October 23, 2012 at 20:05 PM EDT
Shore Bancshares Reports Third Quarter and Nine-Month Results

EASTON, Md., Oct. 23, 2012 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) reported a net loss of $1.8 million or $(0.22) per diluted common share for the third quarter of 2012, compared to net income of $293 thousand or $0.03 per diluted common share for the second quarter of 2012, and net income of $94 thousand or $0.01 per diluted common share for the third quarter of 2011.

The Company reported a net loss of $4.6 million or $(0.54) per diluted common share for the first nine months of 2012, compared to a net loss of $1.2 million or $(0.14) per diluted common share for the first nine months of 2011.

"As we continue to charge off problem assets, we added $6.2 million to the provision for credit losses during the third quarter.  Net charge-offs for the third quarter were $6.2 million, of which $4.2 million were attributable to two sizeable real estate loan relationships," said W. Moorhead Vermilye, chief executive officer.  "Net charge-offs during prior quarters this year were $4.1 million for the second quarter and $9.1 million for the first quarter.  Clearly, there is a very high cost involved in working our way out of troubled loans and removing them from the balance sheet, but we are moving as aggressively as possible through this tough cycle.  Fortunately, the underlying strength of the company has enabled us to maintain capital levels substantially above regulatory minimums to be considered well capitalized, as evidenced by our ratio of average equity to average assets of 10.26% for the first nine months of 2012 and the ratio of average tangible equity to average tangible assets of 8.97% for the nine-month period."

When comparing the third quarter of 2012 to the second quarter of 2012, the primary reason for the difference in results was an increase in the provision for credit losses of $2.7 million.  When comparing the third quarter of 2012 to the third quarter of 2011, the main reasons for the difference in results were an increase in the provision for credit losses of $2.6 million and a decline in net interest income of $1.4 million.  When comparing the first nine months of 2012 to the first nine months of 2011, the principal factors driving the difference were an increase in the provision for credit losses of $2.7 million and a decline in net interest income of $3.0 million.

Balance Sheet Review
Total assets were $1.179 billion at September 30, 2012, a $20.4 million, or 1.8%, increase when compared to the $1.158 billion at the end of 2011.  Total loans decreased 3.9% to $808.0 million while total earning assets increased 1.6% to $1.1 billion when compared to December 31, 2011.  Total deposits increased 2.8% to $1.039 billion while total stockholders' equity decreased 2.5% from the end of 2011.  The ratio of average equity to average assets was 10.26% and 10.74% for the first nine months of 2012 and 2011, respectively, while the ratio of average tangible equity to average tangible assets was 8.97% and 9.27% for the first nine 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 third quarter of 2012 was $8.7 million, a 3.4% decrease from the second quarter of 2012 and a 13.8% decrease from the same period last year.  The decrease in net interest income when compared to the second quarter of 2012 was primarily due to lower yields earned on average earning assets.  The decrease in net interest income when compared to the third 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 3.15% for the third quarter of 2012, 3.36% for the second quarter of 2012 and 3.77% for the third quarter of 2011.

The provision for credit losses was $6.2 million for the three months ended September 30, 2012.  The comparable amounts were $3.5 million and $3.7 million for the three months ended June 30, 2012 and September 30, 2011, respectively.  The ratio of the allowance for credit losses to period-end loans was 1.60% at both September 30, 2012 and June 30, 2012 and 1.57% at September 30, 2011. 

The higher level of provision for credit losses for the third quarter of 2012 when compared to the second quarter of 2012 and the third quarter of 2011 was primarily in response to loan charge-offs.  Net charge-offs were $6.2 million for the third quarter of 2012, $4.1 million for the second quarter of 2012 and $6.5 million for the third quarter of 2011.  A large portion of the loan charge-offs during the third quarter of 2012, $4.2 million, resulted from two real estate loan relationships.  The ratio of quarter-to-date annualized net charge-offs to average loans was 3.07% for the third quarter of 2012, 2.01% for the second quarter of 2012 and 2.95% for the third quarter of 2011.  Total nonperforming assets at September 30, 2012 increased $3.1 million when compared to June 30, 2012, which included a $13.6 million increase in accruing troubled debt restructurings net of an $8.5 million decline in nonaccrual loans and a $3.1 million decline in other real estate owned.  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 September 30, 2012 increased $10.4 million when compared to September 30, 2011, primarily due to an increase in troubled debt restructurings.  The ratio of nonperforming assets to total assets was 8.77% at September 30, 2012, compared to 8.53% at June 30, 2012 and 8.02% at September 30, 2011.

Total noninterest income for the third quarter of 2012 decreased $576 thousand, or 12.6%, when compared to the second quarter of 2012 and decreased $522 thousand, or 11.5%, when compared to the third quarter of 2011.  The lower amount when compared to the second quarter of 2012 was primarily the result of a decrease in other noninterest income ($845 thousand) partially offset by an increase in investment securities gains ($278 thousand).  Included in other noninterest income for the third quarter of 2012 was $581 thousand in losses on the sales of other real estate owned, mainly relating to two properties.  Included in other noninterest income for the second quarter of 2012 was a $217 thousand gain on the sale of a bank branch building.  The decrease in noninterest income during the third quarter of 2012 when compared to the third quarter of 2011 was primarily due to a decline in other noninterest income ($513 thousand) mainly from the $581 thousand in losses on the sales of other real estate owned.

