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Shore Bancshares Reports First Quarter 2014 Financial Results

EASTON, Md., April 24, 2014 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) today reported net income of $1.3 million or $0.15 per diluted common share for the first quarter of 2014, compared to net income of $1.2 million or $0.14 per diluted common share for the fourth quarter of 2013, and net income of $222 thousand or $0.03 per diluted common share for the first quarter of 2013. 

When comparing the first quarter of 2014 to the fourth quarter of 2013, the primary reasons for the improved results were a $573 thousand increase in noninterest income and a $353 thousand decline in noninterest expense, which were partially offset by a $501 thousand increase in the provision for credit losses and a $247 thousand decline in net interest income.  When comparing the first quarter of 2014 to the first quarter of 2013, the primary reasons for the improved results were a $1.2 million decline in the provision for credit losses which was impacted by the sale of loans and other real estate owned (the "Asset Sale") by the Company's wholly-owned subsidiary, The Talbot Bank of Easton, Maryland ("Talbot Bank"), during the fourth quarter of 2013, a $376 thousand decline in noninterest expense and a $298 thousand increase in noninterest income, which were partially offset by a $154 thousand decline in net interest income. 

"We are pleased to report improved earnings over the linked quarter and the first quarter of 2013," said Lloyd L. "Scott" Beatty, Jr., president and chief executive officer.  "Much of this improvement is due to lower credit-related expenses as a result of the Asset Sale, which was recorded in the third quarter and completed during the fourth quarter of 2013.  With the Asset Sale, we are able to re-emphasize our focus on healthy loan originations and overall business development; however, we still see that the slowly improving local economy is delaying our progress.  Our total stockholders' equity to total assets was 9.97% at March 31, 2014, improving from the 9.80% at the end of 2013."

Balance Sheet Review
Total assets were $1.050 billion at March 31, 2014, a $4.6 million, or less than 1%, decrease when compared to the $1.054 billion at the end of 2013.  The decrease in total assets included a decline in total loans of $8.3 million, or 1.2%, partially offset by an increase in investment securities of $5.0 million, or 3.3%.  Loans held for sale at December 31, 2013 were reclassified to loans during the first quarter of 2014.  Total deposits decreased $4.0 million, or less than 1%, when compared to December 31, 2013.  The decrease in total deposits was mainly due to a decline in noninterest-bearing deposits ($7.3 million) and time deposits ($11.3 million), which was partially offset by a shift to money market and savings deposits ($11.5 million) and interest-bearing demand deposits ($3.1 million).  Total stockholders' equity increased $1.3 million, or 1.3%, when compared to the end of 2013.  At March 31, 2014, the ratio of total equity to total assets was 9.97% and the ratio of total tangible equity to total tangible assets was 8.58%.

Total assets at March 31, 2014, decreased $55.1 million, or 5%, when compared to total assets at March 31, 2013.  The decrease in assets was primarily due to a decline in loans as a result of the Asset Sale during the fourth quarter of 2013.  Total deposits decreased $40.7 million, or 4.2%, when compared to March 31, 2013.  The decrease in total deposits was mainly due to a decline in time deposits ($44.4 million) and money market and savings deposits ($12.2 million).  The decrease in money market deposit accounts was associated with the Company's participation in the Promontory Insured Network Deposits Program ("IND Program").  In December 2012, the Company decided to partially exit the IND Program to decrease its excess liquidity and, in June 2013, the Company fully exited the IND Program in which $20 million in money market deposits remained.  The decrease in time deposits also reduced the Company's excess liquidity. 

Review of Quarterly Financial Results
Net interest income was $8.3 million for the first quarter of 2014, compared to $8.6 million for the fourth quarter of 2013 and $8.5 million for the first quarter of 2013.  The decrease in net interest income when compared to the fourth quarter of 2013 was primarily due to lower volumes of average loan balances, partially offset by lower volumes of and rates paid on time deposits.  The decrease in net interest income when compared to the first quarter of 2013 was primarily due to lower volumes of average loan balances, partially offset by lower volumes of and rates paid on money market and savings deposits, and time deposits.  However, the Company's net interest margin improved to 3.50% for the first quarter of 2014 when compared to the 3.47% for the fourth quarter of 2013 and 3.30% for the first quarter of 2013.  The higher net interest margin when compared to the fourth quarter of 2013 was mainly due to a decline of $211 thousand in reversals of nonaccrual income.  The higher net interest margin for the first quarter of 2014 when compared to the first quarter of 2013 was mainly due to the impact of exiting the IND Program, which resulted in a reduction in both the money market account balances as well as the associated higher rate related to this program.

The provision for credit losses was $975 thousand for the three months ended March 31, 2014.  The comparable amounts were $474 thousand and $2.2 million for the three months ended December 31, 2013 and March 31, 2013, respectively.  The higher level of provision for credit losses when comparing the first quarter of 2014 to the fourth quarter of 2013 was primarily due to increases in loan charge-offs and nonaccrual loans.  The lower level of provision for credit losses when comparing the first quarter of 2014 to the first quarter of 2013 was primarily due to decreases in loan charge-offs and nonaccrual loans.  Net charge-offs were $1.6 million for the first quarter of 2014, $1.1 million for the fourth quarter of 2013 and $2.4 million for the first quarter of 2013.  The ratio of annualized net charge-offs to average loans was 0.93% for the first quarter of 2014, 0.58% for the fourth quarter of 2013 and 1.25% for the first quarter of 2013.  The ratio of the allowance for credit losses to period-end loans was 1.43% at March 31, 2014, compared to 1.51% at December 31, 2013 and 2.00% at March 31, 2013.

