Shore Bancshares Reports First Quarter 2011 Financial Results

News provided by

Shore Bancshares, Inc.

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

      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.