Total noninterest expense for the third quarter of 2012 remained relatively flat when compared to the second quarter of 2012.  When compared to the third quarter of 2011, total noninterest expense for the third quarter of 2012 decreased $968 thousand, or 9.1%.  This decrease was primarily due to a decline in goodwill impairment ($1.3 million) and other noninterest expenses ($186 thousand).  During the third quarter of 2012, goodwill and other intangible assets were subjected to the annual assessment for impairment.  As a result of the assessment, it was determined that there was no impairment at the Company's subsidiaries that have these intangible assets on their balance sheets.  Included in other noninterest expenses were lower amounts related to other real estate owned activities ($250 thousand).  Partially offsetting the decrease in total noninterest expense were increases in salaries and wages ($289 thousand) and FDIC insurance premium expense ($196 thousand).

Review of Nine-Month Financial Results
Net interest income for the first nine months of 2012 was $27.0 million, a decrease of 9.9% when compared to the first nine months of 2011.  This 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 3.31% for the first nine months of 2012 and 3.79% for the first nine months of 2011.

The provisions for credit losses for the nine months ended September 30, 2012 and 2011 were $18.1 million and $15.4 million, respectively.  Net charge-offs were $19.4 million and $16.1 million for the nine months ended September 30, 2012 and 2011, respectively.  The ratio of year-to-date annualized net charge-offs to average loans was 3.17% for the first nine months of 2012 and 2.45% for the first nine months of 2011.

Total noninterest income for the nine months ended September 30, 2012 decreased $147 thousand, or 1.1%, when compared to the same period in 2011.  This decrease was primarily due to a decline in service charges on deposit accounts ($247 thousand) and investment securities gains ($157 thousand) which was partially offset by an increase in insurance agency commissions ($225 thousand).

Total noninterest expense for the nine months ended September 30, 2012 increased $108 thousand, or less than 1%, when compared to the same period in 2011.  The increase was primarily due to higher salaries and wages ($731 thousand) and other noninterest expenses ($739 thousand) which was partially offset by the $1.3 million decline in goodwill impairment.  Salaries and wages included amounts relating 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 included higher amounts relating to other real estate owned activities ($393 thousand) and collection expense for loans ($217 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; 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 Nine Months Ended



September 30,


September 30,



2012


2011

 Change


2012


2011

 Change


PROFITABILITY FOR THE PERIOD













     Net interest income

$     8,730


$    10,123


(13.8)

%

$    26,958


$    29,927


(9.9)

%

     Provision for credit losses

6,200


3,650


69.9


18,095


15,435


17.2


     Noninterest income

4,001


4,523


(11.5)


13,152


13,299


(1.1)


     Noninterest expense

9,709


10,677


(9.1)


29,870


29,762


0.4


     (Loss) income before income taxes

(3,178)


319


(1,096.2)


(7,855)


(1,971)


(298.5)


     Income tax (benefit) expense

(1,357)


225


(703.1)


(3,291)


(749)


(339.4)


     Net (loss) income 

$    (1,821)


$          94


(2,037.2)


$    (4,564)


$    (1,222)


(273.5)




























     Return on average assets 

(0.61)

%

0.03

%

(64)

bp

(0.52)

%

(0.14)

%

(38)

bp

     Return on average equity 

(6.07)


0.31


(638)


(5.08)


(1.34)


(374)


     Return on average tangible equity (1)

(6.82)


4.21


(1,103)


(5.65)


(0.09)


(556)


     Net interest margin

3.15


3.77


(62)


3.31


3.79


(48)


     Efficiency ratio - GAAP 

76.03


72.66


337


74.23


68.59


564


     Efficiency ratio - Non-GAAP (1)

76.95


64.18


1,277


74.35


65.25


910




























PER SHARE DATA













     Basic net (loss) income per common share

$      (0.22)


$       0.01


(2,300.0)

%

$      (0.54)


$      (0.14)


(285.7)

%

     Diluted net (loss) income per common share

(0.22)


0.01


(2,300.0)


(0.54)


(0.14)


(285.7)


     Dividends paid per common share

-


0.01


(100.0)


0.01


0.08


(87.5)


     Book value per common share at period end

13.97


14.31


(2.4)








     Tangible book value per common share at period end (1)

12.04


12.32


(2.3)








     Market value at period end

6.02


4.36


38.1








     Market range:













       High

6.33


7.06


(10.3)


7.45


11.11


(32.9)


       Low

4.98


3.95


26.1


4.91


3.95


24.3




























AVERAGE BALANCE SHEET DATA













     Loans

$  808,244


$  869,221


(7.0)

%

$  819,088


$  879,509


(6.9)

%

     Securities

137,871


113,938


21.0


135,411


110,482


22.6


     Earning assets

1,108,256


1,069,636


3.6


1,094,247


1,062,846


3.0


     Assets

1,184,146


1,142,588


3.6


1,169,158


1,132,964


3.2


     Deposits

1,040,693


994,968


4.6


1,024,390


984,733


4.0


     Stockholders' equity

119,321


121,327


(1.7)


