January 29, 2013 at 20:05 PM EST
Shore Bancshares Reports 2012 Results

EASTON, Md., Jan. 29, 2013 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) today reported a net loss of $5.1 million or $(0.60) per diluted common share for the fourth quarter of 2012, compared to a net loss of $1.8 million or $(0.22) per diluted common share for the third quarter of 2012, and net income of $325 thousand or $0.04 per diluted common share for the fourth quarter of 2011.  The Company reported a net loss of $9.6 million or $(1.14) per diluted common share for fiscal year 2012, compared to a net loss of $897 thousand or $(0.11) per diluted common share for fiscal year 2011.

When comparing the fourth quarter of 2012 to both the third quarter of 2012 and the fourth quarter of 2011, the primary reasons for the difference in results were an increase in the provision for credit losses and a $1.3 million loss incurred during the fourth quarter of 2012 to terminate a portion of an interest rate cap instrument.  The decline in net interest income was another primary reason for the difference in results when comparing the fourth quarter of 2012 with the fourth quarter of 2011.  When comparing fiscal year 2012 to fiscal year 2011, the principal factors driving the difference were the same as those for the quarterly results.

"We continued to make very difficult but prudent decisions during the fourth quarter that should enable us to improve our overall credit quality and permanently reduce problem loans.  In order to continue charging off nonperforming assets as rapidly as possible, we again incurred a substantial quarterly provision for credit losses.  For the three months ended December 31, 2012, the provision was $9.7 million, compared to $6.2 million and $4.0 million for the three months ended September 30, 2012 and December 31, 2011, respectively.  The fourth quarter provision is consistent with our intention to be as aggressive as possible in restoring the Company to profitability – that is our foremost priority," said W. Moorhead Vermilye, chief executive officer.

"Further, as discussed in the 'Review of Quarterly Financial Results' below, we made another tough but prudent decision to incur the cost of terminating a portion of an interest rate cap instrument.  This should produce a meaningful ongoing improvement in the net interest margin beginning in the first quarter of 2013 and continuing thereafter."

"As we have noted over the past several quarters, in our view the real estate driven economy on the Delmarva peninsula is one of a handful of the most persistently slow geographic markets in the entire country to turn around and show clear, definitive signs of recovery.  Fortunately, we have the underlying capital strength to support our efforts to work our way through many challenges which have proven insurmountable for some of our local peers and other community banks in similar suffering markets.  At year end, our total capital amounted to $114 million.  For 2012, the ratio of average equity to average assets was 10.18% while the ratio of average tangible equity to average tangible assets was 8.90%.  As evidenced by these percentages, the Company's capital levels are well above the regulatory minimums to be considered well-capitalized," said Vermilye.

Balance Sheet Review

Total assets were $1.186 billion at December 31, 2012, a 2.4% increase when compared to the $1.158 billion at the end of 2011.  Total loans decreased 6.7% to $785.1 million while total earning assets increased 2.3% to $1.107 billion when compared to December 31, 2011.  Total deposits increased 3.9% to $1.049 billion while total stockholders' equity decreased 6.0% from the end of 2011. 

Review of Quarterly Financial Results

Net interest income for the fourth quarter of 2012 was $8.4 million, a 4.0% decrease from the third quarter of 2012 and a 14.8% decrease from the same period last year.  The decrease in net interest income when compared to the third quarter of 2012 was primarily due to lower yields earned on average earning assets. The decrease in net interest income when compared to the fourth 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 3.02% for the fourth quarter of 2012, 3.15% for the third quarter of 2012 and 3.60% for the fourth quarter of 2011.

The provision for credit losses was $9.7 million for the three months ended December 31, 2012.  The comparable amounts were $6.2 million and $4.0 million for the three months ended September 30, 2012 and December 31, 2011, respectively.  The ratio of the allowance for credit losses to period-end loans increased to 2.04% at December 31, 2012, compared to 1.60% at September 30, 2012 and 1.70% at December 31, 2011. 

The level of provision for credit losses for the fourth quarter of 2012 when compared to the third quarter of 2012 and the fourth quarter of 2011 was primarily in response to loan charge-offs.  Net charge-offs were $6.6 million for the fourth quarter of 2012, $6.2 million for the third quarter of 2012 and $3.3 million for the fourth quarter of 2011.  The charge offs in all three quarters were mainly real estate related loans.  The ratio of quarter-to-date annualized net charge-offs to average loans was 3.29% for the fourth quarter of 2012, 3.07% for the third quarter of 2012 and 1.53% for the fourth quarter of 2011.  Total nonperforming assets at December 31, 2012 decreased $6.4 million when compared to September 30, 2012.  This decrease included a $7.2 million decline in nonaccrual and 90 days past due and still accruing loans, and a $759 thousand decline in other real estate owned, net of a $1.6 million increase in accruing troubled debt restructurings.  The change in the components of nonperforming assets reflected our continued effort either to develop concessionary workouts relating to problem loans or remove problem loans from our portfolio.  Nonperforming assets at December 31, 2012 increased $8.3 million when compared to December 31, 2011, primarily due to a $27.1 million increase in troubled debt restructurings net of an $18.8 million decrease in the other components of nonperforming assets.  The ratio of nonperforming assets to total assets was 8.18% at December 31, 2012, compared to 8.77% at September 30, 2012 and 7.66% at December 31, 2011.

