	49,405				(12.8	)			(35.6	)
Loans 90 days past due and still accruing			22				460				4,675				3,519				3,796				(95.2	)			(99.4	)
Accruing troubled debt restructurings			52,545				52,353				50,785				37,231				30,010				0.4				75.1
Total nonperforming loans			84,380				89,287				94,902				88,708				83,211				(5.5	)			1.4
Other real estate and other assets owned, net			8,366				7,659				8,418				11,499				11,418				9.2				(26.7	)
Total nonperforming assets		$	92,746			$	96,946			$	103,320			$	100,207			$	94,629				(4.3	)			(2.0	)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.18	%			9.95	%			10.08	%			10.21	%			10.49	%			23	bp			(31	)bp
Average tangible equity to average tangible assets (1)			8.86				8.69				8.81				8.92				9.19				17				(33	)
Annualized net charge-offs to average loans			1.25				3.29				3.07				2.01				4.40				(204	)			(315	)
Allowance for credit losses to period-end loans			2.00				2.04				1.60				1.60				1.65				(4	)			35
Allowance for credit losses to nonaccrual loans			49.46				43.84				32.85				27.09				27.41				562				2,205
Allowance for credit losses to nonperforming loans			18.65				17.91				13.65				14.64				16.28				74				237
Nonaccrual loans to total loans			4.05				4.65				4.88				5.92				6.03				(60	)			(198	)
Nonaccrual loans to total assets			2.88				3.08				3.35				4.08				4.22				(20	)			(134	)
Nonperforming assets to total loans+other real estate and
other assets owned			11.68				12.23				12.65				12.20				11.40				(55	)			28
Nonperforming assets to total assets			8.40				8.18				8.77				8.53				8.09				22				31

 

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

 

 

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

 

																						1Q 13				1Q 13
																						compared to				compared to
		1Q 13				4Q 12				3Q 12				2Q 12				1Q 12				4Q 12				1Q 12
INTEREST INCOME
Interest and fees on loans		$	9,907			$	10,193			$	10,604			$	10,890			$	11,011				(2.8	)%			(10.0	)%
Interest and dividends on investment securities:
Taxable			643				666				685				707				757				(3.5	)			(15.1	)
Tax-exempt			5				12				22				32				38				(58.3	)			(86.8	)
Interest on federal funds sold			2				3				3				2				2				(33.3	)			-
Interest on deposits with other banks			50				86				79				61				48				(41.9	)			4.2
Total interest income			10,607				10,960				11,393				11,692				11,856				(3.2	)			(10.5	)
INTEREST EXPENSE
Interest on deposits			2,122				2,570				2,647				2,643				2,641				(17.4	)			(19.7	)
Interest on short-term borrowings			8				9				10				11				15				(11.1	)			(46.7	)
Interest on long-term debt			-				-				6				5				5				-				(100.0	)
Total interest expense			2,130				2,579				2,663				2,659				2,661				(17.4	)			(20.0	)
NET INTEREST INCOME			8,477				8,381				8,730				9,033				9,195				1.1				(7.8	)
Provision for credit losses			2,150				9,650				6,200				3,525				8,370				(77.7	)			(74.3	)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			6,327				(1,269	)			2,530				5,508				825				598.6				666.9
NONINTEREST INCOME
Service charges on deposit accounts			572				653				628				622				648				(12.4	)			(11.7	)
Trust and investment fee income			390				365				410				446				423				6.8				(7.8	)
Investment securities gains			-				-				278				-				-				-				-
Insurance agency commissions			2,813				2,292				2,427				2,406				2,689				22.7				4.6
Other noninterest income			715				(704	)			258				1,103				814				201.6				(12.2	)
Total noninterest income			4,490				2,606				4,001				4,577				4,574				72.3				(1.8	)
NONINTEREST EXPENSE
Salaries and wages			4,283				4,240				4,386				4,376				4,416				1.0				(3.0	)
Employee benefits			1,134				923				945				956				1,170				22.9				(3.1	)
Occupancy expense			597				609				625				638				687				(2.0	)			(13.1	)
Furniture and equipment expense			250				235				265				212				251				6.4				(0.4	)
Data processing			703				654				703				694				666				7.5				5.6
Directors' fees			121				107				131				127				109				13.1				11.0
Amortization of intangible assets			74				74				96				96				126				-				(41.3	)
Insurance agency commissions expense			461				387				275				344				385				19.1				19.7
FDIC insurance premium expense			366				387				376				344				273				(5.4	)			34.1
Other noninterest expenses			2,502				2,069				1,907				1,876				2,415				20.9				3.6
Total noninterest expense			10,491				9,685				9,709				9,663				10,498				8.3				(0.1	)
Income (loss) before income taxes			326				(8,348	)			(3,178	)			422				(5,099	)			103.9				106.4
Income tax expense (benefit)			104				(3,274	)			(1,357	)			129				(2,063	)			103.2				105.0
NET INCOME (LOSS)		$	222			$	(5,074	)		$	(1,821	)		$	293			$	(3,036	)			104.4				107.3
Weighted average shares outstanding - basic			8,458				8,457				8,457				8,457				8,457				-				-
Weighted average shares outstanding - diluted			8,458				8,457				8,457				8,457				8,457				-				-
Basic net income (loss) per common share		$	0.03			$	(0.60	)		$	(0.22	)		$	0.03			$	(0.36	)			105.0				108.3
Diluted net income (loss) per common share			0.03				(0.60	)			(0.22	)			0.03				(0.36	)			105.0				108.3
Dividends paid per common share			-				-				-				-				0.01				-				(100.0	)