119,916


121,656


(1.4)




























CREDIT QUALITY DATA AT PERIOD END













     Net charge-offs

$     6,235


$     6,468


(3.6)

%

$    19,428


$    16,122


20.5

%














     Nonaccrual loans

$    39,442


$    49,581


(20.4)








     Loans 90 days past due and still accruing

4,675


10,516


(55.5)








     Accruing troubled debt restructurings

50,785


22,929


121.5








     Total nonperforming loans

94,902


83,026


14.3








     Other real estate and other assets owned, net

8,418


9,865


(14.7)








     Total nonperforming assets

$  103,320


$    92,891


11.2


































CAPITAL AND CREDIT QUALITY RATIOS













     Average equity to average assets

10.08

%

10.62

%

(54)

bp

10.26

%

10.74

%

(48)

bp

     Average tangible equity to average tangible assets (1)

8.81


9.17


(36)


8.97


9.27


(30)


     Annualized net charge-offs to average loans

3.07


2.95


12


3.17


2.45


72


     Allowance for credit losses to period-end loans

1.60


1.57


3








     Allowance for credit losses to nonaccrual loans

32.85


27.31


554








     Allowance for credit losses to nonperforming loans

13.65


16.31


(266)








     Nonaccrual loans to total loans

4.88


5.75


(87)








     Nonaccrual loans to total assets

3.35


4.28


(93)








     Nonperforming assets to total loans+other real estate and 













         other assets owned 

12.65


10.65


200








     Nonperforming assets to total assets 

8.77


8.02


75


































(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)








































September 30, 2012


September 30, 2012



September 30,


December 31,


September 30,


compared to


compared to



2012


2011


2011


December 31, 2011


September 30, 2011


ASSETS











    Cash and due from banks

$            22,005


$          22,986


$           26,519


(4.3)

%

(17.0)

%

    Interest-bearing deposits with other banks

138,422


99,776


92,293


38.7


50.0


    Federal funds sold

23,021


4,980


9,966


362.3


131.0


    Investments available for sale (at fair value)

126,372


129,780


105,804


(2.6)


19.4


    Investments held to maturity 

4,075


6,480


6,524


(37.1)


(37.5)













    Loans

808,030


841,050


862,566


(3.9)


(6.3)


    Less: allowance for credit losses

(12,955)


(14,288)


(13,540)


(9.3)


(4.3)


    Loans, net

795,075


826,762


849,026


(3.8)


(6.4)













    Premises and equipment, net

15,537


14,662


14,236


6.0


9.1


    Goodwill

12,454


12,454


12,454


-


-


    Other intangible assets, net

3,890


4,208


4,334


(7.6)


(10.2)


    Other real estate and other assets owned, net

8,418


9,385


9,865


(10.3)


(14.7)


    Other assets

29,364


26,720


26,515


9.9


10.7













                         Total assets

$      1,178,633


$    1,158,193


$     1,157,536


1.8


1.8













LIABILITIES











    Noninterest-bearing deposits

$         156,579


$        133,801


$         135,822


17.0


15.3


    Interest-bearing deposits

881,935


876,118


876,097


0.7


0.7


                Total deposits

1,038,514


1,009,919


1,011,919


2.8


2.6













    Short-term borrowings

13,079


17,817


15,292


(26.6)


(14.5)


    Accrued expenses and other liabilities

8,422


8,753


8,407


(3.8)


0.2


    Long-term debt

455


455


932


-


(51.2)


                          Total liabilities

1,060,470


1,036,944


1,036,550


2.3


2.3













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

32,120


32,052


30,438


0.2


5.5


    Retained earnings

86,152


90,801


90,560


(5.1)


(4.9)


    Accumulated other comprehensive loss

(194)


(1,689)


(1,640)


88.5


88.2


                          Total stockholders' equity

118,163


121,249


120,986


(2.5)


(2.3)













                          Total liabilities and stockholders' equity

$      1,178,633


$    1,158,193


$     1,157,536


1.8


1.8













Period-end common shares outstanding

8,457


8,457


8,457


-


-


Book value per common share

$              13.97


$            14.34


$             14.31


(2.6)


(2.4)













 

Shore Bancshares, Inc.