Total noninterest income for the fourth quarter of 2012 decreased $1.4 million, or 34.9%, when compared to the third quarter of 2012.  The decrease was primarily due to a decline in both gains on sales of investment securities ($278 thousand) and other noninterest income ($962 thousand).  Included in other noninterest income for the fourth quarter of 2012 was the previously mentioned $1.3 million loss to terminate a portion of an interest rate cap instrument.  During the second quarter of 2009, the Company purchased interest rate caps for $7.1 million to effectively fix the interest rate at 2.97% for five years on $70 million of the Company's money market deposit accounts related to our participation in the Promontory Insured Network Deposits Program ("IND Program").  Deposits under the IND Program had increased to $90 million as of December 31, 2012.  In December 2012, the Company decided to partially exit the IND Program and expects that during the first quarter of 2013, the Company will reduce its deposits by approximately $50 million as a way to decrease its excess liquidity.  As such, a portion of the interest rate cap instrument used to hedge the position was terminated.  Because the interest rate caps qualified for hedge accounting, this ineffective portion of the hedge was recognized as a loss at the end of 2012.  By partially exiting the IND Program and terminating a portion of the cap instrument, the hedged money market deposit account balances associated with the interest rate caps and related interest expense are expected to decline.  The lower money market deposit account balances will reduce our excess liquidity and the lower related interest expense will benefit the net interest margin going forward.  The effects of these transactions are expected to impact the Company's financial results beginning in the first quarter of 2013. 

Total noninterest income for the fourth quarter of 2012 decreased $1.4 million, or 35.2%, when compared to the fourth quarter of 2011.  The decrease was primarily due to declines in gains on sales of investment securities ($128 thousand) and other noninterest income ($1.5 million), partially offset by an increase in   insurance agency commissions ($231 thousand).  The decrease in other noninterest income was mainly from the loss on the interest rate cap instrument.

Total noninterest expense for the fourth quarter of 2012 remained relatively flat when compared to the third quarter of 2012.  When compared to the fourth quarter of 2011, total noninterest expense for the fourth quarter of 2012 increased $280 thousand, or 3.0%, primarily due to higher expenses related to recruiting and provision for off balance sheet credit losses included in other noninterest expenses, and FDIC insurance.  

Review of 2012 Financial Results

Net interest income for 2012 was $35.3 million, a decrease of 11.1% when compared to 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 3.23% for 2012 and 3.74% for 2011.

The provisions for credit losses for 2012 and 2011 were $27.7 million and $19.5 million, respectively, while net charge-offs were $26.0 million and $19.4 million for 2012 and 2011, respectively.  The ratio of year-to-date annualized net charge-offs to average loans was 3.20% for 2012 and 2.22% for 2011.

Total noninterest income for 2012 decreased $1.6 million, or 9.0%, when compared to 2011.  The decrease was primarily due to declines in gains on sales of investment securities ($285 thousand), service charges on deposit accounts ($294 thousand) and other noninterest income ($1.5 million), partially offset by an increase in insurance agency commissions ($456 thousand).  The decrease in other noninterest income was mainly from the loss on the interest rate cap instrument discussed above.

Total noninterest expense for 2012 increased $388 thousand, or 1.0%, when compared to 2011.  The increase was primarily due to higher salaries and wages ($593 thousand) and other noninterest expenses ($909 thousand) which was largely offset by a $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 ($154 thousand), collection expense for loans ($286 thousand) and provision for off balance sheet credit losses ($216 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.  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 Twelve Months Ended



December 31,


December 31,



2012


2011

 Change


2012


2011

 Change


PROFITABILITY FOR THE PERIOD













     Net interest income

$     8,381


$     9,837


(14.8)

%

$    35,339


$    39,764


(11.1)

%

     Provision for credit losses

9,650


4,035


139.2


27,745


19,470


42.5


     Noninterest income

2,606


4,019


(35.2)


15,758


17,318


(9.0)


     Noninterest expense

9,685


9,405


3.0


39,555


39,167


1.0


     (Loss) income before income taxes

(8,348)


416


(2,106.7)


(16,203)


(1,555)


(942.0)


     Income tax (benefit) expense

(3,274)


91


(3,697.8)


(6,565)


(658)


(897.7)


     Net (loss) income 

$    (5,074)


$        325


(1,661.2)


$    (9,638)


$       (897)


(974.5)




























     Return on average assets 

(1.71)

%

0.11

%

(182)

bp

(0.82)

%

(0.08)

%

(74)

bp

     Return on average equity 

(17.15)


1.07


(1,822)


(8.07)


(0.74)


(733)


     Return on average tangible equity (1)

(19.73)


1.53


(2,126)


(9.14)


0.32


(946)


     Net interest margin

3.02


3.60


(58)


3.23


3.74


(51)


     Efficiency ratio - GAAP 

87.89


67.62


2,027


77.17


68.35


882


     Efficiency ratio - Non-GAAP (1)

