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Shore Bancshares Reports First Quarter 2011 Financial Results


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Shore Bancshares, Inc.

Apr 26, 2011, 08:05 ET

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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

      875,046


 1.32

%

      883,534


            1.58

%

Noninterest-bearing deposits

      122,300




      118,192




Accrued expenses and other liabilities

        11,447




        15,800




Stockholders' equity

      122,466




      128,081




Total liabilities and stockholders' equity

$ 1,131,259




$ 1,145,607













Net interest spread



 3.56

%



            3.66

%

Net interest margin



 3.79

%



            3.95

%

Page 8 of 11

Shore Bancshares, Inc.
 Financial Highlights By Quarter
(Dollars in thousands, except per share data)



1st quarter


4th quarter


3rd quarter


2nd quarter


1st quarter


1Q 11


1Q 11



2011


2010


2010


2010


2010


compared to


compared to



(1Q 11)


(4Q 10)


(3Q 10)


(2Q 10)


(1Q 10)


4Q 10


1Q 10


PROFITABILITY FOR THE PERIOD















    Net interest income

$        9,862


$    10,866


$    10,687


$    10,691


$    10,395


            (9.2)

%

            (5.1)

%

    Provision for credit losses

          6,390


        4,392


        4,193


        4,917


        7,617


           45.5


          (16.1)


    Noninterest income

          4,395


        3,948


        4,643


        4,568


        4,882


           11.3


          (10.0)


    Noninterest expense

          9,891


        9,082


      12,629


        9,688


      10,321


             8.9


            (4.2)


    (Loss) income before income taxes

        (2,024)


        1,340


      (1,492)


           654


      (2,661)


        (251.0)


            23.9


    Income tax (benefit) expense

           (941)


           490


           (92)


           209


      (1,099)


        (292.0)


            14.4


    Net (loss) income

$      (1,083)


$         850


$    (1,400)


$         445


$    (1,562)


        (227.4)


            30.7
































    Return on average assets

          (0.39)

%

          0.30

%

        (0.49)

%

          0.16

%

        (0.55)

%

             (69)

bp

               16

bp

    Return on average equity

          (3.59)


          2.73


        (4.43)


          1.42


        (4.95)


           (632)


             136


    Return on average tangible equity (1)

          (3.92)


          3.49


        (1.56)


          2.01


        (5.64)


           (741)


             172


    Net interest margin

            3.79


          4.09


          4.00


          4.03


          3.95


             (30)


             (16)


    Efficiency ratio - GAAP

          69.38


        61.31


        82.38


        63.49


        67.56


            807


             182


    Efficiency ratio - non-GAAP (1)

          68.85


        60.44


        62.56


        62.64


        66.71


            841


             214
































PER SHARE DATA















    Basic net (loss) income per common share

$        (0.13)


$        0.10


$      (0.17)


$        0.05


$      (0.19)


        (230.0)

%

            31.6

%

    Diluted net (loss) income per common share

          (0.13)


          0.10


        (0.17)


          0.05


        (0.19)


        (230.0)


            31.6


    Dividends paid per common share

            0.06


          0.06


          0.06


          0.06


          0.06


                -  


                -  


    Book value per common share at period end

          14.32


        14.51


        14.49


        14.77


        14.82


            (1.3)


            (3.4)


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

          12.14


        12.32


        12.37


        12.27


        12.30


            (1.5)


            (1.3)


    Market value at period end

            9.75


        10.54


          9.48


        11.91


        14.25


            (7.5)


          (31.6)


    Market range:















       High

          11.11


        10.73


        12.10


        14.80


        14.75


             3.5


          (24.7)


       Low

            9.42


          9.25


          9.20


        11.75


        10.21


             1.8


            (7.7)
































PERIOD-END BALANCE SHEET DATA















    Loans

$    884,715


$  895,404


$  906,490


$  905,477


$  905,194


            (1.2)

%

            (2.3)

%

    Securities

      106,920


    105,782


    104,075


    106,556


    112,929


             1.1


            (5.3)


    Assets

   1,131,334


 1,130,311


 1,134,503


 1,129,196


 1,146,334


             0.1


            (1.3)


    Deposits

      986,486


    979,516


    982,428


    971,608


    990,750


             0.7


            (0.4)


    Stockholders' equity

      120,926


    122,513


    122,355


    124,666


    125,108


            (1.3)


            (3.3)
































AVERAGE BALANCE SHEET DATA















    Loans

$    887,531


$  903,075


$  904,293


$  909,295


$  910,374


            (1.7)

%

            (2.5)

%

    Securities

      106,235


    103,600


    105,466


    109,744


    110,252


             2.5


            (3.6)