Page 6 of 11


Consolidated Statements of Income











(In thousands, except per share data)


































For the Three Months Ended


For the Nine Months Ended



September 30,


September 30,



2012


2011

% Change


2012


2011

% Change


INTEREST INCOME











    Interest and fees on loans 

$ 10,604


$ 12,003

(11.7)

%

$ 32,505


$ 35,900

(9.5)

%

    Interest and dividends on investment securities:











        Taxable

685


795

(13.8)


2,149


2,234

(3.8)


        Tax-exempt 

22


38

(42.1)


92


116

(20.7)


    Interest on federal funds sold

3


3

-


7


24

(70.8)


    Interest on deposits with other banks

79


29

172.4


188


47

300.0


                   Total interest income

11,393


12,868

(11.5)


34,941


38,321

(8.8)













INTEREST EXPENSE











    Interest on deposits

2,647


2,720

(2.7)


7,931


8,322

(4.7)


    Interest on short-term borrowings

10


15

(33.3)


36


41

(12.2)


    Interest on long-term debt

6


10

(40.0)


16


31

(48.4)


                   Total interest expense

2,663


2,745

(3.0)


7,983


8,394

(4.9)













NET INTEREST INCOME

8,730


10,123

(13.8)


26,958


29,927

(9.9)


Provision for credit losses

6,200


3,650

69.9


18,095


15,435

17.2













NET INTEREST INCOME AFTER PROVISION 











  FOR CREDIT LOSSES

2,530


6,473

(60.9)


8,863


14,492

(38.8)













NONINTEREST INCOME











    Service charges on deposit accounts

628


697

(9.9)


1,898


2,145

(11.5)


    Trust and investment fee income

410


389

5.4


1,279


1,183

8.1


    Investment securities gains 

278


354

(21.5)


278


435

(36.1)


    Insurance agency commissions

2,427


2,312

5.0


7,522


7,297

3.1


    Other noninterest income

258


771

(66.5)


2,175


2,239

(2.9)


                      Total noninterest income

4,001


4,523

(11.5)


13,152


13,299

(1.1)













NONINTEREST EXPENSE











    Salaries and wages

4,386


4,097

7.1


13,178


12,447

5.9


    Employee benefits

945


878

7.6


3,071


2,917

5.3


    Occupancy expense 

625


585

6.8


1,950


1,749

11.5


    Furniture and equipment expense

265


262

1.1


728


825

(11.8)


    Data processing

703


661

6.4


2,063


2,192

(5.9)


    Directors' fees

131


198

(33.8)


367


417

(12.0)


    Goodwill and other intangible assets impairment 

-


1,344

(100.0)


-


1,344

(100.0)


    Amortization of intangible assets

96


129

(25.6)


318


386

(17.6)


    Insurance agency commissions expense

275


250

10.0


1,004


982

2.2


    FDIC insurance premium expense

376


180

108.9


993


1,044

(4.9)


    Other noninterest expenses

1,907


2,093

(8.9)


6,198


5,459

13.5


                      Total noninterest expense

9,709


10,677

(9.1)


29,870


29,762

0.4













(Loss) income before income taxes

(3,178)


319

(1,096.2)


(7,855)


(1,971)

(298.5)


Income tax (benefit) expense 

(1,357)


225

(703.1)


(3,291)


(749)

(339.4)













NET (LOSS) INCOME  

$  (1,821)


$         94

(2,037.2)


$  (4,564)


$  (1,222)

(273.5)













Weighted average shares outstanding - basic

8,457


8,457

-


8,457


8,449

0.1


Weighted average shares outstanding - diluted

8,457


8,457

-


8,457


8,449

0.1













Basic net (loss) income per common share

$    (0.22)


$      0.01

(2,300.0)


$    (0.54)


$    (0.14)

(285.7)


Diluted net (loss) income per common share

(0.22)


0.01

(2,300.0)


(0.54)


(0.14)

(285.7)


Dividends paid per common share

-


0.01

(100.0)


0.01


0.08

(87.5)


 

Shore Bancshares, Inc.















Page 7 of 11



Consolidated Average Balance Sheets


















(Dollars in thousands)























































For the Three Months Ended


For the Nine Months Ended




September 30,


September 30,




2012


2011


2012


2011




Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/




balance


rate 


balance


rate 


balance


rate


balance


rate



Earning assets


















  Loans 

$    808,244


5.23

%

$   869,221


5.49

%

$    819,088


5.31

%

$    879,509


5.47

%


  Investment securities


















   Taxable

135,257


2.01


109,498


2.88


131,863


2.18


105,939


2.82



   Tax-exempt

2,614


5.07


4,440


5.12


3,548


5.27


4,543


5.16



  Federal funds sold

11,971


0.11


15,905


0.07


10,992


0.09


28,896


0.11



  Interest-bearing deposits

150,170


0.21


70,572


0.16


128,756


0.19


43,959


0.14



    Total earning assets

1,108,256


4.10

%

1,069,636


4.79

%

1,094,247


4.28

%

1,062,846


4.84

%


Cash and due from banks

20,158




20,414




19,920




19,356





Other assets

69,921




69,394




69,514




67,588





Allowance for credit losses

(14,189)




(16,856)




(14,523)




(16,826)





Total assets

$ 1,184,146




$  1,142,588




$ 1,169,158




$ 1,132,964









































Interest-bearing liabilities


















  Demand deposits

$    167,423


0.18

%

$   154,685


0.20

%

$    157,835


0.18

%

$    141,447


0.21

%


  Money market and savings deposits (1)

