Shore Bancshares Reports First Quarter 2011 Financial Results

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Apr 26, 2011, 08:05 ET

EASTON, Md., April 26, 2011 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) reported a net loss of $1.1 million or $(0.13) per diluted common share for the first quarter of 2011, compared to net income of $850 thousand or $0.10 per diluted common share for the fourth quarter of 2010, and a net loss of $1.6 million or $(0.19) per diluted common share for the first quarter of 2010. The first quarter of 2011 included a provision for credit losses of $6.4 million, which was $2.0 million higher than the provision for the fourth quarter of 2010 and $1.2 million lower than the provision for the first quarter of 2010.

“We are not yet seeing meaningful improvement in general economic conditions across our Delmarva markets. The values of both commercial and residential real estate remain well below historical levels. As is the case with every banking organization operating in the market, real estate comprises a substantial portion of the underlying collateral for the loan portfolios, so declining property values are largely driving credit quality and our ongoing higher provisioning for possible credit losses,” said W. Moorhead Vermilye, chief executive officer. “Thus, the $6.4 million provision for the first quarter was the main factor affecting our disappointing financial performance. We are moving as aggressively as possible to resolve and work out of troubled credits and to eventually dispose of them, as evidenced by the recent quarterly trend in net chargeoffs. We remain confident that our reserve coverage of problem loans is adequate, and we believe our solid capital position should enable us to patiently outlast this cycle to resume our track record of consistent growth and profitability.”

The Company’s return on average assets for the first quarter of 2011 was (0.39)%, compared to 0.30% and (0.55)% for the quarters ended December 31, 2010 and March 31, 2010, respectively. The return on average stockholders’ equity was (3.59)% for the first quarter of 2011, compared to 2.73% for the fourth quarter of 2010 and (4.95)% for the first quarter of 2010.

Total assets were $1.131 billion at March 31, 2011, compared to $1.130 billion at the end of 2010. Total loans decreased 1.2% to $884.7 million and total deposits increased slightly to $986.5 million, when compared to December 31, 2010. Total stockholders’ equity decreased 1.3% from the end of 2010.

Review of Quarterly Financial Results

Net interest income was $9.9 million for the first quarter of 2011, compared to $10.9 million for the fourth quarter of 2010 and $10.4 million for the first quarter of 2010. A decline in the yields earned on average earning assets was primarily the reason for the decrease in net interest income when compared to the fourth quarter of 2010. The decrease in net interest income when compared to the first quarter of 2010 was primarily due to a decrease in the balances of and yields earned on average earning assets. The Company’s net interest margin was 3.79% for the first quarter of 2011, a decrease of 30 basis points (bp) when compared to the fourth quarter of 2010 and a decrease of 16 bp when compared to the first quarter of 2010.

As previously mentioned, the provision for credit losses was $6.4 million for the three months ended March 31, 2011. The comparable amounts were $4.4 million and $7.6 million for the three months ended December 31, 2010 and March 31, 2010, respectively. The ratio of the allowance for credit losses to period-end loans increased to 1.97% at March 31, 2011, compared to 1.59% at December 31, 2010 and 1.41% at March 31, 2010. Management believes that the provision for credit losses and the resulting allowance were adequate at March 31, 2011.

The level of provision for credit losses in the first quarter of 2011 was primarily in response to the overall increase in nonperforming assets. In addition, loan charge-offs remain at historically high levels and overall economic conditions have not improved. Net charge-offs were $3.1 million for the first quarter of 2011, compared to $3.3 million for the fourth quarter of 2010 and $5.7 million for the first quarter of 2010. The ratio of quarter-to-date annualized net charge-offs to average loans was 1.44% for the first quarter of 2011, compared to 1.46% for the fourth quarter of 2010 and 2.54% for the first quarter of 2010. The ratio of nonperforming assets to total assets was 4.73% at March 31, 2011. The comparable nonperforming asset ratio was 3.53% at December 31, 2010 and 2.87% at March 31, 2010.

Total noninterest income for the first quarter of 2011 increased $447 thousand when compared to the fourth quarter of 2010 but declined $487 thousand when compared to the first quarter of 2010. The increase when compared to the fourth quarter of 2010 was primarily a result of an increase in insurance agency commissions of $394 thousand due to contingency payments which are typically received in the first quarter of each year and are based on the prior year’s performance. The decline in noninterest income during the first quarter of 2011 when compared to the first quarter of 2010 was primarily due to a decline in insurance agency commissions of $379 thousand, resulting from lower contingency payments.

Total noninterest expense for the first quarter of 2011 increased $809 thousand when compared to the fourth quarter of 2010. Other employee benefits increased $260 thousand mainly due to higher payroll taxes, data processing increased $231 thousand primarily due to charges relating to the merger of The Felton Bank into CNB, and other noninterest expenses increased $158 thousand mainly due to higher expenses related to collection and other real estate owned activities when compared to the fourth quarter of 2010.