    Earning assets

   1,062,164


 1,060,645


 1,066,063


 1,071,115


 1,075,425


             0.1


            (1.2)


    Assets

   1,131,259


 1,128,517


 1,139,043


 1,134,662


 1,145,607


             0.2


            (1.3)


    Deposits

      982,249


    978,444


    984,018


    976,749


    982,265


             0.4


                -  


    Stockholders' equity

      122,466


    123,341


    125,308


    125,670


    128,081


            (0.7)


            (4.4)
































CAPITAL AND CREDIT QUALITY RATIOS















    Average equity to average assets

          10.83

%

        10.93

%

        11.00

%

        11.08

%

        11.18

%

             (10)

bp

             (35)

bp

    Average tangible equity to average tangible assets (1)

            9.35


          9.50


          9.33


          9.38


          9.50


             (15)


             (15)


    Annualized net charge-offs to average loans

            1.44


          1.46


          1.90


          1.95


          2.54


               (2)


           (110)


    Allowance for credit losses to period-end loans      

            1.97


          1.59


          1.45


          1.47


          1.41


              38


               56


    Nonperforming assets to total loans+other real estate owned

            6.02


          4.44


          4.22


          4.29


          3.62


            158


             240


    Nonperforming assets to total assets

            4.73


          3.53


          3.38


          3.45


          2.87


            120


             186


    Nonperforming assets+Loans 90 days past due















       and still accruing to total loans+other real estate owned

            6.64


          4.97


          4.58


          4.81


          3.93


            167


             271


    Nonperforming assets+Loans 90 days past due















       and still accruing to total assets

            5.22


          3.95


          3.67


          3.86


          3.11


            127


             211
































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

Page 9 of 11

Shore Bancshares, Inc.
Consolidated Statements of Income By Quarter
(In thousands, except per share data)












1Q 11


1Q 11













compared to


compared to



1Q 11


4Q 10


3Q 10


2Q 10


1Q 10


4Q 10


1Q 10


INTEREST INCOME















   Interest and fees on loans

$ 12,001


$ 12,958


$ 13,083


$ 13,047


$ 12,874


(7.4)

%

(6.8)

%

   Interest and dividends on investment securities:















       Taxable

657


804


677


846


882


(18.3)


(25.5)


       Tax-exempt

38


47


50


56


59


(19.1)


(35.6)


   Interest on federal funds sold

16


13


21


14


12


23.1


33.3


   Interest on deposits with other banks

6


7


6


4


1


(14.3)


500.0


                  Total interest income

12,718


13,829


13,837


13,967


13,828


(8.0)


(8.0)

















INTEREST EXPENSE















   Interest on deposits

2,833


2,937


3,117


3,242


3,385


(3.5)


(16.3)


   Interest on short-term borrowings

13


15


17


19


32


(13.3)


(59.4)


   Interest on long-term debt

10


11


16


15


16


(9.1)


(37.5)


                  Total interest expense

2,856


2,963


3,150


3,276


3,433


(3.6)


(16.8)

















NET INTEREST INCOME

9,862


10,866


10,687


10,691


10,395


(9.2)


(5.1)


Provision for credit losses

6,390


4,392


4,193


4,917


7,617


45.5


(16.1)

















NET INTEREST INCOME AFTER PROVISION















 FOR CREDIT LOSSES

3,472


6,474


6,494


5,774


2,778


(46.4)


25.0

















NONINTEREST INCOME















   Service charges on deposit accounts

704


799


841


831


786


(11.9)


(10.4)


   Trust and investment fee income

376


358


357


372


416


5.0


(9.6)


   Investment securities gains

79


-


-


-


-


-


-


   Insurance agency commissions

2,510


2,116


2,513


2,595


2,889


18.6


(13.1)


   Other noninterest income

726


675


932


770


791


7.6


(8.2)


                     Total noninterest income

4,395


3,948


4,643


4,568


4,882


11.3


(10.0)

















NONINTEREST EXPENSE















   Salaries and wages

4,246


4,220


4,404


4,363


4,490


0.6


(5.4)


   Employee benefits

1,153


893


897


758


1,281


29.1


(10.0)


   Occupancy expense

596


562


547


597


622


6.0


(4.2)


   Furniture and equipment expense

272


262


325


313


300


3.8


(9.3)


   Data processing

851


620


696


660


631


37.3


34.9


   Directors' fees

107


68


118


105


121


57.4


(11.6)


   Goodwill and other intangible assets impairment

-


-


3,051


-


-


-


-


   Amortization of intangible assets

129


129


128


129


129


-


-


   Insurance agency commissions expense

375


339


338


464


428


10.6


(12.4)


   FDIC insurance premium expense

460


445


448


460


481


3.4


(4.4)