279,003


1.19


266,871


1.03


278,297


1.16


263,216


0.97



  Certificates of deposit $100,000 or more

238,624


1.46


235,362


1.63


240,595


1.46


246,362


1.67



  Other time deposits

207,547


1.66


204,836


1.91


204,789


1.74


206,470


2.01



    Interest-bearing deposits

892,597


1.18


861,754


1.25


881,516


1.20


857,495


1.30



  Short-term borrowings

14,909


0.27


15,640


0.37


15,448


0.31


14,947


0.36



  Long-term debt

455


4.58


932


4.46


455


4.61


932


4.51



    Total interest-bearing liabilities

907,961


1.17

%

878,326


1.24

%

897,419


1.19

%

873,374


1.29

%


Noninterest-bearing deposits

148,096




133,214




142,874




127,238





Accrued expenses and other liabilities

8,768




9,721




8,949




10,696





Stockholders' equity

119,321




121,327




119,916




121,656





Total liabilities and stockholders' equity

$ 1,184,146




$ 1,142,588




$ 1,169,158




$ 1,132,964























Net interest spread



2.93

%



3.55

%



3.09

%



3.55

%


Net interest margin



3.15

%



3.77

%



3.31

%



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 $524 thousand and $348 thousand for the third







      quarter of 2012 and 2011, respectively, and $1.5 million and $907 thousand for the first nine months of 2012 and 2011, respectively.























 

Shore Bancshares, Inc.













Page 8 of 11


Financial Highlights By Quarter















(Dollars in thousands, except per share data)














































3rd quarter


2nd quarter


1st quarter


4th quarter


3rd quarter


3Q 12


3Q 12



2012


2012


2012


2011


2011


compared to


compared to



(3Q 12)


(2Q 12)


(1Q 12)


(4Q 11)


(3Q 11)


2Q 12


3Q 11


PROFITABILITY FOR THE PERIOD















     Taxable-equivalent net interest income

$       8,769


$       9,077


$       9,243


$       9,889


$     10,172


(3.4)

%

(13.8)

%

     Less:  Taxable-equivalent adjustment

39


44


48


52


49


(11.4)


(20.4)


     Net interest income

8,730


9,033


9,195


9,837


10,123


(3.4)


(13.8)


     Provision for credit losses

6,200


3,525


8,370


4,035


3,650


75.9


69.9


     Noninterest income

4,001


4,577


4,574


4,019


4,523


(12.6)


(11.5)


     Noninterest expense

9,709


9,663


10,498


9,405


10,677


0.5


(9.1)


     (Loss) income before income taxes

(3,178)


422


(5,099)


416


319


(853.1)


(1,096.2)


     Income tax (benefit) expense

(1,357)


129


(2,063)


91


225


(1,151.9)


(703.1)


     Net (loss) income 

$      (1,821)


$          293


$     (3,036)


$          325


$            94


(721.5)


(2,037.2)
































     Return on average assets 

(0.61)

%

0.10

%

(1.05)

%

0.11

%

0.03

%

(71)

bp

(64)

bp

     Return on average equity 

(6.07)


0.99


(10.04)


1.07


0.31


(706)


(638)


     Return on average tangible equity (1)

(6.82)


1.38


(11.33)


1.53


4.21


(820)


(1,103)


     Net interest margin

3.15


3.36


3.42


3.60


3.77


(21)


(62)


     Efficiency ratio - GAAP 

76.03


70.77


75.98


67.62


72.66


526


337


     Efficiency ratio - Non-GAAP (1)

76.95


71.20


75.07


67.61


64.18


575


1,277
































PER SHARE DATA















     Basic net (loss) income per common share

$        (0.22)


$         0.03


$        (0.36)


$         0.04


$         0.01


(833.3)

%

(2,300.0)

%

     Diluted net (loss) income per common share

(0.22)


0.03


(0.36)


0.04


0.01


(833.3)


(2,300.0)


     Dividends paid per common share

-


-


0.01


0.01


0.01


-


(100.0)


     Book value per common share at period end

13.97


14.13


14.02


14.34


14.31


(1.1)


(2.4)


     Tangible book value per common share at period end (1)

12.04


12.18


12.07


12.37


12.32


(1.1)


(2.3)


     Market value at period end

6.02


5.98


7.09


5.15


4.36


0.7


38.1


     Market range:















        High

6.33


7.45


7.40


6.13


7.06


(15.0)


(10.3)


        Low

4.98


5.51


4.91


4.20


3.95


(9.6)


26.1
































AVERAGE BALANCE SHEET DATA















     Loans

$   808,244


$  816,553


$  832,585


$  854,302


$  869,221


(1.0)

%

(7.0)

%

     Securities

137,871


134,299


134,037


122,725


113,938


2.7


21.0


     Earning assets

1,108,256


1,086,223


1,088,106


1,089,078


1,069,636


2.0


3.6


     Assets

1,184,146


1,163,598


1,159,566


1,160,652


1,142,588


1.8


3.6


     Deposits

1,040,693


1,021,130


1,011,170


1,013,848


994,968


1.9


4.6


     Stockholders' equity

119,321


118,774


121,658


121,020


121,327


0.5


(1.7)
































CREDIT QUALITY DATA AT PERIOD END















     Net charge-offs

$       6,235


$       4,079


$       9,114


$       3,287


$       6,468


52.9

%

(3.6)

%
















     Nonaccrual loans

$     39,442


$     47,958


$     49,405


$     51,370


$     49,581


(17.8)


