Shore Bancshares Reports Second Quarter and First-Half Results

EASTON, Md., July 26, 2011 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) reported a net loss of $233 thousand or $(0.03) per diluted common share for the second quarter of 2011, compared to a net loss of $1.1 million or $(0.13) per diluted common share for the first quarter of 2011, and net income of $445 thousand or $0.05 per diluted common share for the second quarter of 2010. The Company reported a net loss of $1.3 million or $(0.16) per diluted common share for the first half of 2011, compared to a net loss of $1.1 million or $(0.13) per diluted common share for the first half of 2010.

When comparing the second quarter of 2011 to the first quarter of 2011, the primary reason for the lower net loss was a decrease in the provision for credit losses of $995 thousand and a decrease in noninterest expenses of $697 thousand.  Similarly, when comparing the second quarter of 2011 to the second quarter of 2010, the main reason for the current quarter’s loss was a decline in net interest income of $749 thousand and an increase in the provision for credit losses of $478 thousand.  When comparing the first half of 2011 to the first half of 2010, the principal factors driving the difference were a decline in net interest income of $1.3 million, partially offset by a decrease in the provision for credit losses of $749 thousand.

“There is considerable uncertainty about where the economy is headed, both nationally and here on the Delmarva peninsula within our markets. We operate in a micro-economy that revolves around the vitality of commercial and residential real estate sales, development, property values, and the trades associated with the real estate industry -- all of which are drivers of our credit quality and loan growth,” said W. Moorhead Vermilye, chief executive officer. “While we are cautiously optimistic as a result of seeing some modest periodic examples of improvement among our best customers, the overall local economy remains pervasively soft.”

“Evidence of the resiliency of our company is that we were able to maintain the net interest margin at a level slightly ahead of the first quarter (3.80%) as we both lowered our cost of funds and grew average noninterest-bearing deposits (+5.5% year-over-year). Loan demand from higher quality borrowers generally remains weak and inconsistent, as many of our better customers are also riding out their own difficulties associated with this cycle, or are waiting on the sidelines for stronger signs of stability and economic improvement,” according to Vermilye.

The Company’s return on average assets for the second quarter of 2011 was (0.08)%, compared to (0.39)% and 0.16% for the quarters ended March 31, 2011 and June 30, 2010, respectively.  The return on average stockholders’ equity was (0.77)% for the second quarter of 2011, compared to (3.59)% for the first quarter of 2011 and 1.42% for the second quarter of 2010.

The Company’s return on average assets for the first six months of 2011 was (0.24)%, compared to (0.20)% for the first six months of 2010.  The return on average stockholders’ equity was (2.18)% for the first half of 2011, compared to (1.78)% for the first half of 2010.

Total assets were $1.124 billion at June 30, 2011, a $6.0 million, or less than 1%, decrease when compared to the $1.130 billion at the end of 2010.  Total loans decreased 2.0% to $877.3 million and total deposits decreased slightly to $973.4 million, when compared to December 31, 2010.  Total stockholders’ equity decreased 1.3% from the end of 2010.  The Company’s year-to-date average equity to average assets was 10.80% and year-to-date average tangible equity to average tangible assets was 9.32%.

Review of Quarterly Financial Results

Net interest income for the second quarter of 2011 was $9.9 million, a slight improvement from the first quarter of 2011 and a decrease of 7.0% from the same period last year.  The increase in net interest income when compared to the first quarter of 2011 was primarily due to a decrease in the balances of and rates paid on interest-bearing liabilities offsetting the decline in the balances of and yields earned on average earning assets.  The decrease in net interest income when compared to the second quarter of 2010 was primarily due to lower balances of and yields earned on average earning assets.  The Company’s net interest margin was 3.80% for the second quarter of 2011, 3.79% for the first quarter of 2011 and 4.03% for the second quarter of 2010.