77.77


67.61


1,016


75.16


65.83


933




























PER SHARE DATA













     Basic net (loss) income per common share

$      (0.60)


$       0.04


(1,600.0)

%

$      (1.14)


$      (0.11)


(936.4)

%

     Diluted net (loss) income per common share

(0.60)


0.04


(1,600.0)


(1.14)


(0.11)


(936.4)


     Dividends paid per common share

-


0.01


(100.0)


0.01


0.09


(88.9)


     Book value per common share at period end

13.48


14.34


(6.0)








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

11.56


12.37


(6.5)








     Market value at period end

5.39


5.15


4.7








     Market range:













       High

6.98


6.13


13.9


7.45


11.11


(32.9)


       Low

4.65


4.20


10.7


4.65


3.95


17.7




























AVERAGE BALANCE SHEET DATA













     Loans

$  799,512


$  854,302


(6.4)

%

$  814,167


$  873,155


(6.8)

%

     Securities

144,459


122,725


17.7


137,686


113,568


21.2


     Earning assets

1,108,585


1,089,078


1.8


1,097,851


1,069,458


2.7


     Assets

1,183,135


1,160,652


1.9


1,172,452


1,139,943


2.9


     Deposits

1,042,842


1,013,848


2.9


1,028,809


992,071


3.7


     Stockholders' equity

117,700


121,020


(2.7)


119,359


121,496


(1.8)




























CREDIT QUALITY DATA AT PERIOD END













     Net charge-offs

$     6,614


$     3,287


101.2

%

$    26,042


$    19,409


34.2

%














     Nonaccrual loans

$    36,474


$    51,370


(29.0)








     Loans 90 days past due and still accruing

460


2,723


(83.1)








     Accruing troubled debt restructurings

52,353


25,208


107.7








     Total nonperforming loans

89,287


79,301


12.6








     Other real estate and other assets owned, net

7,659


9,385


(18.4)








     Total nonperforming assets

$    96,946


$    88,686


9.3


































CAPITAL AND CREDIT QUALITY RATIOS













     Average equity to average assets

9.95

%

10.43

%

(48)

bp

10.18

%

10.66

%

(48)

bp

     Average tangible equity to average tangible assets (1)

8.69


9.12


(43)


8.90


9.23


(33)


     Annualized net charge-offs to average loans

3.29


1.53


176


3.20


2.22


98


     Allowance for credit losses to period-end loans

2.04


1.70


34








     Allowance for credit losses to nonaccrual loans

43.84


27.81


1,603








     Allowance for credit losses to nonperforming loans

17.91


18.02


(11)








     Nonaccrual loans to total loans

4.65


6.11


(146)








     Nonaccrual loans to total assets

3.08


4.44


(136)








     Nonperforming assets to total loans+other real estate and 













         other assets owned 

12.23


10.43


180








     Nonperforming assets to total assets 

8.18


7.66


52


































(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)


























December 31, 2012



December 31,


December 31,


compared to



2012


2011


December 31, 2011


ASSETS







    Cash and due from banks

$          26,579


$          22,986


15.6

%

    Interest-bearing deposits with other banks

164,864


99,776


65.2


    Federal funds sold

8,750


4,980


75.7


    Investments available for sale (at fair value)

145,508


129,780


12.1


    Investments held to maturity 

2,657


6,480


(59.0)









    Loans

785,082


841,050


(6.7)


    Less: allowance for credit losses

(15,991)


(14,288)


11.9


    Loans, net

769,091


826,762


(7.0)









    Premises and equipment, net

15,593


14,662


6.3


    Goodwill

12,454


12,454


-


    Other intangible assets, net

3,816


4,208


(9.3)


    Other real estate and other assets owned, net

7,659


9,385


(18.4)


    Other assets

28,836


26,720


7.9









                         Total assets

$    1,185,807


$    1,158,193


2.4









LIABILITIES







    Noninterest-bearing deposits

$        153,992


$       133,801


15.1


    Interest-bearing deposits

895,281


876,118


2.2


                Total deposits

1,049,273


1,009,919


3.9









    Short-term borrowings

13,761


17,817


(22.8)


    Accrued expenses and other liabilities

8,747


8,753


(0.1)


    Long-term debt

-


455


(100.0)


                          Total liabilities

1,071,781


1,036,944


3.4









STOCKHOLDERS' EQUITY







    Common stock, par value $0.01; authorized  35,000,000 shares

85


85


-


    Additional paid in capital

32,155


32,052


0.3


    Retained earnings

81,078


90,801


(10.7)


    Accumulated other comprehensive income (loss)

708


(1,689)


141.9


                          Total stockholders' equity

114,026


121,249


(6.0)









                          Total liabilities and stockholders' equity

$    1,185,807


$    1,158,193


2.4









Period-end common shares outstanding

8,457


8,457


-


Book value per common share

$            13.48


$            14.34


(6.0)


  

Shore Bancshares, Inc.