(20.4)


     Loans 90 days past due and still accruing

4,675


3,519


3,796


2,723


10,516


32.9


(55.5)


     Accruing troubled debt restructurings

50,785


37,231


30,010


25,208


22,929


36.4


121.5


     Total nonperforming loans

94,902


88,708


83,211


79,301


83,026


7.0


14.3


     Other real estate and other assets owned, net

8,418


11,499


11,418


9,385


9,865


(26.8)


(14.7)


     Total nonperforming assets

$   103,320


$  100,207


$     94,629


$     88,686


$     92,891


3.1


11.2
































CAPITAL AND CREDIT QUALITY RATIOS















     Average equity to average assets

10.08

%

10.21

%

10.49

%

10.43

%

10.62

%

(13)

bp

(54)

bp

     Average tangible equity to average tangible assets (1)

8.81


8.92


9.19


9.12


9.17


(11)


(36)


     Annualized net charge-offs to average loans

3.07


2.01


4.40


1.53


2.95


106


12


     Allowance for credit losses to period-end loans      

1.60


1.60


1.65


1.70


1.57


-


3


     Allowance for credit losses to nonaccrual loans      

32.85


27.09


27.41


27.81


27.31


576


554


     Allowance for credit losses to nonperforming loans 

13.65


14.64


16.28


18.02


16.31


(99)


(266)


     Nonaccrual loans to total loans

4.88


5.92


6.03


6.11


5.75


(104)


(87)


     Nonaccrual loans to total assets

3.35


4.08


4.22


4.44


4.28


(73)


(93)


     Nonperforming assets to total loans+other real estate and 















         other assets owned

12.65


12.20


11.40


10.43


10.65


45


200


     Nonperforming assets to total assets 

8.77


8.53


8.09


7.66


8.02


24


75
































(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)
























































3Q 12


3Q 12













compared to


compared to



3Q 12


2Q 12


1Q 12


4Q 11


3Q 11


2Q 12


3Q 11


INTEREST INCOME















    Interest and fees on loans 

$ 10,604


$ 10,890


$ 11,011


$ 11,649


$ 12,003


(2.6)

%

(11.7)

%

    Interest and dividends on investment securities:















        Taxable

685


707


757


797


795


(3.1)


(13.8)


        Tax-exempt

22


32


38


38


38


(31.3)


(42.1)


    Interest on federal funds sold

3


2


2


1


3


50.0


-


    Interest on deposits with other banks

79


61


48


46


29


29.5


172.4


                   Total interest income

11,393


11,692


11,856


12,531


12,868


(2.6)


(11.5)

















INTEREST EXPENSE















    Interest on deposits

2,647


2,643


2,641


2,673


2,720


0.2


(2.7)


    Interest on short-term borrowings

10


11


15


15


15


(9.1)


(33.3)


    Interest on long-term debt

6


5


5


6


10


20.0


(40.0)


                   Total interest expense

2,663


2,659


2,661


2,694


2,745


0.2


(3.0)

















NET INTEREST INCOME

8,730


9,033


9,195


9,837


10,123


(3.4)


(13.8)


Provision for credit losses

6,200


3,525


8,370


4,035


3,650


75.9


69.9

















NET INTEREST INCOME AFTER PROVISION















  FOR CREDIT LOSSES

2,530


5,508


825


5,802


6,473


(54.1)


(60.9)

















NONINTEREST INCOME















    Service charges on deposit accounts

628


622


648


700


697


1.0


(9.9)


    Trust and investment fee income

410


446


423


380


389


(8.1)


5.4


    Investment securities gains 

278


-


-


128


354


-


(21.5)


    Insurance agency commissions 

2,427


2,406


2,689


2,061


2,312


0.9


5.0


    Other noninterest income

258


1,103


814


750


771


(76.6)


(66.5)


                      Total noninterest income

4,001


4,577


4,574


4,019


4,523


(12.6)


(11.5)

















NONINTEREST EXPENSE















    Salaries and wages

4,386


4,376


4,416


4,378


4,097


0.2


7.1


    Employee benefits

945


956


1,170


923


878


(1.2)


7.6


    Occupancy expense 

625


638


687


563


585


(2.0)


6.8


    Furniture and equipment expense

265


212


251


234


262


25.0


1.1


    Data processing

703


694


666


660


661


1.3


6.4


    Directors' fees

131


127


109


83


198


3.1


(33.8)


    Goodwill and other intangible assets impairment 

-


-


-


-


1,344


-


(100.0)


    Amortization of intangible assets

96


96


126


126


129


-


(25.6)


    Insurance agency commissions expense

275


344


385


285


250


(20.1)


10.0


    FDIC insurance premium expense

376


344


273


254


180


9.3


108.9


    Other noninterest expenses

1,907


1,876


2,415


1,899


2,093


1.7


(8.9)


                      Total noninterest expense

9,709


9,663


10,498


9,405


10,677


0.5


(9.1)

















(Loss) income before income taxes

(3,178)


422


(5,099)


416


319


(853.1)


(1,096.2)


Income tax (benefit) expense 

(1,357)


