July 24, 2012 at 16:05 PM EDT
Shore Bancshares Reports Second Quarter and First-Half Results

EASTON, Md., July 24, 2012 /PRNewswire/ -- 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.

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.

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".














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.  

 

SOURCE Shore Bancshares, Inc.

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