EASTON, Md., Jan. 26, 2015 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $1.226 million or $0.10 per diluted common share for the fourth quarter of 2014, compared to net income of $1.262 million or $0.10 per diluted common share for the third quarter of 2014, and net income of $1.175 million or $0.14 per diluted common share for the fourth quarter of 2013. The Company reported net income of $5.05 million or $0.46 per diluted common share for fiscal year 2014, compared to a net loss of $9.6 million or $(1.14) per diluted common share for fiscal year 2013.

When comparing the fourth quarter of 2014 to the third quarter of 2014, net income remained relatively unchanged due to lower noninterest income and lower noninterest expense. When comparing the fourth quarter of 2014 to the fourth quarter of 2013, the main reasons for the slightly improved results were a decline in non-interest income and expense which related to the sale of Tri-State General Insurance Agency, LTD ("TSGIA") the Company's wholesale insurance subsidiary during the second quarter of 2014, and an increase in retail commissions of $100 thousand. When comparing fiscal year 2014 to fiscal year 2013, improved earnings were due to a decline in the provision for credit losses of $24.4 million partially offset by a decrease in net interest income of $834 thousand.

"Our regional economy is finally showing signs of stability. We are well capitalized and in a position to meet the needs of our customers and generate healthy loan growth. Cultivating new business development opportunities will be our primary focus in 2015," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer.

Balance Sheet Review
Total assets were $1.1 billion at December 31, 2014, a $46.3 million, or 4.4%, increase when compared to $1.054 billion at the end of 2013. The slightly higher amount of total assets was primarily due to proceeds from the second quarter capital raise which were primarily invested in available for sale investment securities. Such securities increased $89 million, which was partially offset by the decline in interest-bearing deposits with other banks of $41 million as well as a slight reduction in loans. Loans held for sale at December 31, 2013 were reclassified to loans during the first quarter of 2014.

Total deposits at December 31, 2014 increased $15.5 million, or 1.7%, when compared to December 31, 2013. The increase in total deposits was mainly due to an increase in noninterest-bearing deposits of $21 million as well as an increase in interest-bearing transaction accounts of $22 million, partially offset by a decline in time deposits of $25 million. Total stockholders' equity increased $37.2 million, or 36%, when compared to the end of 2013 primarily due to the stock sale in the second quarter of 2014 which resulted in $31.2 million in net proceeds. At December 31, 2014 the ratio of total equity to total assets was 12.77% and the ratio of total tangible equity to total tangible assets was 11.70%, significantly higher than the 9.80% and 8.41%, respectively, at December 31, 2013.

Review of Quarterly Financial Results
Net interest income was $8.6 million for the fourth and third quarter of 2014. Although net interest income remained flat between quarters, the average balance sheet reflects a decline in yields on loans, which was offset by higher volumes of and rates earned on investment securities and lower volumes of and rates paid on time deposits. Net interest income for the fourth quarter of 2014 increased $66 thousand over the fourth quarter of 2013. The Company's net interest margin was 3.35% for the fourth quarter of 2014, compared to 3.38% for the third quarter of 2014 and 3.49% for the fourth quarter of 2013. The decrease in net interest margin was primarily due to lower volumes of and yields earned on loans, partially offset by higher volumes of and yields earned on investment securities.

The provision for credit losses was $650 thousand for the fourth quarter of 2014, $775 thousand for the third quarter of 2014 and $474 thousand for the fourth quarter of 2013. The lower level of provision for credit losses when comparing the fourth quarter of 2014 to the third quarter of 2014 was primarily due to declines in nonperforming loans. The level of provision for credit losses increased when comparing the fourth quarter of 2014 to the fourth quarter of 2013, primarily due to a charge off on a large troubled debt restructuring (TDR) loan in the fourth quarter of 2014. Net charge-offs were $1.6 million for the fourth quarter of 2014, $1.2 million for the third quarter of 2014 and $1.1 million for the fourth quarter of 2013. The ratio of annualized net charge-offs to average loans was .88% for the fourth quarter of 2014, .70% for the third quarter of 2014 and .58% for the fourth quarter of 2013. The ratio of the allowance for credit losses to period-end loans was 1.08% at December 31, 2014, lower than the 1.22% at September 30, 2014 and 1.51% at December 31, 2013.

At December 31, 2014, nonperforming assets, excluding (TDRs), were $17.2 million, a decline of $272 thousand, or 1.6%, when compared to September 30, 2014 and a decrease of $1.4 million, or 7.7%, when compared to December 31, 2013. Additionally, accruing (TDRs) were $16.7 million at December 31, 2014, a decrease of $8.6 million, or 34%, when compared to September 30, 2014 and a decrease of $9.4 million, or 36.1% when compared to December 31, 2013. The positive trend in nonperforming assets and TDRs when comparing December 31, 2014 to both September 30, 2014 and December 31, 2013 was mainly accomplished through continued workout efforts and charge-offs over the last 12 months. At December 31, 2014 the ratio of nonperforming assets to total assets was 1.57%, lower than the 1.60% and 2.11% at September 30, 2014 and December 31, 2013, respectively. In addition, the ratio of accruing TDRs to total assets at December 31, 2014 was 1.52%, compared to 2.30% at September 30, 2014 and 2.47% at December 31, 2013, which reflects improved credit quality in the loan portfolio.