129


(2,063)


91


225


(1,151.9)


(703.1)

















NET (LOSS) INCOME  

$  (1,821)


$       293


$  (3,036)


$       325


$         94


(721.5)


(2,037.2)

















Weighted average shares outstanding - basic

8,457


8,457


8,457


8,457


8,457


-


-


Weighted average shares outstanding - diluted

8,457


8,457


8,457


8,457


8,457


-


-

















Basic net (loss) income per common share

$    (0.22)


$      0.03


$    (0.36)


$      0.04


$      0.01


(833.3)


(2,300.0)


Diluted net (loss) income per common share

(0.22)


0.03


(0.36)


0.04


0.01


(833.3)


(2,300.0)


Dividends paid per common share

-


-


0.01


0.01


0.01


-


(100.0)

















 

Shore Bancshares, Inc.























Page 10 of 11



Consolidated Average Balance Sheets By Quarter

























(Dollars in thousands)



































































































Average balance
























3Q 12


3Q 12
























compared to


compared to




3Q 12


2Q 12


1Q 12


4Q 11


3Q 11


2Q 12


3Q 11




Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/








balance


rate


balance


rate


balance


rate


balance


rate


balance


rate







Earning assets


























  Loans 

$     808,244


5.23

%

$     816,553


5.38

%

$     832,585


5.33

%

$     854,302


5.42

%

$     869,221


5.49

%

(1.0)

%

(7.0)

%


  Investment securities


























   Taxable

135,257


2.01


130,528


2.18


129,767


2.35


118,315


2.67


109,498


2.88


3.6


23.5



   Tax-exempt

2,614


5.07


3,771


5.32


4,270


5.36


4,410


5.27


4,440


5.12


(30.7)


(41.1)



  Federal funds sold

11,971


0.11


11,200


0.10


9,794


0.06


8,709


0.05


15,905


0.07


6.9


(24.7)



  Interest-bearing deposits

150,170


0.21


124,171


0.20


111,690


0.17


103,342


0.18


70,572


0.16


20.9


112.8



    Total earning assets

1,108,256


4.10

%

1,086,223


4.35

%

1,088,106


4.40

%

1,089,078


4.58

%

1,069,636


4.79

%

2.0


3.6



Cash and due from banks

20,158




21,424




18,174




18,728




20,414




(5.9)


(1.3)



Other assets

69,921




70,458




68,163




68,014




69,394




(0.8)


0.8



Allowance for credit losses

(14,189)




(14,507)




(14,877)




(15,168)




(16,856)




(2.2)


(15.8)



Total assets

$  1,184,146




$  1,163,598




$  1,159,566




$  1,160,652




$  1,142,588




1.8


3.6























































Interest-bearing liabilities


























  Demand deposits

$     167,423


0.18

%

$     152,685


0.18

%

$     153,291


0.19

%

$     157,657


0.19

%

$     154,685


0.20

%

9.7


8.2



  Money market and savings deposits (1)

279,003


1.19


276,527


1.18


279,355


1.12


273,906


1.07


266,871


1.03


0.9


4.5



  Certificates of deposit $100,000 or more

238,624


1.46


242,662


1.46


240,521


1.46


241,810


1.46


235,362


1.63


(1.7)


1.4



  Other time deposits

207,547


1.66


205,046


1.73


201,743


1.83


201,249


1.91


204,836


1.91


1.2


1.3



    Interest-bearing deposits

892,597


1.18


876,920


1.21


874,910


1.21


874,622


1.21


861,754


1.25


1.8


3.6



  Short-term borrowings

14,909


0.27


13,818


0.31


17,621


0.35


16,421


0.37


15,640


0.37


7.9


(4.7)



  Long-term debt

455


4.58


455


4.63


455


4.63


466


4.46


932


4.46


-


(51.2)



    Total interest-bearing liabilities

907,961


1.17

%

891,193


1.20

%

892,986


1.20

%

891,509


1.20

%

878,326


1.24

%

1.9


3.4



Noninterest-bearing deposits

148,096




144,210




136,260




139,226




133,214




2.7


11.2



Accrued expenses and other liabilities

8,768




9,421




8,662




8,897




9,721




(6.9)


(9.8)



Stockholders' equity

119,321




118,774




121,658




121,020




121,327




0.5


(1.7)



Total liabilities and stockholders' equity

$  1,184,146




$  1,163,598




$  1,159,566




$  1,160,652




$  1,142,588




1.8


3.6























































Net interest spread



2.93

%



3.15

%



3.20

%



3.38

%



3.55

%






Net interest margin



3.15

%



3.36

%



3.42

%



3.60

%



3.77

%


























































(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 $524 thousand for the third quarter of 2012, $502 thousand for the second quarter of 2012, $460 thousand for the first quarter of 2012, $405 thousand for the fourth




      quarter of 2011 and $348 thousand for the third 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




3Q 12


2Q 12


1Q 12


4Q 11


3Q 11


9/30/2012


9/30/2011



















The following reconciles return on average equity and return on
















  average tangible equity (Note 1):
































Net (loss) income  

$         (1,821)


$           293


$      (3,036)