Page 6 of 11

Consolidated Statements of Income











(In thousands, except per share data)


































For the Three Months Ended


For the Twelve Months Ended



December 31,


December 31,



2012


2011

% Change


2012


2011

% Change


INTEREST INCOME











    Interest and fees on loans 

$ 10,193


$ 11,649

(12.5)

%

$ 42,698


$ 47,549

(10.2)

%

    Interest and dividends on investment securities:











        Taxable

666


797

(16.4)


2,815


3,031

(7.1)


        Tax-exempt 

12


38

(68.4)


104


154

(32.5)


    Interest on federal funds sold

3


1

200.0


10


25

(60.0)


    Interest on deposits with other banks

86


46

87.0


274


93

194.6


                   Total interest income

10,960


12,531

(12.5)


45,901


50,852

(9.7)













INTEREST EXPENSE











    Interest on deposits

2,570


2,673

(3.9)


10,501


10,995

(4.5)


    Interest on short-term borrowings

9


15

(40.0)


45


56

(19.6)


    Interest on long-term debt

-


6

(100.0)


16


37

(56.8)


                   Total interest expense

2,579


2,694

(4.3)


10,562


11,088

(4.7)













NET INTEREST INCOME

8,381


9,837

(14.8)


35,339


39,764

(11.1)


Provision for credit losses

9,650


4,035

139.2


27,745


19,470

42.5













NET INTEREST INCOME AFTER PROVISION 











  FOR CREDIT LOSSES

(1,269)


5,802

(121.9)


7,594


20,294

(62.6)













NONINTEREST INCOME











    Service charges on deposit accounts

653


700

(6.7)


2,551


2,845

(10.3)


    Trust and investment fee income

365


380

(3.9)


1,644


1,563

5.2


    Investment securities gains 

-


128

(100.0)


278


563

(50.6)


    Insurance agency commissions

2,292


2,061

11.2


9,814


9,358

4.9


    Other noninterest income

(704)


750

(193.9)


1,471


2,989

(50.8)


                      Total noninterest income

2,606


4,019

(35.2)


15,758


17,318

(9.0)













NONINTEREST EXPENSE











    Salaries and wages

4,240


4,378

(3.2)


17,418


16,825

3.5


    Employee benefits

923


923

-


3,994


3,840

4.0


    Occupancy expense 

609


563

8.2


2,559


2,312

10.7


    Furniture and equipment expense

235


234

0.4


963


1,059

(9.1)


    Data processing

654


660

(0.9)


2,717


2,852

(4.7)


    Directors' fees

107


83

28.9


474


500

(5.2)


    Goodwill and other intangible assets impairment 

-


-

-


-


1,344

(100.0)


    Amortization of intangible assets

74


126

(41.3)


392


512

(23.4)


    Insurance agency commissions expense

387


285

35.8


1,391


1,267

9.8


    FDIC insurance premium expense

387


254

52.4


1,380


1,298

6.3


    Other noninterest expenses

2,069


1,899

9.0


8,267


7,358

12.4


                      Total noninterest expense

9,685


9,405

3.0


39,555


39,167

1.0













(Loss) income before income taxes

(8,348)


416

(2,106.7)


(16,203)


(1,555)

(942.0)


Income tax (benefit) expense 

(3,274)


91

(3,697.8)


(6,565)


(658)

(897.7)













NET (LOSS) INCOME  

$  (5,074)


$       325

(1,661.2)


$  (9,638)


$     (897)

(974.5)













Weighted average shares outstanding - basic

8,457


8,457

-


8,457


8,451

0.1


Weighted average shares outstanding - diluted

8,457


8,457

-


8,457


8,451

0.1













Basic net (loss) income per common share

$    (0.60)


$      0.04

(1,600.0)


$    (1.14)


$    (0.11)

(936.4)


Diluted net (loss) income per common share

(0.60)


0.04

(1,600.0)


(1.14)


(0.11)

(936.4)


Dividends paid per common share

-


0.01

(100.0)


0.01


0.09

(88.9)
























  


Shore Bancshares, Inc.















Page 7 of 11

Consolidated Average Balance Sheets

















(Dollars in thousands)




















































For the Three Months Ended


For the Twelve Months Ended



December 31,


December 31,



2012


2011


2012


2011



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/



balance


rate 


balance


rate 


balance


rate


balance


rate


Earning assets

















  Loans 

$    799,512


5.09

%

$   854,302


5.42

%

$    814,167


5.26

%

$    873,155


5.46

%

  Investment securities

















   Taxable

143,137


1.85


118,315


2.67


134,697


2.09


109,059


2.78


   Tax-exempt

1,322


5.05


4,410


5.27


2,989


5.25


4,509


5.19


  Federal funds sold

7,782


0.12


8,709


0.05


10,185


0.10


23,808


0.10


  Interest-bearing deposits

156,832


0.22


103,342


0.18


135,813


0.20


58,927


0.16


    Total earning assets

1,108,585


3.94

%

1,089,078


4.58

%

1,097,851


4.20

%

1,069,458


4.78

%

Cash and due from banks

21,258




18,728




20,256




19,198




Other assets

67,596




68,014




68,813




67,695




Allowance for credit losses

(14,304)