At March 31, 2014, nonperforming assets were $23.9 million, an increase of $1.8 million, or 7.9%, when compared to December 31, 2013.  This increase was primarily due to the addition of one nonaccrual commercial real estate loan, net of the transfer of one nonaccrual residential real estate loan to other real estate owned.  Additionally, accruing troubled debt restructurings ("TDRs") were $25.3 million at March 31, 2014, a decrease of $755 thousand, or 2.9%, when compared to December 31, 2013.  When comparing March 31, 2014 to March 31, 2013, nonperforming assets decreased $16.3 million, or 40.4%, and accruing TDRs decreased $27.2 million, or 51.8%.  The positive trend in nonperforming assets and TDRs when comparing March 31, 2014 to March 31, 2013, was mainly accomplished with the previously-mentioned Asset Sale.  At March 31, 2014, the ratio of nonaccrual loans to total assets was 1.83%, compared to 1.72% and 2.88% at December 31, 2013 and March 31, 2013, respectively.  In addition, the ratio of accruing TDRs to total assets at March 31, 2014 was 2.41%, improving from 2.47% at December 31, 2013 and 4.76% at March 31, 2013. 

Total noninterest income for the first quarter of 2014 increased $573 thousand when compared to the fourth quarter of 2013 and $298 thousand when compared to the first quarter of 2013.  The increase for both periods was primarily due to higher insurance agency commissions, mainly from contingency payments which are typically received in the first quarter of each year and are based on the prior year's performance.

Total noninterest expense for the first quarter of 2014 declined $353 thousand when compared to the fourth quarter of 2013 and $376 thousand when compared to the first quarter of 2013.  The decrease in noninterest expense was primarily due to lower costs associated with problem assets, which was a positive result of the Asset Sale.  The decrease from the fourth quarter of 2013 was mainly due to lower write-downs of other real estate owned ($296 thousand), loan collection ($137 thousand) and marketing ($125 thousand) included in other noninterest expense, and FDIC insurance premiums ($155 thousand) due to improved capital ratios at Talbot Bank.  These decreases in noninterest expense were partially offset by an increase in employee benefits of $199 thousand, which included higher payroll taxes ($116 thousand) and group insurance ($73 thousand).  When compared to the first quarter of 2013, the decrease in noninterest expense for the first quarter of 2014 was primarily due to lower write-downs of other real estate owned. 

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

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

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

 

Shore Bancshares, Inc.





Page 4 of 12


Financial Highlights







(Dollars in thousands, except per share data)






















   For the Three Months Ended



March 31,



2014


2013

 Change


PROFITABILITY FOR THE PERIOD







     Net interest income

$       8,323


$         8,477


(1.8)

%

     Provision for credit losses

975


2,150


(54.7)


     Noninterest income

4,788


4,490


6.6


     Noninterest expense

10,115


10,491


(3.6)


     Income before income taxes

2,021


326


519.9


     Income tax expense 

763


104


633.7


     Net income 

$       1,258


$            222


466.7
















     Return on average assets 

0.49

%

0.08

%

41

bp

     Return on average equity 

4.88


0.79


409


     Return on average tangible equity (1)

5.97


1.11


486


     Net interest margin

3.50


3.30


20


     Efficiency ratio - GAAP 

77.01


80.74


(373)


     Efficiency ratio - Non-GAAP (1)

76.44


80.17


(373)
















PER SHARE DATA







     Basic net income per common share

$         0.15


$           0.03


400.0

%

     Diluted net income per common share

0.15


0.03


400.0


     Dividends paid per common share

-


-


-


     Book value per common share at period end

12.35


13.51


(8.6)


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

10.47


11.60


(9.7)


     Market value at period end

9.51


6.79


40.1


     Market range:







       High

9.99


6.91


44.6


       Low

9.00


5.20


73.1
















AVERAGE BALANCE SHEET DATA







     Loans

$   707,708


$      783,757


(9.7)

%

     Investment securities

155,556


146,756


6.0


     Earning assets

966,304


1,044,755


(7.5)


     Assets

1,044,568


1,122,310


(6.9)


     Deposits

923,524


987,325


(6.5)


     Stockholders' equity

104,462


114,250


(8.6)
















CREDIT QUALITY DATA AT PERIOD END







     Net charge-offs

$       1,631


$         2,406


(32.2)

%








     Nonaccrual loans 

$     19,156


$        31,813


(39.8)


     Loans 90 days past due and still accruing

121


22


450.0


     Other real estate owned

4,672


8,366


(44.2)


     Total nonperforming assets 

23,949


40,201


(40.4)


     Accruing troubled debt restructurings (TDRs) 

25,333


52,545


(51.8)


