Exhibit 99.1
Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-822-1400
PRESS RELEASE
Shore Bancshares Reports 7.1 Percent Increase
in Second Quarter Earnings
Easton, Maryland (07/20/2006)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported second quarter earnings of $3.8 million or $0.45 per diluted share, up 7.1% from $3.5 million or $0.42 per diluted share for the second quarter of 2005. Net income for the six-month period ended June 30, 2006 was $7.3 million or $0.87 per diluted share, a 10.5% increase over earnings of $6.6 million or $0.79 per diluted share for the first half of 2005.
“The Company continued to experience strong loan demand during the second quarter, which combined with increasing yields on assets produced consistent, improved results for the quarter,” said W. Moorhead Vermilye, President and Chief Executive Officer. “Net interest income growth was healthy during the quarter and we were able to improve the net interest margin to 5.00% at quarter-end from 4.69% a year ago. Credit quality remains excellent, as the local economies throughout our markets are enjoying good growth.”
“We were pleased to have been recently added to the current Russell 3000 Index as a result of the continuing growth and improved valuation of Shore Bancshares. This development should improve our visibility with a variety of new investors and funds using quantitative strategies,” said Vermilye.
The Company’s return on average assets for the second quarter of 2006 was 1.75%, compared to 1.73% for the same period last year. The return on average stockholders’ equity was 14.57% for the quarter ended June 30, 2006, compared to 14.86% for the same quarter last year.
The Company’s return on average assets for the six-months ended June 30, 2006 was 1.70%, compared to 1.64% for the six-months ended June 30, 2005. The return on average stockholders’ equity was 13.93% for the six-months ended June 30, 2006, compared to 13.88% for the same period last year.
At June 30, 2006, total assets were $887.6 million, total deposits were $715.6 million, and total stockholders’ equity was $106.2 million. The increase in total assets of $36 million since December 31, 2005 was related to loan growth. Loans increased $48 million during the first six months of 2006, totaling $675.8 million at June 30, 2006. Loan growth was funded primarily by deposit growth of $10.6 million and an increase in borrowings from the Federal Home Loan Bank of $21 million.
Review of Financial Results for the Quarter
Net interest income for the second quarter of 2006 was $9.9 million, an increase of 13.5% over the $8.7 million earned during the same period last year. Higher loan yields resulted in an increase in the net interest margin from 4.69% for the second quarter of 2005 to 5.00% for the second quarter of 2006. The market for deposits remained competitive throughout the second quarter of 2006 resulting in higher rates paid for interest bearing deposits. The cost of funds increased 70 basis points from 1.82% to 2.52% for the quarter ended June 30, 2006 when compared to the same quarter in 2005. The competitive environment for deposits as well as an increase in long-term borrowings contributed to the overall increase in the cost of funds.
The provision for credit losses for the three-month periods ended June 30, 2006 and 2005 was $240,000 and $180,000, respectively. Net charge-offs were $95,000 and $78,000 for the three months ended June 30, 2006 and 2005, respectively. The increase in the provision for the second quarter of 2006 when compared to the same period last year reflects the continued growth of the Company’s loan portfolio. Management believes that the provision for credit losses and the resulting allowance are adequate at June 30, 2006.
Noninterest income for the second quarter of 2006 improved by $281,000 when compared to the second quarter of 2005. Increases in service charges, insurance agency commissions and other noninterest income all contributed to the growth.
Noninterest expense for the second quarter of 2006 increased $968,000 when compared to the second quarter of 2005. This was primarily attributable to increased salaries and benefits costs of $659,000 related to higher incentive compensation costs and increased staffing for a new branch, expansion of the secondary market mortgage division and trust operations that began in July 2005. Occupancy and equipment expense increased $71,000 and other operating cost increased $198,000 for the second quarter of 2006 when compared to the second quarter of 2005. These increases are an ongoing result of the overall growth of the Company.
Review of Six-Month Financial Results
Net interest income for the first six months of 2006 increased 13.6% or $2.3 million when compared to the first six months of 2005. The increase is the result of growth in the loan portfolio as well as an increase in the overall net interest margin driven by increased loan yields. Despite an increase in the overall cost of funds from 1.76% at June 30, 2005 to 2.41% at June 30, 2006, the Company’s net interest margin increased from 4.60% at June 30, 2005 to 4.90% for the six months ended June 30, 2006.