(15,168)




(14,468)




(16,408)




Total assets

$ 1,183,135




$  1,160,652




$ 1,172,452




$ 1,139,943






































Interest-bearing liabilities

















  Demand deposits

$    169,398


0.18

%

$   157,657


0.19

%

$    160,741


0.18

%

$    145,533


0.21

%

  Money market and savings deposits (1)

281,593


1.21


273,906


1.07


279,126


1.17


265,910


1.00


  Certificates of deposit $100,000 or more

231,232


1.40


241,810


1.46


238,241


1.44


245,214


1.62


  Other time deposits

204,213


1.59


201,249


1.91


204,644


1.70


205,154


1.99


    Interest-bearing deposits

886,436


1.15


874,622


1.21


882,752


1.19


861,811


1.28


  Short-term borrowings

13,573


0.27


16,421


0.37


14,976


0.30


15,319


0.37


  Long-term debt

-


-


466


4.46


341


4.61


814


4.50


    Total interest-bearing liabilities

900,009


1.14

%

891,509


1.20

%

898,069


1.18

%

877,944


1.26

%

Noninterest-bearing deposits

156,406




139,226




146,057




130,260




Accrued expenses and other liabilities

9,020




8,897




8,967




10,243




Stockholders' equity

117,700




121,020




119,359




121,496




Total liabilities and stockholders' equity

$ 1,183,135




$ 1,160,652




$ 1,172,452




$ 1,139,943





















Net interest spread



2.80

%



3.38

%



3.02

%



3.52

%

Net interest margin



3.02

%



3.60

%



3.23

%



3.74

%



































(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 $552 thousand and $405 thousand for the fourth

      quarter of 2012 and 2011, respectively, and $2.0 million and $1.3 million for 2012 and 2011, respectively.

  


Shore Bancshares, Inc.













Page 8 of 11

Financial Highlights By Quarter















(Dollars in thousands, except per share data)














































4th quarter


3rd quarter


2nd quarter


1st quarter


4th quarter


4Q 12


4Q 12



2012


2012


2012


2012


2011


compared to


compared to



(4Q 12)


(3Q 12)


(2Q 12)


(1Q 12)


(4Q 11)


3Q 12


4Q 11


PROFITABILITY FOR THE PERIOD















     Taxable-equivalent net interest income

$       8,413


$       8,769


$       9,077


$       9,243


$       9,889


(4.1)

%

(14.9)

%

     Less:  Taxable-equivalent adjustment

32


39


44


48


52


(17.9)


(38.5)


     Net interest income

8,381


8,730


9,033


9,195


9,837


(4.0)


(14.8)


     Provision for credit losses

9,650


6,200


3,525


8,370


4,035


55.6


139.2


     Noninterest income

2,606


4,001


4,577


4,574


4,019


(34.9)


(35.2)


     Noninterest expense

9,685


9,709


9,663


10,498


9,405


(0.2)


3.0


     (Loss) income before income taxes

(8,348)


(3,178)


422


(5,099)


416


(162.7)


(2,106.7)


     Income tax (benefit) expense

(3,274)


(1,357)


129


(2,063)


91


(141.3)


(3,697.8)


     Net (loss) income 

$     (5,074)


$     (1,821)


$          293


$     (3,036)


$          325


(178.6)


(1,661.2)
































     Return on average assets 

(1.71)

%

(0.61)

%

0.10

%

(1.05)

%

0.11

%

(110)

bp

(182)

bp

     Return on average equity 

(17.15)


(6.07)


0.99


(10.04)


1.07


(1,108)


(1,822)


     Return on average tangible equity (1)

(19.73)


(6.82)


1.38


(11.33)


1.53


(1,291)


(2,126)


     Net interest margin

3.02


3.15


3.36


3.42


3.60


(13)


(58)


     Efficiency ratio - GAAP 

87.89


76.03


70.77


75.98


67.62


1,186


2,027


     Efficiency ratio - Non-GAAP (1)

77.77


76.95


71.20


75.07


67.61


82


1,016
































PER SHARE DATA















     Basic net (loss) income per common share

$        (0.60)


$        (0.22)


$         0.03


$        (0.36)


$         0.04


(172.7)

%

(1,600.0)

%

     Diluted net (loss) income per common share

(0.60)


(0.22)


0.03


(0.36)


0.04


(172.7)


(1,600.0)


     Dividends paid per common share

-


-


-


0.01


0.01


-


(100.0)


     Book value per common share at period end

13.48


13.97


14.13


14.02


14.34


(3.5)


(6.0)


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

11.56


12.04


12.18


12.07


12.37


(4.0)


(6.5)


     Market value at period end

5.39


6.02


5.98


7.09


5.15


(10.5)


4.7


     Market range:















        High

6.98


6.33


7.45


7.40


6.13


10.3


13.9


        Low

4.65


4.98


5.51


4.91


4.20


(6.6)


10.7
































AVERAGE BALANCE SHEET DATA















     Loans

$  799,512


$  808,244


$  816,553


$  832,585


$  854,302


(1.1)

%

(6.4)