   Other noninterest expenses

1,702


1,544


1,677


1,839


1,838


10.2


(7.4)


                     Total noninterest expense

9,891


9,082


12,629


9,688


10,321


8.9


(4.2)

















(Loss) income before income taxes

(2,024)


1,340


(1,492)


654


(2,661)


(251.0)


23.9


Income tax (benefit) expense

(941)


490


(92)


209


(1,099)


(292.0)


14.4

















NET (LOSS) INCOME  

$ (1,083)


$      850


$ (1,400)


$      445


$ (1,562)


(227.4)


30.7

















Weighted average shares outstanding - basic

8,443


8,443


8,443


8,443


8,436


-


0.1


Weighted average shares outstanding - diluted

8,443


8,443


8,443


8,443


8,436


-


0.1

















Basic net (loss) income per common share

$   (0.13)


$     0.10


$   (0.17)


$     0.05


$   (0.19)


(230.0)


31.6


Diluted net (loss) income per common share

(0.13)


0.10


(0.17)


0.05


(0.19)


(230.0)


31.6


Dividends paid per common share

0.06


0.06


0.06


0.06


0.06


-


-


 Page 10 of 11

Shore Bancshares, Inc.
 Consolidated Average Balance Sheets By Quarter
(Dollars in thousands)






















Average balance























1Q 11


1Q 11























compared to


compared to



1Q 11


4Q 10


3Q 10


2Q 10


1Q 10


4Q 10


1Q 10



Average


Yield/


Average


Yield/


Average


Yield/


Average


Yield/


Average


Yield/







balance


rate


balance


rate


balance


rate


balance


rate


balance


rate






Earning assets

























 Loans

$              887,531


5.50

%

$               903,075


5.71

%

$               904,293


5.76

%

$               909,295


5.77

%

$               910,374


5.75

%

(1.7)

%

(2.5)

%

 Investment securities

























  Taxable

101,625


2.62


98,378


3.24


99,572


2.70


103,284


3.29


103,488


3.45


3.3


(1.8)


  Tax-exempt

4,610


5.08


5,222


5.40


5,894


5.16


6,460


5.30


6,764


5.39


(11.7)


(31.9)


 Federal funds sold

46,813


0.14


34,018


0.16


40,638


0.20


38,001


0.15


46,553


0.11


37.6


0.6


 Interest-bearing deposits

21,585


0.12


19,952


0.12


15,666


0.15


14,075


0.12


8,246


0.06


8.2


161.8


   Total earning assets

1,062,164


4.88

%

1,060,645


5.20

%

1,066,063


5.18

%

1,071,115


5.26

%

1,075,425


5.24

%

0.1


(1.2)


Cash and due from banks

19,316




19,867




21,865




9,997




14,422




(2.8)


33.9


Other assets

65,426




62,305




65,081




67,860




67,914




5.0


(3.7)


Allowance for credit losses

(15,647)




(14,300)




(13,966)




(14,310)




(12,154)




9.4


28.7


Total assets

$           1,131,259




$            1,128,517




$            1,139,043




$            1,134,662




$            1,145,607




0.2


(1.3)




















































Interest-bearing liabilities

























 Demand deposits

$              131,628


0.22

%

$               128,592


0.22

%

$               132,023


0.24

%

$               132,563


0.25

%

$               127,986


0.25

%

2.4


2.9


 Money market and savings deposits

260,841


0.93


258,713


0.84


259,511


0.81


259,273


0.72


256,818


0.68


0.8


1.6


 Certificates of deposit $100,000 or more

259,179


1.70


256,167


1.77


258,542


1.91


251,340


2.09


259,538


2.24


1.2


(0.1)


 Other time deposits

208,301


2.10


208,808


2.23


212,098


2.37


215,987


2.56


219,731


2.67


(0.2)


(5.2)


   Interest-bearing deposits

859,949


1.34


852,280


1.37


862,174


1.44


859,163


1.51


864,073


1.59


0.9


(0.5)


 Short-term borrowings

14,165


0.37


15,381


0.39


16,092


0.38


15,771


0.48


18,032


0.71


(7.9)


(21.5)


 Long-term debt

932


4.56


932


4.46


1,429


4.36


1,429


4.40


1,429


4.45


-


(34.8)


   Total interest-bearing liabilities

875,046


1.32

%

868,593


1.35

%

879,695


1.42

%

876,363


1.50

%

883,534


1.58

%

0.7


(1.0)


Noninterest-bearing deposits

122,300




126,164




121,844




117,586




118,192




(3.1)


3.5


Accrued expenses and other liabilities

11,447




10,419




12,196




15,043




15,800




9.9


(27.6)