     Total nonperforming assets and accruing TDRs 

$     49,282


$        92,746


(46.9)
















CAPITAL AND CREDIT QUALITY RATIOS







     Period-end equity to assets

9.97

%

10.35

%

(38)

bp

     Period-end tangible equity to tangible assets (1)

8.58


9.02


(44)









     Annualized net charge-offs to average loans

0.93


1.25


(32)









     Allowance for credit losses as a percent of:







     Period-end loans

1.43


2.00


(57)


     Nonaccrual loans 

52.56


49.46


310


     Nonperforming assets 

42.04


39.14


290


     Accruing TDRs 

39.75


29.95


980


     Nonperforming assets and accruing TDRs 

20.43


16.97


346









     As a percent of total loans:







     Nonaccrual loans 

2.72


4.05


(133)


     Accruing TDRs  

3.60


6.69


(309)


     Nonaccrual loans and accruing TDRs 

6.32


10.74


(442)









     As a percent of total loans+other real estate owned:







     Nonperforming assets

3.38


5.06


(168)


     Nonperforming assets and accruing TDRs 

6.96


11.68


(472)









     As a percent of total assets:







     Nonaccrual loans 

1.83


2.88


(105)


     Nonperforming assets 

2.28


3.64


(136)


     Accruing TDRs 

2.41


4.76


(235)


     Nonperforming assets and accruing TDRs 

4.70


8.40


(370)









(1)  See the reconciliation table on page 12 of 12.







 

Shore Bancshares, Inc.





Page 5 of 12


Consolidated Balance Sheets







(In thousands, except per share data)




































March 31, 2014


March 31, 2014



March 31,


December 31,


March 31,


compared to


compared to



2014


2013


2013


December 31, 2013


March 31, 2013


ASSETS











    Cash and due from banks

$            22,668


$          21,238


$           24,808


6.7

%

(8.6)

%

    Interest-bearing deposits with other banks

109,831


109,384


94,090


0.4


16.7


    Federal funds sold

399


468


2,789


(14.7)


(85.7)


    Investment securities available for sale (at fair value)

152,247


147,101


142,238


3.5


7.0


    Investment securities held to maturity 

5,074


5,185


2,594


(2.1)


95.6













    Loans held for sale

-


3,521


-


(100.0)


-













    Loans

703,637


711,919


785,753


(1.2)


(10.5)


    Less: allowance for credit losses

(10,069)


(10,725)


(15,735)


(6.1)


(36.0)


    Loans, net

693,568


701,194


770,018


(1.1)


(9.9)













    Premises and equipment, net

15,108


15,198


15,502


(0.6)


(2.5)


    Goodwill

12,454


12,454


12,454


-


-


    Other intangible assets, net

3,446


3,520


3,742


(2.1)


(7.9)


    Other real estate owned, net

4,672


3,779


8,366


23.6


(44.2)


    Other assets

30,047


31,082


28,010


(3.3)


7.3













                         Total assets

$      1,049,514


$    1,054,124


$      1,104,611


(0.4)


(5.0)













LIABILITIES











    Noninterest-bearing deposits

$          165,459


$        172,797


$         155,412


(4.2)


6.5


    Interest-bearing deposits

763,985


760,671


814,747


0.4


(6.2)


                Total deposits

929,444


933,468


970,159


(0.4)


(4.2)













    Short-term borrowings

8,070


10,140


11,088


(20.4)


(27.2)


    Accrued expenses and other liabilities

7,368


7,217


9,016


2.1


(18.3)


                          Total liabilities

944,882


950,825


990,263


(0.6)


(4.6)













STOCKHOLDERS' EQUITY











    Common stock, par value $0.01; authorized  











       35,000,000 shares

85


85


85


-


-


    Additional paid in capital

32,229


32,207


32,151


0.1


0.2


    Retained earnings

72,702


71,444


81,300


1.8


(10.6)


    Accumulated other comprehensive (loss) income

(384)


(437)


812


12.1


(147.3)


                          Total stockholders' equity

104,632


103,299


114,348


1.3


(8.5)













                          Total liabilities and stockholders' equity

$      1,049,514


$    1,054,124


$      1,104,611


(0.4)


(5.0)













Period-end common shares outstanding

8,471


8,471


8,461


-


0.1


Book value per common share

$              12.35


$            12.19


$              13.51


1.3


(8.6)













 

Shore Bancshares, Inc.