%

     Securities

144,459


137,871


134,299


134,037


122,725


4.8


17.7


     Earning assets

1,108,585


1,108,256


1,086,223


1,088,106


1,089,078


-


1.8


     Assets

1,183,135


1,184,146


1,163,598


1,159,566


1,160,652


(0.1)


1.9


     Deposits

1,042,842


1,040,693


1,021,130


1,011,170


1,013,848


0.2


2.9


     Stockholders' equity

117,700


119,321


118,774


121,658


121,020


(1.4)


(2.7)
































CREDIT QUALITY DATA AT PERIOD END















     Net charge-offs

$       6,614


$       6,235


$       4,079


$       9,114


$       3,287


6.1

%

101.2

%
















     Nonaccrual loans

$     36,474


$     39,442


$     47,958


$     49,405


$     51,370


(7.5)


(29.0)


     Loans 90 days past due and still accruing

460


4,675


3,519


3,796


2,723


(90.2)


(83.1)


     Accruing troubled debt restructurings

52,353


50,785


37,231


30,010


25,208


3.1


107.7


     Total nonperforming loans

89,287


94,902


88,708


83,211


79,301


(5.9)


12.6


     Other real estate and other assets owned, net

7,659


8,418


11,499


11,418


9,385


(9.0)


(18.4)


     Total nonperforming assets

$     96,946


$  103,320


$  100,207


$     94,629


$     88,686


(6.2)


9.3
































CAPITAL AND CREDIT QUALITY RATIOS















     Average equity to average assets

9.95

%

10.08

%

10.21

%

10.49

%

10.43

%

(13)

bp

(48)

bp

     Average tangible equity to average tangible assets (1)

8.69


8.81


8.92


9.19


9.12


(12)


(43)


     Annualized net charge-offs to average loans

3.29


3.07


2.01


4.40


1.53


22


176


     Allowance for credit losses to period-end loans      

2.04


1.60


1.60


1.65


1.70


44


34


     Allowance for credit losses to nonaccrual loans      

43.84


32.85


27.09


27.41


27.81


1,099


1,603


     Allowance for credit losses to nonperforming loans 

17.91


13.65


14.64


16.28


18.02


426


(11)


     Nonaccrual loans to total loans

4.65


4.88


5.92


6.03


6.11


(23)


(146)


     Nonaccrual loans to total assets

3.08


3.35


4.08


4.22


4.44


(27)


(136)


     Nonperforming assets to total loans+other real estate and other assets owned

12.23


12.65


12.20


11.40


10.43


(42)


180


     Nonperforming assets to total assets 

8.18


8.77


8.53


8.09


7.66


(59)


52
































(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)
























































4Q 12


4Q 12













compared to


compared to



4Q 12


3Q 12


2Q 12


1Q 12


4Q 11


3Q 12


4Q 11


INTEREST INCOME















    Interest and fees on loans 

$ 10,193


$ 10,604


$ 10,890


$ 11,011


$ 11,649


(3.9)

%

(12.5)

%

    Interest and dividends on investment securities:















        Taxable

666


685


707


757


797


(2.8)


(16.4)


        Tax-exempt

12


22


32


38


38


(45.5)


(68.4)


    Interest on federal funds sold

3


3


2


2


1


-


200.0


    Interest on deposits with other banks

86


79


61


48


46


8.9


87.0


                   Total interest income

10,960


11,393


11,692


11,856


12,531


(3.8)


(12.5)

















INTEREST EXPENSE















    Interest on deposits

2,570


2,647


2,643


2,641


2,673


(2.9)


(3.9)


    Interest on short-term borrowings

9


10


11


15


15


(10.0)


(40.0)


    Interest on long-term debt

-


6


5


5


6


(100.0)


(100.0)


                   Total interest expense

2,579


2,663


2,659


2,661


2,694


(3.2)


(4.3)

















NET INTEREST INCOME

8,381


8,730


9,033


9,195


9,837


(4.0)


(14.8)


Provision for credit losses

9,650


6,200


3,525


8,370


4,035


55.6


139.2

















NET INTEREST INCOME AFTER PROVISION















  FOR CREDIT LOSSES

(1,269)


2,530


5,508


825


5,802


(150.2)


(121.9)

















NONINTEREST INCOME















    Service charges on deposit accounts

653


628


622


648


700


4.0


(6.7)


    Trust and investment fee income

365


410


446


423


380


(11.0)


(3.9)


    Investment securities gains 

-


278


-


-


128


(100.0)


(100.0)


    Insurance agency commissions 

2,292


2,427


2,406


2,689


2,061


(5.6)


11.2


    Other noninterest income

(704)


258


1,103


814


750


(372.9)


(193.9)


                      Total noninterest income

2,606


4,001


4,577


4,574


4,019


(34.9)


(35.2)

















NONINTEREST EXPENSE















    Salaries and wages

4,240


4,386


4,376


4,416


4,378


(3.3)


(3.2)


    Employee benefits

923


945


956


1,170


923


(2.3)


-


    Occupancy expense 

609


625


638


687


563


(2.6)


8.2


    Furniture and equipment expense

235


265


212


251


234


(11.3)