The provision for credit losses for the six-month periods ended June 30, 2006 and 2005 was $551,000 and $360,000, respectively. Net charge-offs were $225,000 and $192,000 for the six months ended June 30, 2006 and 2005, respectively. The increased provision reflects the overall growth of the loan portfolio. Credit quality remained strong at June 30, 2006, as evidenced by the nonperforming assets to total assets ratio of 0.09% and annualized net charge-offs to total loans of 0.06%.
Noninterest income for the six months ended June 30, 2006 totaled $7.0 million, an increase of 13.3% when compared to $6.2 million for the same period in 2005. Service charge income increased $234,000, insurance agency commissions increased $204,000 and other noninterest income increased $445,000 when compared to the same six-month period in 2005. The increase in other noninterest income is primarily attributable to trust and investment management fee increases of approximately $108,000 due to growth in assets under management, increased commission income from mortgages originated for the secondary market of $45,000, letter of credit fee increases of approximately $61,000 and gains on life insurance policies of approximately $174,000 relating to a deferred compensation plan. We began trust operations in the third quarter of 2005.
Noninterest expense for the six months ended June 30, 2006 increased $1.8 million or 14.3% when compared to the same period in 2005. The majority of the increase relates to salary and benefit increases that resulted from the expansion of services and new branch locations. Other noninterest expenses increased $420,000, also as a result of overall growth.
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 three banks, The Talbot Bank of Easton, Maryland, The Centreville National Bank of Maryland, and The Felton Bank; two insurance producer firms, The Avon-Dixon Agency, LLC and Elliott Wilson Insurance, LLC; an insurance premium finance company, Mubell Finance, LLC; and a registered investment adviser firm, Wye Financial Services, LLC.
Forward-Looking Statements
This press release may contain 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 about the future, as well as its assumptions and judgments concerning such beliefs, plans and objections. 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 Risk Factors contained in Item 1A of Part I of the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2005.
For further information contact: W. Moorhead Vermilye, President and CEO
Financial Highlights | | | | | | | | | |
| (Dollars in thousands, except per share data) | | | | | | | | | |
| | | Three Months Ended | Six Months Ended |
| | | | June 30, | | | June 30, |
| | | 2006 | 2005 | % Change | | 2006 | | 2005 | % Change |
| PROFITABILITY FOR THE PERIOD: | | | | | | | | | |
| Net interest income | | $9,909 | $8,730 | 13.5% | | $19,323 | | $17,007 | 13.6% |
| Provision for credit losses | | 240 | 180 | 32.8% | | 551 | | 360 | 53.1% |
| Noninterest income | | 3,319 | 3,038 | 9.2% | | 7,025 | | 6,200 | 13.3% |
| Noninterest expense | | 7,047 | 6,079 | 15.9% | | 14,138 | | 12,372 | 14.3% |
| Income before income taxes | | 5,941 | 5,509 | 7.8% | | 11,659 | | 10,475 | 11.3% |
| Income taxes | | 2,190 | 2,008 | 9.1% | | 4,357 | | 3,868 | 12.6% |
| Net income | | 3,751 | 3,501 | 7.1% | | 7,302 | | 6,607 | 10.5% |
| Return on average assets | | 1.75% | 1.73% | 1.2% | | 1.70% | | 1.64% | 3.8% |
| Return on average equity | | 14.57% | 14.86% | -1.9% | | 13.93% | | 13.88% | 0.4% |