Page 6 of 12


Consolidated Statements of Operations






(In thousands, except per share data)



















For the Three Months Ended



March 31,



2014


2013

% Change


INTEREST INCOME






    Interest and fees on loans 

$      8,875


$      9,907

(10.4)

%

    Interest and dividends on investment securities:






        Taxable

521


643

(19.0)


        Tax-exempt 

3


5

(40.0)


    Interest on federal funds sold

-


2

(100.0)


    Interest on deposits with other banks

56


50

12.0


                   Total interest income

9,455


10,607

(10.9)








INTEREST EXPENSE






    Interest on deposits

1,127


2,122

(46.9)


    Interest on short-term borrowings

5


8

(37.5)


                   Total interest expense

1,132


2,130

(46.9)








NET INTEREST INCOME

8,323


8,477

(1.8)


Provision for credit losses

975


2,150

(54.7)








NET INTEREST INCOME AFTER PROVISION 






  FOR CREDIT LOSSES

7,348


6,327

16.1








NONINTEREST INCOME






    Service charges on deposit accounts

558


572

(2.4)


    Trust and investment fee income

431


390

10.5


    Investment securities gains 

-


-

-


    Insurance agency commissions

3,077


2,813

9.4


    Other noninterest income

722


715

1.0


                      Total noninterest income

4,788


4,490

6.6








NONINTEREST EXPENSE






    Salaries and wages

4,314


4,283

0.7


    Employee benefits

1,182


1,134

4.2


    Occupancy expense 

627


597

5.0


    Furniture and equipment expense

273


250

9.2


    Data processing

760


703

8.1


    Directors' fees

112


121

(7.4)


    Amortization of intangible assets

74


74

-


    Insurance agency commissions expense

512


461

11.1


    FDIC insurance premium expense

458


366

25.1


    Write-downs of other real estate owned

75


672

(88.8)


    Other noninterest expenses

1,728


1,830

(5.6)


                      Total noninterest expense

10,115


10,491

(3.6)








Income before income taxes

2,021


326

519.9


Income tax expense 

763


104

633.7








NET INCOME 

$      1,258


$         222

466.7








Weighted average shares outstanding - basic

8,471


8,458

0.2


Weighted average shares outstanding - diluted

8,484


8,458

0.3








Basic net income per common share

$        0.15


$        0.03

400.0


Diluted net income per common share

0.15


0.03

400.0


Dividends paid per common share

-


-

-








 

Shore Bancshares, Inc.







Page 7 of 12




Consolidated Average Balance Sheets











(Dollars in thousands)


































For the Three Months Ended





March 31,





2014


2013





Average 


Yield/


Average 


Yield/





balance


rate 


balance


rate 




Earning assets











  Loans 

$     707,708


5.10

%

$     783,757


5.14

%



  Loans held for sale

2,425


-


-


-




  Investment securities











   Taxable

155,123


1.36


146,176


1.78




   Tax-exempt

433


4.25


580


4.85




  Federal funds sold

1,708


0.05


8,184


0.11




  Interest-bearing deposits

98,907


0.23


106,058


0.19




    Total earning assets

966,304


3.98

%

1,044,755


4.13

%



Cash and due from banks

22,708




24,966






Other assets

66,203




69,185






Allowance for credit losses

(10,647)




(16,596)






Total assets

$ 1,044,568




$ 1,122,310




























Interest-bearing liabilities











  Demand deposits

$     173,801


0.14

%

$     173,714


0.17

%



  Money market and savings deposits (1)

222,378


0.12


244,182


0.97




  Certificates of deposit $100,000 or more

178,792


1.13


216,288


1.39




  Other time deposits

186,960


1.08


201,171


1.47




    Interest-bearing deposits

761,931


0.60


835,355


1.03




  Short-term borrowings

9,345


0.22


11,987


0.27




    Total interest-bearing liabilities

771,276


0.60

%

847,342


1.02

%



Noninterest-bearing deposits

161,593




151,970






Accrued expenses and other liabilities

7,237




8,748






Stockholders' equity

104,462




114,250






Total liabilities and stockholders' equity

$ 1,044,568




$ 1,122,310

















Net interest spread



3.38

%



3.11

%



Net interest margin



3.50

%



3.30

%

























(1)  Interest on money market and savings deposits for the three months ended March 31, 2013 included an adjustment to expense 

      related to interest rate caps and the hedged deposits associated with them.  This adjustment increased interest expense $416

      thousand for the three months ended March 31, 2013.  Interest expense for the three months ended March 31, 2014 did not
      reflect this adjustment because the interest rate caps were terminated in June of 2013. 

 

Shore Bancshares, Inc.










Page 8 of 12


Financial Highlights By Quarter












(Dollars in thousands, except per share data)











































1st quarter


4th quarter


3rd quarter


2nd quarter


1st quarter


1Q 14


1Q 14



2014


2013


2013


2013


2013


compared to


compared to



(1Q 14)


(4Q 13)


(3Q 13)


(2Q 13)


(1Q 13)


4Q 13


1Q 13


PROFITABILITY FOR THE PERIOD















     Taxable-equivalent net interest income

$             8,347


$         8,595


$         8,852


$         9,028


$         8,504


(2.9)

%

(1.8)

%

     Less:  Taxable-equivalent adjustment

24


25


24


27


27


(4.0)


(11.1)


     Net interest income

8,323


8,570


8,828


9,001


8,477


(2.9)


(1.8)


     Provision for credit losses

975


474


22,460


2,700


2,150


105.7


(54.7)


     Noninterest income

4,788


4,215


4,792


3,962


4,490


13.6


6.6


     Noninterest expense

10,115


10,468


9,968


9,759


10,491


(3.4)


(3.6)


     Income (loss) before income taxes

2,021


1,843


(18,808)


504


326


9.7


519.9


     Income tax expense (benefit)

763


668


(7,416)