0.4


    Data processing

654


703


694


666


660


(7.0)


(0.9)


    Directors' fees

107


131


127


109


83


(18.3)


28.9


    Amortization of intangible assets

74


96


96


126


126


(22.9)


(41.3)


    Insurance agency commissions expense

387


275


344


385


285


40.7


35.8


    FDIC insurance premium expense

387


376


344


273


254


2.9


52.4


    Other noninterest expenses

2,069


1,907


1,876


2,415


1,899


8.5


9.0


                      Total noninterest expense

9,685


9,709


9,663


10,498


9,405


(0.2)


3.0

















(Loss) income before income taxes

(8,348)


(3,178)


422


(5,099)


416


(162.7)


(2,106.7)


Income tax (benefit) expense 

(3,274)


(1,357)


129


(2,063)


91


(141.3)


(3,697.8)

















NET (LOSS) INCOME  

$  (5,074)


$  (1,821)


$       293


$  (3,036)


$       325


(178.6)


(1,661.2)

















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

$    (0.60)


$    (0.22)


$      0.03


$    (0.36)


$      0.04


(172.7)


(1,600.0)


Diluted net (loss) income per common share

(0.60)


(0.22)


0.03


(0.36)


0.04


(172.7)


(1,600.0)


Dividends paid per common share

-


-


-


0.01


0.01


-


(100.0)

















  


Shore Bancshares, Inc.























Page 10 of 11

Consolidated Average Balance Sheets By Quarter

























(Dollars in thousands)
































































































Average balance























4Q 12


4Q 12























compared to


compared to



4Q 12


3Q 12


2Q 12


1Q 12


4Q 11


3Q 12


4Q 11



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/







balance


rate


balance


rate


balance


rate


balance


rate


balance


rate






Earning assets

























  Loans 

$     799,512


5.09

%

$     808,244


5.23

%

$     816,553


5.38

%

$     832,585


5.33

%

$     854,302


5.42

%

(1.1)

%

(6.4)

%

  Investment securities

























   Taxable

143,137


1.85


135,257


2.01


130,528


2.18


129,767


2.35


118,315


2.67


5.8


21.0


   Tax-exempt

1,322


5.05


2,614


5.07


3,771


5.32


4,270


5.36


4,410


5.27


(49.4)


(70.0)


  Federal funds sold

7,782


0.12


11,971


0.11


11,200


0.10


9,794


0.06


8,709


0.05


(35.0)


(10.6)


  Interest-bearing deposits

156,832


0.22


150,170


0.21


124,171


0.20


111,690


0.17


103,342


0.18


4.4


51.8


    Total earning assets

1,108,585


3.94

%

1,108,256


4.10

%

1,086,223


4.35

%

1,088,106


4.40

%

1,089,078


4.58

%

-


1.8


Cash and due from banks

21,258




20,158




21,424




18,174




18,728




5.5


13.5


Other assets

67,596




69,921




70,458




68,163




68,014




(3.3)


(0.6)


Allowance for credit losses

(14,304)




(14,189)




(14,507)




(14,877)




(15,168)




0.8


(5.7)


Total assets

$  1,183,135




$  1,184,146




$  1,163,598




$  1,159,566




$  1,160,652




(0.1)


1.9




















































Interest-bearing liabilities

























  Demand deposits

$     169,398


0.18

%

$     167,423


0.18

%

$     152,685


0.18

%

$     153,291


0.19

%

$     157,657


0.19

%

1.2


7.4


  Money market and savings deposits (1)

281,593


1.21


279,003


1.19


276,527


1.18


279,355


1.12


273,906


1.07


0.9


2.8


  Certificates of deposit $100,000 or more

231,232


1.40


238,624


1.46


242,662


1.46


240,521


1.46


241,810


1.46


(3.1)


(4.4)


  Other time deposits

204,213


1.59


207,547


1.66


205,046


1.73


201,743


1.83


201,249


1.91


(1.6)


1.5


    Interest-bearing deposits

886,436


1.15


892,597


1.18


876,920


1.21


874,910


1.21


874,622


1.21


(0.7)


1.4


  Short-term borrowings

13,573


0.27


14,909


0.27


13,818


0.31


17,621


0.35


16,421


0.37


(9.0)


(17.3)


  Long-term debt

-


-


455


4.58


455


4.63


455


4.63


466


4.46


(100.0)


(100.0)


    Total interest-bearing liabilities

900,009


1.14

%

907,961


1.17

%

891,193


1.20

%

892,986


1.20

%

891,509


1.20

%

(0.9)


1.0


Noninterest-bearing deposits

156,406




148,096




144,210




136,260




139,226




5.6


12.3


Accrued expenses and other liabilities

9,020




8,768




9,421




8,662




8,897




2.9


1.4


Stockholders' equity

117,700




119,321




118,774




121,658




121,020




(1.4)


(2.7)


Total liabilities and stockholders' equity

$  1,183,135




$  1,184,146




$  1,163,598




$  1,159,566




$  1,160,652




(0.1)