Stockholders' equity

122,466




123,341




125,308




125,670




128,081




(0.7)


(4.4)


Total liabilities and stockholders' equity

$           1,131,259




$            1,128,517




$            1,139,043




$            1,134,662




$            1,145,607




0.2


(1.3)




















































Net interest spread



3.56

%



3.85

%



3.76

%



3.76

%



3.66

%





Net interest margin



3.79

%



4.09

%



4.00

%



4.03

%



3.95

%





 Page 11 of 11

Shore Bancshares, Inc.
 Reconciliation of Non-GAAP Measures
(In thousands, except per share data)



1Q 11


4Q 10


3Q 10


2Q 10


1Q 10













The following reconciles return on average equity and return on











 average tangible equity (Note 1):






















Net (loss) income

$                    (1,083)


$                     850


$                 (1,400)


$                     445


$                 (1,562)


Net (loss) income - annualized (A)

$                    (4,392)


$                  3,372


$                 (5,554)


$                  1,785


$                 (6,335)













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

$                    (1,005)


$                     928


$                    (409)


$                     523


$                 (1,484)


Net (loss) income, excluding net amortization and impairment charges of intangible assets - annualized (B)

$                    (4,076)


$                  3,682


$                 (1,623)


$                  2,098


$                 (6,018)













Average stockholders' equity (C)

$                 122,466


$              123,341


$              125,308


$              125,670


$              128,081


Less:  Average goodwill and other intangible assets

(18,465)


(17,877)


(21,016)


(21,178)


(21,309)


Average tangible equity (D)

$                 104,001


$              105,464


$              104,292


$              104,492


$              106,772













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

(3.59)

%

2.73

%

(4.43)

%

1.42

%

(4.95)

%

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

(3.92)

%

3.49

%

(1.56)

%

2.01

%

(5.64)

%























The following reconciles GAAP efficiency ratio and non-GAAP











 efficiency ratio (Note 2):






















Noninterest expense (E)

$                     9,891


$                  9,082


$                12,629


$                  9,688


$                10,321


Less:  Amortization of intangible assets

(129)


(129)


(128)


(129)


(129)


          Impairment charges

-


-


(3,051)


-


-


Adjusted noninterest expense (F)

$                     9,762


$                  8,953


$                  9,450


$                  9,559


$                10,192













Net interest income (G)

$                     9,862


$                10,866


$                10,687


$                10,691


$                10,395













Noninterest income (H)

$                     4,395


$                  3,948


$                  4,643


$                  4,568


$                  4,882


Less:  Investment securities (gains)/losses

(79)


-


-


-


-


         Other nonrecurring (gains)/losses

-


-


(224)


-


-


Adjusted noninterest income (I)

$                     4,316


$                  3,948


$                  4,419


$                  4,568


$                  4,882













Efficiency ratio (GAAP)  (E)/(G)+(H)

69.38

%

61.31

%

82.38

%

63.49

%

67.56

%

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

68.85

%

60.44

%

62.56

%

62.64

%

66.71

%























The following reconciles book value per common share and tangible











 book value per common share (Note 1):






















Stockholders' equity (J)

$                 120,926


$              122,513


$              122,355


$              124,666


$              125,108


Less:  Goodwill and other intangible assets

(18,389)


(18,518)


(17,923)


(21,102)


(21,231)


Tangible equity (K)

$                 102,537


$              103,995


$              104,432


$              103,564


$              103,877













Shares outstanding (L)

8,443


8,443


8,443


8,443


8,443













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

$                     14.32


$                  14.51


$                  14.49


$                  14.77


$                  14.82


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

$                     12.14


$                  12.32


$                  12.37


$                  12.27


$                  12.30
























The following reconciles average equity to average assets and











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






















Average stockholders' equity (M)

$                 122,466


$              123,341


$              125,308


$              125,670


$              128,081


Less:  Average goodwill and other intangible assets

(18,465)


(17,877)


(21,016)


(21,178)


(21,309)


Average tangible equity (N)

$                 104,001


$              105,464


$              104,292


$              104,492


$              106,772













Average assets (O)

$              1,131,259


$           1,128,517


$           1,139,043


$           1,134,662


$           1,145,607


Less:  Average goodwill and other intangible assets

(18,465)


(17,877)


(21,016)


(21,178)


(21,309)


Average tangible assets (P)

$              1,112,794


$           1,110,640


$           1,118,027


$           1,113,484


$           1,124,298













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

10.83

%

10.93

%

11.00

%

11.08

%

11.18

%

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

9.35

%

9.50

%

9.33

%

9.38

%

9.50

%

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 in controlling cash-based operating activities.

SOURCE Shore Bancshares, Inc.

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