143


104


14.2


633.7


     Net income (loss)  

$             1,258


$         1,175


$     (11,392)


$            361


$            222


7.1


466.7
































     Return on average assets 

0.49

%

0.44

%

(4.24)

%

0.13

%

0.08

%

5

bp

41

bp

     Return on average equity 

4.88


4.50


(39.68)


1.27


0.79


38


409


     Return on average tangible equity (1)

5.97


5.53


(46.03)


1.66


1.11


44


486


     Net interest margin

3.50


3.47


3.54


3.60


3.30


3


20


     Efficiency ratio - GAAP 

77.01


81.72


73.06


75.13


80.74


(471)


(373)


     Efficiency ratio - Non-GAAP (1)

76.44


81.14


74.13


74.45


80.17


(470)


(373)
































PER SHARE DATA















     Basic net income (loss) per common share

$               0.15


$           0.14


$          (1.35)


$           0.04


$           0.03


7.1

%

400.0

%

     Diluted net income (loss) per common share

0.15


0.14


(1.35)


0.04


0.03


7.1


400.0


     Dividends paid per common share

-


-


-


-


-


-


-


     Book value per common share at period end

12.35


12.19


12.06


13.43


13.51


1.3


(8.6)


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

10.47


10.31


10.16


11.52


11.60


1.6


(9.7)


     Market value at period end

9.51


9.22


8.80


7.36


6.79


3.1


40.1


     Market range:















        High

9.99


9.45


9.06


7.75


6.91


5.7


44.6


        Low

9.00


8.50


7.06


5.97


5.20


5.9


73.1
































AVERAGE BALANCE SHEET DATA















     Loans

$        707,708


$    718,070


$    772,008


$    785,442


$    783,757


(1.4)

%

(9.7)

%

     Investment securities

155,556


145,181


124,020


141,193


146,756


7.1


6.0


     Earning assets

966,304


982,519


993,068


1,005,474


1,044,755


(1.7)


(7.5)


     Assets

1,044,568


1,060,315


1,064,919


1,077,852


1,122,310


(1.5)


(6.9)


     Deposits

923,524


938,293


932,867


943,577


987,325


(1.6)


(6.5)


     Stockholders' equity

104,462


103,507


113,904


114,208


114,250


0.9


(8.6)
































CREDIT QUALITY DATA AT PERIOD END















     Net charge-offs

$             1,631


$         1,050


$       26,882


$         2,712


$         2,406


55.3

%

(32.2)

%
















     Nonaccrual loans excluding nonaccrual loans held for sale (hfs)

$          19,156


$       14,626


$       17,501


$       34,818


$       31,813


31.0


(39.8)


     Loans 90 days past due and still accruing

121


270


9


3


22


(55.2)


450.0


     Other real estate owned

4,672


3,779


5,776


6,408


8,366


23.6


(44.2)


     Total nonperforming assets excluding nonaccrual loans hfs

23,949


18,675


23,286


41,229


40,201


28.2


(40.4)


     Nonaccrual loans hfs

-


3,521


7,265


-


-


(100.0)


-


     Total nonperforming assets including nonaccrual loans hfs

$          23,949


$       22,196


$       30,551


$       41,229


$       40,201


7.9


(40.4)

















     Accruing troubled debt restructurings (TDRs) excluding TDRs hfs

$          25,333


$       26,088


$       29,439


$       50,278


$       52,545


(2.9)


(51.8)


     Accruing TDRs hfs

-


-


14,842


-


-


-


-


     Total accruing TDRs including TDRs hfs

$          25,333


$       26,088


$       44,281


$       50,278


$       52,545


(2.9)


(51.8)

















     Total nonperforming assets and accruing TDRs excluding nonaccrual loans and TDRs hfs

$          49,282


$       44,763


$       52,725


$       91,507


$       92,746


10.1


(46.9)


     Nonaccrual loans and TDRs hfs

-


3,521


22,107


-


-


(100.0)


-


     Total nonperforming assets and accruing TDRs including nonaccrual loans and TDRs hfs

$          49,282


$       48,284


$       74,832


$       91,507


$       92,746


2.1


(46.9)

















(1)  See the reconciliation table on page 12 of 12.












 

Shore Bancshares, Inc.









Page 9 of 12


Financial Highlights By Quarter











(Dollars in thousands, except per share data)










































1st quarter


4th quarter


3rd quarter


2nd quarter


1st quarter


1Q 14


1Q 14



2014


2013


2013


2013


2013


compared to


compared to



(1Q 14)


(4Q 13)


(3Q 13)


(2Q 13)


(1Q 13)


4Q 13


1Q 13


CAPITAL AND CREDIT QUALITY RATIOS















     Period-end equity to assets

9.97

%

9.80

%

9.70

%

10.77

%

10.35

%

17

bp

(38)

bp

     Period-end tangible equity to tangible assets (1)

8.58


8.41


8.30


9.39


9.02


17


(44)

















     Annualized net charge-offs to average loans

0.93


0.58


13.81


1.38


1.25


35


(32)

















     Allowance for credit losses as a percent of (excluding loans hfs):















     Period-end loans      

1.43


1.51


1.57


2.01


2.00


(8)