1.9




















































Net interest spread



2.80

%



2.93

%



3.15

%



3.20

%



3.38

%





Net interest margin



3.02

%



3.15

%



3.36

%



3.42

%



3.60

%























































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

      quarter of 2012 and $405 thousand for the fourth 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



4Q 12


3Q 12


2Q 12


1Q 12


4Q 11


12/31/2012


12/31/2011

















The following reconciles return on average equity and return on















  average tangible equity (Note 1):






























Net (loss) income  

$      (5,074)


$      (1,821)


$          293


$      (3,036)


$          325


$      (9,638)


$         (897)


Net (loss) income - annualized (A)

$    (20,186)


$      (7,244)


$       1,178


$    (12,211)


$       1,289


$      (9,638)


$         (897)

















Net (loss) income, excluding net amortization and 















  impairment charges of intangible assets

$      (5,029)


$      (1,763)


$          351


$      (2,960)


$          401


$      (9,401)


$           335

















Net (loss) income, excluding net amortization and 















  impairment charges of intangible assets - annualized (B)

$    (20,007)


$      (7,014)


$       1,412


$    (11,905)


$       1,591


$      (9,401)


$           335

















Average stockholders' equity (C)

$   117,700


$   119,321


$   118,774


$   121,658


$   121,020


$   119,359


$    121,496


Less:  Average goodwill and other intangible assets

(16,313)


(16,401)


(16,497)


(16,606)


(16,732)


(16,454)


(17,926)


Average tangible equity (D)

$   101,387


$   102,920


$   102,277


$   105,052


$   104,288


$   102,905


$    103,570

















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

(17.15)

%

(6.07)

%

0.99

%

(10.04)

%

1.07

%

(8.07)

%

(0.74)

%

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

(19.73)

%

(6.82)

%

1.38

%

(11.33)

%

1.53

%

(9.14)

%

0.32

%































The following reconciles GAAP efficiency ratio and non-GAAP 















  efficiency ratio (Note 2):






























Noninterest expense (E)

$       9,685


$       9,709


$       9,663


$     10,498


$       9,405


$     39,555


$      39,167


Less:  Amortization of intangible assets

(74)


(96)


(96)


(126)


(126)


(392)


(512)


          Impairment charges

-


-


-


-


-


-


(1,344)


Adjusted noninterest expense (F)

$       9,611


$       9,613


$       9,567


$     10,372


$       9,279


$     39,163


$      37,311

















Taxable-equivalent net interest income (G)

$       8,413


$       8,769


$       9,077


$       9,243


$       9,889


$     35,502


$      39,983

















Noninterest income (H)

$       2,606


$       4,001


$       4,577


$       4,574


$       4,019


$     15,758


$      17,318


Less:  Investment securities (gains)/losses

-


(278)


-


-


(128)


(278)


(563)


          Other nonrecurring (gains)/losses

1,339


-


(217)


-


(56)


1,122


(56)


Adjusted noninterest income (I)

$       3,945


$       3,723


$       4,360


$       4,574


$       3,835


$     16,602


$      16,699

















Efficiency ratio (GAAP)  (E)/(G)+(H) 

87.89

%

76.03

%

70.77

%

75.98

%

67.62

%

77.17

%

68.35

%

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

77.77

%

76.95

%

71.20

%

75.07

%

67.61

%

75.16

%

65.83

%































The following reconciles book value per common share and tangible 















  book value per common share (Note 1):






























Stockholders' equity (J)

$   114,026


$   118,163


$   119,467


$   118,584


$   121,249






Less:  Goodwill and other intangible assets

(16,270)


(16,344)


(16,440)


(16,536)


(16,662)






Tangible equity (K)

$     97,756


$   101,819


$   103,027


$   102,048


$   104,587





















Shares outstanding (L)

8,457


8,457


8,457


8,457


8,457





















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

$       13.48


$       13.97


$       14.13


$       14.02


$       14.34






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

$       11.56


$       12.04


$       12.18


$       12.07


$       12.37




































The following reconciles average equity to average assets and















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






























Average stockholders' equity (M)

$   117,700


$   119,321


$   118,774


$   121,658


$   121,020


$   119,359


$    121,496


Less:  Average goodwill and other intangible assets

(16,313)


(16,401)


(16,497)


(16,606)


(16,732)


(16,454)


(17,926)


Average tangible equity (N)

$   101,387


$   102,920


$   102,277


$   105,052


$   104,288


$   102,905


$    103,570

















Average assets (O)

$ 1,183,135


$ 1,184,146


$ 1,163,598


$ 1,159,566


$ 1,160,652


$ 1,172,452


$  1,139,943


Less:  Average goodwill and other intangible assets

(16,313)


(16,401)


(16,497)


(16,606)


(16,732)


(16,454)


(17,926)


Average tangible assets (P)

$ 1,166,822


$ 1,167,745


$ 1,147,101


$ 1,142,960


$ 1,143,920


$ 1,155,998


$  1,122,017

















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

9.95

%

10.08

%

10.21

%

10.49

%

10.43

%

10.18

%

10.66

%

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

8.69

%

8.81

%

8.92

%

9.19

%

9.12

%

8.90

%

9.23

%































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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