 

 

 

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

 

																																										Average balance
																																										1Q 13				1Q 13
																																										compared to				compared to
		1Q 13								4Q 12								3Q 12								2Q 12								1Q 12								4Q 12				1Q 12
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	783,757				5.14	%		$	799,512				5.09	%		$	808,244				5.23	%		$	816,553				5.38	%		$	832,585				5.33	%			(2.0	)%			(5.9	)%
Investment securities
Taxable			146,176				1.78				143,137				1.85				135,257				2.01				130,528				2.18				129,767				2.35				2.1				12.6
Tax-exempt			580				4.85				1,322				5.05				2,614				5.07				3,771				5.32				4,270				5.36				(56.1	)			(86.4	)
Federal funds sold			8,184				0.11				7,782				0.12				11,971				0.11				11,200				0.10				9,794				0.06				5.2				(16.4	)
Interest-bearing deposits			106,058				0.19				156,832				0.22				150,170				0.21				124,171				0.20				111,690				0.17				(32.4	)			(5.0	)
Total earning assets			1,044,755				4.13	%			1,108,585				3.94	%			1,108,256				4.10	%			1,086,223				4.35	%			1,088,106				4.40	%			(5.8	)			(4.0	)
Cash and due from banks			24,966								21,258								20,158								21,424								18,174								17.4				37.4
Other assets			69,185								67,596								69,921								70,458								68,163								2.4				1.5
Allowance for credit losses			(16,596	)							(14,304	)							(14,189	)							(14,507	)							(14,877	)							16.0				11.6
Total assets		$	1,122,310							$	1,183,135							$	1,184,146							$	1,163,598							$	1,159,566								(5.1	)			(3.2	)
Interest-bearing liabilities
Demand deposits		$	173,714				0.17	%		$	169,398				0.18	%		$	167,423				0.18	%		$	152,685				0.18	%		$	153,291				0.19	%			2.5				13.3
Money market and savings deposits (1)			244,182				0.97				281,593				1.21				279,003				1.19				276,527				1.18				279,355				1.12				(13.3	)			(12.6	)
Certificates of deposit $100,000 or more			216,288				1.39				231,232				1.40				238,624				1.46				242,662				1.46				240,521				1.46				(6.5	)			(10.1	)
Other time deposits			201,171				1.47				204,213				1.59				207,547				1.66				205,046				1.73				201,743				1.83				(1.5	)			(0.3	)
Interest-bearing deposits			835,355				1.03				886,436				1.15				892,597				1.18				876,920				1.21				874,910				1.21				(5.8	)			(4.5	)
Short-term borrowings			11,987				0.27				13,573				0.27				14,909				0.27				13,818				0.31				17,621				0.35				(11.7	)			(32.0	)
Long-term debt			-				-				-				-				455				4.58				455				4.63				455				4.63				-				(100.0	)
Total interest-bearing liabilities			847,342				1.02	%			900,009				1.14	%			907,961				1.17	%			891,193				1.20	%			892,986				1.20	%			(5.9	)			(5.1	)
Noninterest-bearing deposits			151,970								156,406								148,096								144,210								136,260								(2.8	)			11.5
Accrued expenses and other liabilities			8,748								9,020								8,768								9,421								8,662								(3.0	)			1.0
Stockholders' equity			114,250								117,700								119,321								118,774								121,658								(2.9	)			(6.1	)
Total liabilities and stockholders' equity		$	1,122,310							$	1,183,135							$	1,184,146							$	1,163,598							$	1,159,566								(5.1	)			(3.2	)
Net interest spread							3.11	%							2.80	%							2.93	%							3.15	%							3.20	%
Net interest margin							3.30	%							3.02	%							3.15	%							3.36	%							3.42	%

 

  

(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 $416 thousand for the first quarter of 2013, $552 thousand for the fourth quarter of 2012, $524 thousand for the third quarter of 2012, $502 thousand for the second quarter of 2012 and $460 thousand for the first quarter of 2012.