Total noninterest expense for the first quarter of 2011 decreased $430 when compared to the first quarter of 2010. Salaries and wages decreased $244 thousand mainly due to lower bonus and stock-based compensation expense, employee benefits decreased $128 thousand primarily due to lower profit sharing expense, and other noninterest expenses decreased $136 thousand mainly due to lower expenses related to other real estate owned activities. Partially offsetting these decreases when compared to the first quarter of 2010 was a $220 thousand increase in data processing mainly due to the charges relating to the merger of The Felton Bank into CNB.

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”.

Page 4 of 11 Shore Bancshares, Inc. Financial Highlights (Dollars in thousands, except per share data)
	For the Three Months Ended
	March 31,
	2011		2010		Change
PROFITABILITY FOR THE PERIOD
Net interest income	$ 9,862		$ 10,395		(5.1)	%
Provision for credit losses	6,390		7,617		(16.1)
Noninterest income	4,395		4,882		(10.0)
Noninterest expense	9,891		10,321		(4.2)
Loss before income tax benefit	(2,024)		(2,661)		23.9
Income tax benefit	(941)		(1,099)		14.4
Net loss	$ (1,083)		$ (1,562)		30.7


Return on average assets	(0.39)	%	(0.55)	%	16	bp
Return on average equity	(3.59)		(4.95)		136
Return on average tangible equity (1)	(3.92)		(5.64)		172
Net interest margin	3.79		3.95		(16)
Efficiency ratio - GAAP	69.38		67.56		182
Efficiency ratio - Non-GAAP (1)	68.85		66.71		214


PER SHARE DATA
Basic net loss per common share	$ (0.13)		$ (0.19)		31.6	%
Diluted net loss per common share	(0.13)		(0.19)		31.6
Dividends paid per common share	0.06		0.06		-
Book value per common share at period end	14.32		14.82		(3.4)
Tangible book value per common share at period end (1)	12.14		12.30		(1.3)
Market value at period end	9.75		14.25		(31.6)
Market range:
High	11.11		14.75		(24.7)
Low	9.42		10.21		(7.7)


PERIOD-END BALANCE SHEET DATA
Loans	$ 884,715		$ 905,194		(2.3)	%
Securities	106,920		112,929		(5.3)
Assets	1,131,334		1,146,334		(1.3)
Deposits	986,486		990,750		(0.4)
Stockholders' equity	120,926		125,108		(3.3)


AVERAGE BALANCE SHEET DATA
Loans	$ 887,531		$ 910,374		(2.5)	%
Securities	106,235		110,252		(3.6)
Earning assets	1,062,164		1,075,425		(1.2)
Assets	1,131,259		1,145,607		(1.3)
Deposits	982,249		982,265		-
Stockholders' equity	122,466		128,081		(4.4)


CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets	10.83	%	11.18	%	(35)	bp
Average tangible equity to average tangible assets (1)	9.35		9.50		(15)
Annualized net charge-offs to average loans	1.44		2.54		(110)
Allowance for credit losses to period-end loans	1.97		1.41		56
Nonperforming assets to total loans+other real estate owned	6.02		3.62		240
Nonperforming assets to total assets	4.73		2.87		186
Nonperforming assets+Loans 90 days past due
and still accruing to total loans+other real estate owned	6.64		3.93		271
Nonperforming assets+Loans 90 days past due
and still accruing to total assets	5.22		3.11		211


(1) See the reconciliation table on page 11 of 11.

Page 5 of 11 Shore Bancshares, Inc. Consolidated Balance Sheets (In thousands, except per share data)
				March 31, 2011		March 31, 2011
	March 31,	December 31,	March 31,	compared to		compared to
	2011	2010	2010	December 31, 2010		March 31, 2010
ASSETS
Cash and due from banks	$ 19,074	$ 19,680	$ 14,351	(3.1)	%	32.9	%
Interest-bearing deposits with other banks	31,311	21,593	11,648	45.0		168.8
Federal funds sold	39,597	36,691	46,121	7.9		(14.1)
Investments available for sale (at fair value)	100,234	99,055	104,109	1.2		(3.7)
Investments held to maturity	6,686	6,727	8,820	(0.6)		(24.2)

Loans	884,715	895,404	905,194	(1.2)		(2.3)
Less: allowance for credit losses	(17,471)	(14,227)	(12,791)	22.8		36.6
Loans, net	867,244	881,177	892,403	(1.6)		(2.8)

Premises and equipment, net	14,304	14,483	14,682	(1.2)		(2.6)
Goodwill	13,678	13,678	15,954	-		(14.3)
Other intangible assets, net	4,711	4,840	5,277	(2.7)		(10.7)
Other real estate and other assets owned, net	4,802	3,702	2,403	29.7		99.8
Other assets	29,693	28,685	30,566	3.5		(2.9)

Total assets	$ 1,131,334	$ 1,130,311	$ 1,146,334	0.1		(1.3)

LIABILITIES
Noninterest-bearing deposits	$ 122,490	$ 124,188	$ 119,271	(1.4)		2.7
Interest-bearing deposits	863,996	855,328	871,479	1.0		(0.9)
Total deposits	986,486	979,516	990,750	0.7		(0.4)