(57)


     Nonaccrual loans 

52.56


73.33


64.57


45.16


49.46


(2,077)


310


     Nonperforming assets 

42.04


57.43


48.53


38.14


39.14


(1,539)


290


     Accruing TDRs 

39.75


41.11


38.39


31.27


29.95


(136)


980


     Nonperforming assets and accruing TDRs 

20.43


23.96


21.43


17.18


16.97


(353)


346

















     Allowance for credit losses as a percent of (including loans hfs):















     Nonaccrual loans 

52.56


59.10


45.63


45.16


49.46


(654)


310


     Nonperforming assets 

42.04


48.32


36.99


38.14


39.14


(628)


290


     Accruing TDRs 

39.75


41.11


25.52


31.27


29.95


(136)


980


     Nonperforming assets and accruing TDRs 

20.43


22.21


15.10


17.18


16.97


(178)


346

















    As a percent of total loans (excluding loans hfs):















    Nonaccrual loans 

2.72


2.05


2.44


4.45


4.05


67


(133)


    Accruing TDRs 

3.60


3.66


4.10


6.43


6.69


(6)


(309)


    Nonaccrual loans and accruing TDRs 

6.32


5.71


6.54


10.88


10.74


61


(442)

















    As a percent of total loans+other real estate owned (excluding loans hfs):















    Nonperforming assets 

3.38


2.61


3.21


5.23


5.06


77


(168)


    Nonperforming assets and accruing TDRs 

6.96


6.25


7.28


11.60


11.68


71


(472)

















    As a percent of total assets (excluding loans hfs):















    Nonaccrual loans 

1.83


1.39


1.66


3.30


2.88


44


(105)


    Nonperforming assets 

2.28


1.77


2.21


3.91


3.64


51


(136)


    Accruing TDRs 

2.41


2.47


2.80


4.77


4.76


(6)


(235)


    Nonperforming assets and accruing TDRs

4.70


4.25


5.01


8.68


8.40


45


(370)

















    As a percent of total assets (including loans hfs):















    Nonaccrual loans 

1.83


1.72


2.36


3.30


2.88


11


(105)


    Nonperforming assets 

2.28


2.11


2.91


3.91


3.64


17


(136)


    Accruing TDRs 

2.41


2.47


4.21


4.77


4.76


(6)


(235)


    Nonperforming assets and accruing TDRs 

4.70


4.58


7.12


8.68


8.40


12


(370)

















(1)  See the reconciliation table on page 12 of 12.










 

Shore Bancshares, Inc.










Page 10 of 12

Consolidated Statements of Operations By Quarter












(In thousands, except per share data)





















































1Q 14


1Q 14













compared to

compared to


1Q 14


4Q 13


3Q 13


2Q 13


1Q 13


4Q 13


1Q 13


INTEREST INCOME















    Interest and fees on loans 

$         8,875


$         9,242


$         9,767


$       10,142


$         9,907


(4.0)

%

(10.4)

%

    Interest and dividends on investment securities:















        Taxable

521


504


357


568


643


3.4


(19.0)


        Tax-exempt

3


3


5


4


5


-


(40.0)


    Interest on federal funds sold

-


1


-


1


2


(100.0)


(100.0)


    Interest on deposits with other banks

56


57


53


40


50


(1.8)


12.0


                   Total interest income

9,455


9,807


10,182


10,755


10,607


(3.6)


(10.9)

















INTEREST EXPENSE















    Interest on deposits

1,127


1,230


1,348


1,748


2,122


(8.4)


(46.9)


    Interest on short-term borrowings

5


7


6


6


8


(28.6)


(37.5)


                   Total interest expense

1,132


1,237


1,354


1,754


2,130


(8.5)


(46.9)

















NET INTEREST INCOME

8,323


8,570


8,828


9,001


8,477


(2.9)


(1.8)


Provision for credit losses

975


474


22,460


2,700


2,150


105.7


(54.7)

















NET INTEREST INCOME (LOSS) AFTER PROVISION















  FOR CREDIT LOSSES

7,348


8,096


(13,632)


6,301


6,327


(9.2)


16.1

















NONINTEREST INCOME















    Service charges on deposit accounts

558


599


600


600


572


(6.8)


(2.4)


    Trust and investment fee income

431


429


401


393


390


0.5


10.5


    Investment securities gains 

-


-


-


913


-


-


-


    Insurance agency commissions 

3,077


2,477


2,724


2,633


2,813


24.2


9.4


    Loss on termination of cash flow hedge

-


-


-


(1,306)


-


-


-


    Other noninterest income

722


710


1,067


729


715


1.7


1.0


                      Total noninterest income

4,788


4,215


4,792


3,962


4,490


13.6


6.6

















NONINTEREST EXPENSE















    Salaries and wages

4,314


4,336


4,420


4,307


4,283


(0.5)


0.7


    Employee benefits

1,182


983


971


1,006


1,134


20.2


4.2


    Occupancy expense 

627


569


566


612


597


10.2


5.0


    Furniture and equipment expense

273


252


275


243


250


8.3


9.2


    Data processing

760


773


718


706


703


(1.7)