Total noninterest income for the fourth quarter of 2014 decreased $523 thousand, or 13.1%, when compared to the third quarter of 2014 and decreased $744 thousand, or 17.7 %, when compared to the fourth quarter of 2013. The decrease from the third quarter of 2014 was due to lower retail commissions which are typically higher in the first and third quarters of the Company's fiscal year, resulting in a decline of $440 thousand. The decrease from the fourth quarter of 2013 of $741 thousand was the result of the sale of Tri-State General Insurance Agency, LTD ("TSGIA"), the Company's wholesale insurance subsidiary, in June of 2014, which resulted in a loss of commission income of $849 thousand. This loss of commissions income was slightly offset by an increase in ongoing retail commissions of $108 thousand for the fourth quarter of 2014. During the fourth quarter of 2014, management made the decision to close a Talbot Bank branch in Trappe, MD in early 2015, which was part of one of the Company's wholly owned subsidiaries, resulting in an offset to noninterest income of $88 thousand relating to leasehold improvements of the branch.

Total noninterest expense for the fourth quarter of 2014 decreased $309 thousand, or 3.1%, when compared to the third quarter of 2014 and decreased $958 thousand, or 9.2%, when compared to the fourth quarter of 2013. The decrease from the third quarter of 2014 was attributed mainly to the salaries and wages line item, which decreased $384 thousand as a result of a one-time severance and related benefits payout of $400 thousand to the former Chief Executive Officer of CNB accrued in the third quarter of 2014 and a decrease in write-downs of other real estate owned of $98 thousand for the fourth quarter of 2014, which were offset by the fourth quarter accrual of bonuses and incentive awards to members of management of $180 thousand. The significant decrease when compared to the fourth quarter of 2013 was primarily due to a decline in operating expenses of $1 million as a result of the sale of TSGIA discussed above.

Review of 2014 Financial Results
Net interest income for 2014 was $34 million, a decrease of $834 thousand, or 2.4%, when compared to 2013 due to a greater decline in interest income from loans than the increase in securities interest income and decrease in interest expense combined. The decrease in interest income was primarily due to lower average balances of and yields earned on loans, partially offset by an increase in higher average balances and yields earned on investment securities and a decrease in interest expense due to lower balances of and rates paid on time deposits. The decline in the average balance of loans along with the decrease in rates resulted in the net interest margin declining to 3.43% for 2014 when compared to 3.48% for 2013.

The provision for credit losses for 2014 and 2013 were $3.4 million and $27.8 million, respectively, while net charge-offs were $6.4 million and $33.1 million, respectively. The decline in provision and charge-offs were primarily due to the sale of loans and other real estate owned by The Talbot Bank of Easton, one of the Company's wholly owned subsidiaries, which occurred in the third quarter of 2013. The ratio of annualized net charge-offs to average loans was .90% for 2014 and 4.32% 2013.

Total noninterest income for 2014 decreased $678 thousand, or 3.9%, when compared to 2013. The decrease was primarily due to the loss of wholesale insurance commissions and fees of $1.9 million from the formerly owned Tri-State General Insurance Agency mentioned above and a gain on investment securities of $913 thousand in 2013. The decreases were partially offset by increases of $493 thousand in retail commissions, the gain on sale of Tri-State of $114 thousand and increased trust and fee income of $247 thousand reduced the losses in noninterest income for 2014. In addition, during 2013, the Company incurred a loss of $1.3 million related to the termination of a cash flow hedge. As a result of the termination in 2013, no loss was incurred in 2014.

Total noninterest expense for 2014 decreased $1.3 million, or 3.3%, when compared to 2013. The decrease was primarily due to lower write-downs of other real estate owned of $660 thousand, or 50.1%, and insurance agency commission's expense of $892 thousand, or 49.6%, associated with the Tri-State Sale, which were partially offset by increases in salary and wage expense of $254 thousand, or 1.5%, data processing of $106 thousand, or 3.7%, and directors' fees of $120 thousand, or 33.9%.

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 Maryland chartered commercial 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.; and an insurance premium finance company, Mubell Finance, LLC. Shore Bancshares, Inc. engages in the trust services business through the trust department at CNB under the name "Wye Financial & Trust". Additional information is available at www.shorebancshares.com.

Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions. Although these statements reflect management's good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled "Risk Factors".

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