 

 

 

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
		1Q 13				4Q 12				3Q 12				2Q 12				1Q 12				12/31/2012				12/31/2011
The following reconciles return on average equity and return on
average tangible equity (Note 1):
Net income (loss)		$	222			$	(5,074	)		$	(1,821	)		$	293			$	(3,036	)		$	222			$	(897	)
Net income (loss) - annualized (A)		$	900			$	(20,186	)		$	(7,244	)		$	1,178			$	(12,211	)		$	222			$	(897	)
Net income (loss), excluding net amortization and
impairment charges of intangible assets		$	267			$	(5,029	)		$	(1,763	)		$	351			$	(2,960	)		$	267			$	101
Net income (loss), excluding net amortization and
impairment charges of intangible assets - annualized (B)		$	1,083			$	(20,007	)		$	(7,014	)		$	1,412			$	(11,905	)		$	267			$	101
Average stockholders' equity (C)		$	114,250			$	117,700			$	119,321			$	118,774			$	121,658			$	114,250			$	121,658
Less:  Average goodwill and other intangible assets			(16,242	)			(16,313	)			(16,401	)			(16,497	)			(16,606	)			(16,242	)			(17,926	)
Average tangible equity (D)		$	98,008			$	101,387			$	102,920			$	102,277			$	105,052			$	98,008			$	103,732
Return on average equity (GAAP)  (A)/(C)			0.79	%			(17.15	)%			(6.07	)%			0.99	%			(10.04	)%			0.19	%			(0.74	)%
Return on average tangible equity (Non-GAAP)  (B)/(D)			1.11	%			(19.73	)%			(6.82	)%			1.38	%			(11.33	)%			0.27	%			0.10	%
The following reconciles GAAP efficiency ratio and non-GAAP
efficiency ratio (Note 2):
Noninterest expense (E)		$	10,491			$	9,685			$	9,709			$	9,663			$	10,498			$	10,491			$	39,167
Less:  Amortization of intangible assets			(74	)			(74	)			(96	)			(96	)			(126	)			(74	)			(126	)
Impairment charges			-				-				-				-				-				-				(1,344	)
Adjusted noninterest expense (F)		$	10,417			$	9,611			$	9,613			$	9,567			$	10,372			$	10,417			$	37,697
Taxable-equivalent net interest income (G)		$	8,504			$	8,413			$	8,769			$	9,077			$	9,243			$	8,504			$	39,983
Noninterest income (H)		$	4,490			$	2,606			$	4,001			$	4,577			$	4,574			$	4,490			$	17,318
Less:  Investment securities (gains)/losses			-				-				(278	)			-				-				-				-
Other nonrecurring (gains)/losses			-				1,339				-				(217	)			-				1,122				(56	)
Adjusted noninterest income (I)		$	4,490			$	3,945			$	3,723			$	4,360			$	4,574			$	5,612			$	17,262
Efficiency ratio (GAAP)  (E)/(G)+(H)			80.74	%			87.89	%			76.03	%			70.77	%			75.98	%			80.74	%			68.35	%
Efficiency ratio (Non-GAAP)  (F)/(G)+(I)			80.17	%			77.77	%			76.95	%			71.20	%			75.07	%			73.80	%			65.85	%
The following reconciles book value per common share and tangible
book value per common share (Note 1):
Stockholders' equity (J)		$	114,348			$	114,026			$	118,163			$	119,467			$	118,584
Less:  Goodwill and other intangible assets			(16,196	)			(16,270	)			(16,344	)			(16,440	)			(16,536	)
Tangible equity (K)		$	98,152			$	97,756			$	101,819			$	103,027			$	102,048
Shares outstanding (L)			8,461				8,457				8,457				8,457				8,457
Book value per common share (GAAP)  (J)/(L)		$	13.51			$	13.48			$	13.97			$	14.13			$	14.02
Tangible book value per common share (Non-GAAP)  (K)/(L)		$	11.60			$	11.56			$	12.04			$	12.18			$	12.07
The following reconciles average equity to average assets and
average tangible equity to average tangible assets (Note 1):
Average stockholders' equity (M)		$	114,250			$	117,700			$	119,321			$	118,774			$	121,658			$	114,250			$	121,658
Less:  Average goodwill and other intangible assets			(16,242	)			(16,313	)			(16,401	)			(16,497	)			(16,606	)			(16,242	)			(17,926	)
Average tangible equity (N)t		$	98,008			$	101,387			$	102,920			$	102,277			$	105,052			$	98,008			$	103,732
Average assets (O)		$	1,122,310			$	1,183,135			$	1,184,146			$	1,163,598			$	1,159,566			$	1,122,309			$	1,159,566
Less:  Average goodwill and other intangible assets			(16,242	)			(16,313	)			(16,401	)			(16,497	)			(16,606	)			(16,242	)			(17,926	)
Average tangible assets (P)		$	1,106,068			$	1,166,822			$	1,167,745			$	1,147,101			$	1,142,960			$	1,106,067			$	1,141,640
Average equity/average assets (GAAP)  (M)/(O)			10.18	%			9.95	%			10.08	%			10.21	%			10.49	%			10.18	%			10.49	%
Average tangible equity/average tangible assets (Non-GAAP)  (N)/(P)			8.86	%			8.69	%			8.81	%			8.92	%			9.19	%			8.86	%			9.09	%

 

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.