8.1


    Directors' fees

112


92


86


55


121


21.7


(7.4)


    Amortization of intangible assets

74


74


74


74


74


-


-


    Insurance agency commissions expense

512


470


409


458


461


8.9


11.1


    FDIC insurance premium expense

458


613


467


367


366


(25.3)


25.1


    Write-downs of other real estate owned

75


371


219


56


672


(79.8)


(88.8)


    Other noninterest expenses

1,728


1,935


1,763


1,875


1,830


(10.7)


(5.6)


                      Total noninterest expense

10,115


10,468


9,968


9,759


10,491


(3.4)


(3.6)

















Income (loss) before income taxes

2,021


1,843


(18,808)


504


326


9.7


519.9


Income tax expense (benefit) 

763


668


(7,416)


143


104


14.2


633.7

















NET INCOME (LOSS)  

$         1,258


$         1,175


$      (11,392)


$             361


$             222


7.1


466.7

















Weighted average shares outstanding - basic

8,471


8,463


8,461


8,461


8,458


0.1


0.2


Weighted average shares outstanding - diluted

8,484


8,474


8,461


8,465


8,458


0.1


0.3

















Basic net income (loss) per common share

$            0.15


$            0.14


$          (1.35)


$            0.04


$            0.03


7.1


400.0


Diluted net income (loss) per common share

0.15


0.14


(1.35)


0.04


0.03


7.1


400.0


Dividends paid per common share

-


-


-


-


-


-


-


 

Shore Bancshares, Inc.


















Page 11 of 12


Consolidated Average Balance Sheets By Quarter




















(Dollars in thousands)



























































































Average balance























1Q 14


1Q 14























compared to


compared to



1Q 14


4Q 13


3Q 13


2Q 13


1Q 13


4Q 13


1Q 13



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/







balance


rate


balance


rate


balance


rate


balance


rate


balance


rate






Earning assets

























  Loans 

$     707,708


5.10

%

$     718,070


5.07

%

$     772,008


5.03

%

$     785,442


5.19

%

$     783,757


5.14

%

(1.4)

%

(9.7)

%

  Loans held for sale

2,425


-


15,047


2.38


-


-


-


-


-


-


(83.9)


-


  Investment securities

























   Taxable

155,123


1.36


144,699


1.38


123,499


1.15


140,614


1.62


146,176


1.78


7.2


6.1


   Tax-exempt

433


4.25


482


4.39


521


5.27


579


4.81


580


4.85


(10.2)


(25.3)


  Federal funds sold

1,708


0.05


2,692


0.06


1,618


0.07


2,992


0.10


8,184


0.11


(36.6)


(79.1)


  Interest-bearing deposits

98,907


0.23


101,529


0.22


95,422


0.22


75,847


0.21


106,058


0.19


(2.6)


(6.7)


    Total earning assets

966,304


3.98

%

982,519


3.97

%

993,068


4.08

%

1,005,474


4.30

%

1,044,755


4.13

%

(1.7)


(7.5)


Cash and due from banks

22,708




20,900




22,088




22,510




24,966




8.7


(9.0)


Other assets

66,203




70,048




65,001




66,967




69,185




(5.5)


(4.3)


Allowance for credit losses

(10,647)




(13,152)




(15,238)




(17,099)




(16,596)




(19.0)


(35.8)


Total assets

$  1,044,568




$  1,060,315




$  1,064,919




$  1,077,852




$  1,122,310




(1.5)


(6.9)




















































Interest-bearing liabilities

























  Demand deposits

$     173,801


0.14

%

$     176,492


0.15

%

$     172,143


0.16

%

$     162,589


0.15

%

$     173,714


0.17

%

(1.5)


0.1


  Money market and savings deposits (1)

222,378


0.12


211,294


0.12


207,162


0.12


225,117


0.67


244,182


0.97


5.2


(8.9)


  Certificates of deposit $100,000 or more

178,792


1.13


190,117


1.16


198,495


1.23


203,641


1.32


216,288


1.39


(6.0)


(17.3)


  Other time deposits

186,960


1.08


188,645


1.14


192,878


1.24


197,644


1.30


201,171


1.47


(0.9)


(7.1)


    Interest-bearing deposits

761,931


0.60


766,548


0.64


770,678


0.69


788,991


0.89


835,355


1.03


(0.6)


(8.8)


  Short-term borrowings

9,345


0.22


10,505


0.23


10,695


0.23


10,752


0.24


11,987


0.27


(11.0)


(22.0)


    Total interest-bearing liabilities

771,276


0.60

%

777,053


0.63

%

781,373


0.69

%

799,743


0.88

%

847,342


1.02

%

(0.7)


(9.0)


Noninterest-bearing deposits

161,593




171,745




162,189




154,586




151,970




(5.9)


6.3


Accrued expenses and other liabilities

7,237




8,010




7,453




9,315




8,748




(9.7)


(17.3)


Stockholders' equity

104,462




103,507




113,904




114,208




114,250




0.9


(8.6)


Total liabilities and stockholders' equity

$  1,044,568




$  1,060,315




$  1,064,919




$  1,077,852




$  1,122,310




(1.5)


(6.9)



























Net interest spread



3.38

%



3.34

%



3.39

%



3.42

%



3.11

%





Net interest margin



3.50

%



3.47

%



3.54

%



3.60

%



3.30

%























































(1)  Interest on money market and savings deposits for the second and first quarters of 2013 included an adjustment to expense related to interest rate caps and the hedged








      deposits associated with them.  This adjustment increased interest expense $279 thousand for the second quarter of 2013 and $416 thousand for the first quarter of 2013.  