$           325


$              94


$      (4,564)


$       (1,222)



Net (loss) income - annualized (A)

$         (7,244)


$        1,178


$    (12,211)


$        1,289


$            373


$      (6,096)


$       (1,634)



















Net (loss) income, excluding net amortization and 
















  impairment charges of intangible assets

$         (1,763)


$           351


$      (2,960)


$          401


$         1,094


$      (4,371)


$           (66)



















Net (loss) income, excluding net amortization and 
















  impairment charges of intangible assets - annualized (B)

$         (7,014)


$        1,412


$    (11,905)


$        1,591


$         4,340


$      (5,839)


$           (88)



















Average stockholders' equity (C)

$       119,321


$    118,774


$    121,658


$    121,020


$     121,327


$   119,916


$    121,656



Less:  Average goodwill and other intangible assets

(16,401)


(16,497)


(16,606)


(16,732)


(18,190)


(16,501)


(18,329)



Average tangible equity (D)

$       102,920


$    102,277


$    105,052


$    104,288


$     103,137


$   103,415


$    103,327



















Return on average equity (GAAP)  (A)/(C)

(6.07)

%

0.99

%

(10.04)

%

1.07

%

0.31

%

(5.08)

%

(1.34)

%


Return on average tangible equity (Non-GAAP)  (B)/(D)

(6.82)

%

1.38

%

(11.33)

%

1.53

%

4.21

%

(5.65)

%

(0.09)

%


































The following reconciles GAAP efficiency ratio and non-GAAP 
















  efficiency ratio (Note 2):
































Noninterest expense (E)

$          9,709


$        9,663


$      10,498


$        9,405


$       10,677


$     29,870


$      29,762



Less:  Amortization of intangible assets

(96)


(96)


(126)


(126)


(129)


(318)


(386)



          Impairment charges

-


-


-


-


(1,344)


-


(1,344)



Adjusted noninterest expense (F)

$          9,613


$        9,567


$      10,372


$        9,279


$         9,204


$     29,552


$      28,032



















Taxable-equivalent net interest income (G)

$          8,769


$        9,077


$        9,243


$        9,889


$       10,172


$     27,089


$      30,094



















Noninterest income (H)

$          4,001


$        4,577


$        4,574


$        4,019


$         4,523


$     13,152


$      13,299



Less:  Investment securities (gains)/losses

(278)


-


-


(128)


(354)


(278)


(435)



          Other nonrecurring (gains)/losses

-


(217)


-


(56)


-


(217)


-



Adjusted noninterest income (I)

$          3,723


$        4,360


$        4,574


$        3,835


$         4,169


$     12,657


$      12,864



















Efficiency ratio (GAAP)  (E)/(G)+(H) 

76.03

%

70.77

%

75.98

%

67.62

%

72.66

%

74.23

%

68.59

%


Efficiency ratio (Non-GAAP)  (F)/(G)+(I)

76.95

%

71.20

%

75.07

%

67.61

%

64.18

%

74.35

%

65.25

%


































The following reconciles book value per common share and tangible 
















  book value per common share (Note 1):
































Stockholders' equity (J)

$       118,163


$    119,467


$    118,584


$    121,249


$     120,986







Less:  Goodwill and other intangible assets

(16,344)


(16,440)


(16,536)


(16,662)


(16,788)







Tangible equity (K)

$       101,819


$    103,027


$    102,048


$    104,587


$     104,198























Shares outstanding (L)

8,457


8,457


8,457


8,457


8,457























Book value per common share (GAAP)  (J)/(L)

$          13.97


$        14.13


$        14.02


$        14.34


$         14.31







Tangible book value per common share (Non-GAAP)  (K)/(L)

$          12.04


$        12.18


$        12.07


$        12.37


$         12.32







































The following reconciles average equity to average assets and
















  average tangible equity to average tangible assets (Note 1):
































Average stockholders' equity (M)

$       119,321


$    118,774


$    121,658


$    121,020


$     121,327


$   119,916


$    121,656



Less:  Average goodwill and other intangible assets

(16,401)


(16,497)


(16,606)


(16,732)


(18,190)


(16,501)


(18,329)



Average tangible equity (N)

$       102,920


$    102,277


$    105,052


$    104,288


$     103,137


$   103,415


$    103,327



















Average assets (O)

$    1,184,146


$ 1,163,598


$ 1,159,566


$ 1,160,652


$  1,142,588


$ 1,169,158


$  1,132,964



Less:  Average goodwill and other intangible assets

(16,401)


(16,497)


(16,606)


(16,732)


(18,190)


(16,501)


(18,329)



Average tangible assets (P)

$    1,167,745


$ 1,147,101


$ 1,142,960


$ 1,143,920


$  1,124,398


$ 1,152,657


$  1,114,635



















Average equity/average assets (GAAP)  (M)/(O)

10.08

%

10.21

%

10.49

%

10.43

%

10.62

%

10.26

%

10.74

%


Average tangible equity/average tangible assets (Non-GAAP)  (N)/(P)

8.81

%

8.92

%

9.19

%

9.12

%

9.17

%

8.97

%

9.27

%


































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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