Short-term borrowings	12,078	16,041	14,001	(24.7)		(13.7)
Accrued expenses and other liabilities	10,912	11,309	15,046	(3.5)		(27.5)
Long-term debt	932	932	1,429	-		(34.8)
Total liabilities	1,010,408	1,007,798	1,021,226	0.3		(1.1)

STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares	84	84	84	-		-
Warrant	1,543	1,543	1,543	-		-
Additional paid in capital	30,290	30,242	29,988	0.2		1.0
Retained earnings	90,868	92,458	94,083	(1.7)		(3.4)
Accumulated other comprehensive loss	(1,859)	(1,814)	(590)	(2.5)		(215.1)
Total stockholders' equity	120,926	122,513	125,108	(1.3)		(3.3)

Total liabilities and stockholders' equity	$ 1,131,334	$ 1,130,311	$ 1,146,334	0.1		(1.3)

Period-end common shares outstanding	8,443	8,443	8,443	-		-
Book value per common share	$ 14.32	$ 14.51	$ 14.82	(1.3)		(3.4)

Page 6 of 11 Shore Bancshares, Inc. Consolidated Statements of Income (In thousands, except per share data)
	For the Three Months Ended
	March 31,
	2011	2010	% Change
INTEREST INCOME
Interest and fees on loans	$ 12,001	$ 12,874	(6.8)	%
Interest and dividends on investment securities:
Taxable	657	882	(25.5)
Tax-exempt	38	59	(35.6)
Interest on federal funds sold	16	12	33.3
Interest on deposits with other banks	6	1	500.0
Total interest income	12,718	13,828	(8.0)

INTEREST EXPENSE
Interest on deposits	2,833	3,385	(16.3)
Interest on short-term borrowings	13	32	(59.4)
Interest on long-term debt	10	16	(37.5)
Total interest expense	2,856	3,433	(16.8)

NET INTEREST INCOME	9,862	10,395	(5.1)
Provision for credit losses	6,390	7,617	(16.1)

NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES	3,472	2,778	25.0

NONINTEREST INCOME
Service charges on deposit accounts	704	786	(10.4)
Trust and investment fee income	376	416	(9.6)
Investment securities gains	79	-	-
Insurance agency commissions	2,510	2,889	(13.1)
Other noninterest income	726	791	(8.2)
Total noninterest income	4,395	4,882	(10.0)

NONINTEREST EXPENSE
Salaries and wages	4,246	4,490	(5.4)
Employee benefits	1,153	1,281	(10.0)
Occupancy expense	596	622	(4.2)
Furniture and equipment expense	272	300	(9.3)
Data processing	851	631	34.9
Directors' fees	107	121	(11.6)
Amortization of intangible assets	129	129	-
Insurance agency commissions expense	375	428	(12.4)
FDIC insurance premium expense	460	481	(4.4)
Other noninterest expenses	1,702	1,838	(7.4)
Total noninterest expense	9,891	10,321	(4.2)

Loss before income tax benefit	(2,024)	(2,661)	23.9
Income tax benefit	(941)	(1,099)	14.4

NET LOSS	$ (1,083)	$ (1,562)	30.7

Weighted average shares outstanding - basic	8,443	8,436	0.1
Weighted average shares outstanding - diluted	8,443	8,436	0.1

Basic net loss per common share	$ (0.13)	$ (0.19)	31.6
Diluted net loss per common share	(0.13)	(0.19)	31.6
Dividends paid per common share	0.06	0.06	-

Page 7 of 11 Shore Bancshares, Inc. Consolidated Average Balance Sheets (Dollars in thousands)
	For the Three Months Ended
	March 31,
	2011			2010
	Average	Yield/		Average	Yield/
	balance	rate		balance	rate
Earning assets
Loans	$ 887,531	5.50	%	$ 910,374	5.75	%
Investment securities
Taxable	101,625	2.62		103,488	3.45
Tax-exempt	4,610	5.08		6,764	5.39
Federal funds sold	46,813	0.14		46,553	0.11
Interest-bearing deposits	21,585	0.12		8,246	0.06
Total earning assets	1,062,164	4.88	%	1,075,425	5.24	%
Cash and due from banks	19,316			14,422
Other assets	65,426			67,914
Allowance for credit losses	(15,647)			(12,154)
Total assets	$ 1,131,259			$ 1,145,607


Interest-bearing liabilities
Demand deposits	$ 131,628	0.22	%	$ 127,986	0.25	%
Money market and savings deposits	260,841	0.93		256,818	0.68
Certificates of deposit $100,000 or more	259,179	1.70		259,538	2.24
Other time deposits	208,301	2.10		219,731	2.67
Interest-bearing deposits	859,949	1.34		864,073	1.59
Short-term borrowings	14,165	0.37		18,032	0.71
Long-term debt	932	4.56		1,429	4.45
Total interest-bearing liabilities