      Interest expense for the other quarters presented did not reflect this adjustment because the interest rate caps were terminated in June of 2013.












 

Shore Bancshares, Inc.




Page 12 of 12


Reconciliation of Generally Accepted Accounting Principles (GAAP) 






  and Non-GAAP Measures






(In thousands, except per share data)





























1Q 14


4Q 13


3Q 13


2Q 13


1Q 13













The following reconciles return on average equity and return on











  average tangible equity (Note 1):






















Net income (loss) 

$          1,258


$         1,175


$     (11,392)


$           361


$            222


Net income (loss) - annualized (A)

$          5,102


$         4,662


$     (45,197)


$         1,448


$            900













Net income (loss), excluding net amortization of intangible assets

$          1,303


$         1,220


$     (11,347)


$           406


$            267













Net income (loss), excluding net amortization of intangible 











  assets - annualized (B)

$          5,284


$         4,840


$     (45,018)


$         1,628


$         1,083













Average stockholders' equity (C)

$       104,462


$     103,507


$     113,904


$     114,208


$     114,250


Less:  Average goodwill and other intangible assets

(15,945)


(16,018)


(16,092)


(16,166)


(16,242)


Average tangible equity (D)

$         88,517


$       87,489


$       97,812


$       98,042


$       98,008













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

4.88

%

4.50

%

(39.68)

%

1.27

%

0.79

%

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

5.97

%

5.53

%

(46.03)

%

1.66

%

1.11

%























The following reconciles GAAP efficiency ratio and non-GAAP 











  efficiency ratio (Note 2):






















Noninterest expense (E)

$         10,115


$       10,468


$         9,968


$         9,759


$       10,491


Less:  Amortization of intangible assets

(74)


(74)


(74)


(74)


(74)


          Other nonrecurring adjustments

-


-


-


49


-


Adjusted noninterest expense (F)

$         10,041


$       10,394


$         9,894


$         9,734


$       10,417













Taxable-equivalent net interest income (G)

$          8,347


$         8,595


$         8,852


$         9,028


$         8,504


Nonrecurring adjustment

-


-


-


(308)


-


Taxable-equivalent net interest income excluding nonrecurring adjustment (H)

$          8,347


$         8,595


$         8,852


$         8,720


$         8,504













Noninterest income (I)

$          4,788


$         4,215


$         4,792


$         3,962


$         4,490


Less:  Investment securities (gains)/losses

-


-


-


(913)


-


          Other nonrecurring (gains)/losses

-


-


(297)


1,306


-


Adjusted noninterest income (J)

$          4,788


$         4,215


$         4,495


$         4,355


$         4,490













Efficiency ratio (GAAP)  (E)/(G)+(I) 

77.01

%

81.72

%

73.06

%

75.13

%

80.74

%

Efficiency ratio (Non-GAAP)  (F)/(H)+(J)

76.44

%

81.14

%

74.13

%

74.45

%

80.17

%























The following reconciles book value per common share and tangible 











  book value per common share (Note 1):






















Stockholders' equity (K)

$       104,632


$     103,299


$     102,001


$     113,594


$     114,348


Less:  Goodwill and other intangible assets

(15,900)


(15,974)


(16,048)


(16,122)


(16,196)


Tangible equity (L)

$         88,732


$       87,325


$       85,953


$       97,472


$       98,152













Shares outstanding (M)

8,471


8,471


8,461


8,461


8,461













Book value per common share (GAAP)  (K)/(M)

$          12.35


$         12.19


$         12.06


$         13.43


$         13.51


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

$          10.47


$         10.31


$         10.16


$         11.52


$         11.60
























The following reconciles equity to assets and











  tangible equity to tangible assets (Note 1):






















Stockholders' equity (N)

$       104,632


$     103,299


$     102,001


$     113,594


$     114,348


Less:  Goodwill and other intangible assets

(15,900)


(15,974)


(16,048)


(16,122)


(16,196)


Tangible equity (O)

$         88,732


$       87,325


$       85,953


$       97,472


$       98,152













Assets (P)

$    1,049,514


$  1,054,124


$  1,051,384


$  1,054,277


$  1,104,611


Less:  Goodwill and other intangible assets

(15,900)


(15,974)


(16,048)


(16,122)


(16,196)


Tangible assets (Q)

$    1,033,614


$  1,038,150


$  1,035,336


$  1,038,155


$  1,088,415













Period-end equity/assets (GAAP)  (N)/(P)

9.97

%

9.80

%

9.70

%

10.77

%

10.35

%

Period-end tangible equity/tangible assets (Non-GAAP)  (O)/(Q)

8.58

%

8.41

%

8.30

%

9.39

%

9.02

%























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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