The provision for credit losses was $5.4 million for the three months ended June 30, 2011. The comparable amounts were $6.4 million and $4.9 million for the three months ended March 31, 2011 and June 30, 2010, respectively.  The ratio of the allowance for credit losses to period-end loans was 1.86% at June 30, 2011, compared to 1.97% at March 31, 2011 and 1.47% at June 30, 2010.  Management believes that the provision for credit losses and the resulting allowance were adequate at June 30, 2011.

The level of provision for credit losses was primarily in response to loan charge-offs which remain at historically high levels and overall economic conditions which have not improved.  Net charge-offs were $6.5 million for the second quarter of 2011, $3.1 million for the first quarter of 2011 and $4.4 million for the second quarter of 2010.  The ratio of quarter-to-date annualized net charge-offs to average loans was 2.96% for the second quarter of 2011, 1.44% for the first quarter of 2011 and 1.95% for the second quarter of 2010. In addition, nonperforming assets have increased when compared to the end of June 2010, although they have declined 3.9% since the end of the first quarter of 2011.  The most improvement was in the decline of loans 90 days past due and still accruing which was partially offset by an increase in other real estate and other assets owned.  The ratio of nonperforming assets to total assets was 7.08% at June 30, 2011.  The comparable nonperforming assets to total assets ratio was 7.32% at March 31, 2011, and 4.28% at June 30, 2010.

Total noninterest income for the second quarter of 2011 remained relatively unchanged when compared to the first quarter of 2011 and decreased $187 thousand, or 4.1%, when compared to the second quarter of 2010. The decrease when compared to the first quarter of 2011 was primarily a result of a decrease in investment securities gains and insurance agency commissions which were mainly offset by increases in service charges on deposit accounts and trust and investment fee income.  The decline in noninterest income during the second quarter of 2011 when compared to the second quarter of 2010 was primarily due to a decline in insurance agency commissions and service charges on deposit accounts.

Total noninterest expense for the second quarter of 2011 decreased $697 thousand, or 7.0%, when compared to the first quarter of 2011 mainly due to lower salaries, employee benefits and data processing expenses.  Employee benefits declined primarily because the Company incurred costs relating to a new wellness program during the first quarter of 2011 and because forfeitures were used to reduce 401K costs during the second quarter of 2011.  Data processing expenses decreased mainly because the Company incurred data processing charges relating to the merger of The Felton Bank into CNB during the first quarter of 2011.  When compared to the second quarter of 2010, total noninterest expense for the second quarter of 2011 decreased $494 thousand, or 5.1%, primarily due to lower salaries, insurance agency commissions and expenses related to other real estate owned activities.  These expenses were partially offset by higher employee benefits which increased because expenses accrued for profit sharing plans were reduced during the second quarter of 2010.

Review of Six-Month Financial Results

Net interest income for the first six months of 2011 was $19.8 million, a decrease of 6.1% when compared to the first six months of 2010.  The decrease was primarily due to lower balances of and yields earned on average earning assets.  The net interest margin decreased 20 basis points (bp) from 3.99% for the first half of 2010 to 3.79% for the first half of 2011.

The provisions for credit losses for the six months ended June 30, 2011 and 2010 were $11.8 million and $12.5 million, respectively.  Net charge-offs were $9.7 million and $10.1 million for the six months ended June 30, 2011 and 2010, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 2.20% for the first half of 2011 and 2.24% for the first half of 2010.

Total noninterest income for the six months ended June 30, 2011 declined $674 thousand when compared to the same period in 2010.  As with the second quarter 2011 results, the decrease in noninterest income was mainly due to a decline in insurance agency commissions and service charges on deposit accounts.

Total noninterest expense for the six months ended June 30, 2011 decreased $924 thousand when compared to the same period in 2010.  The primary reason for the decrease was lower expenses related to salaries, which included lower amounts for bonus and stock-based compensation expenses, insurance agency commissions and other real estate owned activities.  These expenses were partially offset by higher data processing charges relating to the merger of The Felton Bank into CNB during the first quarter of 2011.

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”.

SOURCE Shore Bancshares, Inc.