| Net interest margin | | 5.00% | 4.69% | 6.6% | | 4.90% | | 4.60% | 6.5% |
| Efficiency ratio | | 53.28% | 51.66% | 3.1% | | 53.66% | | 53.31% | 0.7% |
| | | | | | | | | | |
| | | | | | | | | | |
| PER SHARE DATA (1) | | | | | | | | | |
| Basic net income | | $0.45 | $0.42 | 7.1% | | $0.87 | | $0.80 | 8.7% |
| Diluted net income | | $0.45 | $0.42 | 7.1% | | $0.87 | | $0.79 | 10.1% |
| Dividends declared | | $0.15 | $0.13 | 15.4% | | $0.29 | | $0.25 | 16.0% |
| Book value | | $12.69 | $11.78 | 7.8% | | $12.69 | | $11.78 | 7.8% |
| Tangible book value | | $11.06 | $10.10 | 9.6% | | $11.06 | | $10.10 | 9.6% |
| Average fully diluted shares | | 8,393,253 | 8,349,630 | 0.5% | | 8,389,552 | | 8,344,293 | 0.5% |
| | | | | | | | | | |
| AT PERIOD-END: | | | | | | | | | |
| Assets | | $887,585 | $819,795 | 8.3% | | $887,585 | | $819,795 | 8.3% |
| Deposits | | $715,562 | $683,414 | 4.7% | | $715,562 | | $683,414 | 4.7% |
| Loans receivable | | $675,772 | $615,834 | 9.7% | | $675,772 | | $615,834 | 9.7% |
| Securities | | $117,799 | $120,709 | -2.4% | | $117,799 | | $120,709 | -2.4% |
| Stockholders' equity | | $106,231 | $97,928 | 8.5% | | $106,231 | | $97,928 | 8.5% |
| | | | | | | | | | |
| CAPITAL AND CREDIT QUALITY RATIOS: | | | | | | | |
| Average equity to average assets | | 11.98% | 11.61% | | | 12.22% | | 11.82% | |
Allowance for credit losses to total loans receivable | | 0.82% | 0.77% | | | 0.80% | | 0.77% | |
| Nonperforming assets to total assets | | 0.09% | 0.16% | | | 0.09% | | 0.16% | |
| | | | | | | | | | |
| Annualized net (charge-offs) | | | | | | | | | |
| recoveries to average loans receivable | | 0.06% | 0.05% | | | 0.07% | | 0.06% | |
(1) All per share data has been adjusted to give retroactive effect of a 3 for 2 stock split in the form of a stock dividend declared on May 4, 2006.
| Consolidated Balance Sheets | | | | | |
| (Dollars in thousands, except per share data) | | | | | |
| | June 30, | | June 30, | | December 31, |
| | 2006 | | 2005 | | 2005 |
| ASSETS | | | | | |
| Cash and due from banks | $16,061 | | $25,202 | | $28,990 |
| Federal funds sold | 29,385 | | 22,630 | | 25,401 |
| Interest-bearing deposits with banks | 12,543 | | 848 | | 13,068 |
| Investments available-for-sale (at fair value) | 103,440 | | 105,838 | | 106,160 |
| Investments held-to-maturity | 14,359 | | 14,871 | | 14,911 |
| | | | | | |
| Total loans | 675,772 | | 615,834 | | 627,463 |
| Less: allowance for credit losses | (5,562) | | (4,860) | | (5,236) |
| Net loans | 670,210 | | 610,974 | | 622,227 |
| | | | | | |
| Premises and equipment, net | 15,946 | | 14,310 | | 15,187 |
| Accrued interest receivable | 4,270 | | 3,599 | | 3,897 |
| Goodwill | 11,939 | | 11,939 | | 11,939 |
| Other intangible assets, net | 1,737 | | 2,074 | | 1,906 |
| Other assets | 7,695 | | 7,510 | | 7,952 |
| | | | | | |
| Total assets | $887,585 | | $819,795 | | $851,638 |
| | | | | | |
| LIABILITIES | | | | | |
| Noninterest-bearing deposits | 112,659 | | 104,831 | | 113,244 |
| Interest-bearing deposits | 602,903 | | 578,583 | | 591,714 |
| | | | | | |
| Total deposits | 715,562 | | 683,414 | | 704,958 |
| | | | | | |
| Short-term borrowings | 35,426 | | 28,757 | | 35,848 |
| Other long-term borrowings | 25,000 | | 5,000 | | 4,000 |
| Accrued interest payable and other liabilities | 5,366 | | 4,696 | | 5,384 |
| | | | | | |
| Total liabilities | 781,354 | | 721,867 | | 750,190 |
| | | | | | |
| STOCKHOLDER'S EQUITY | | | | | |
Common stock -- par value $0.01; shares authorized 35,000,000; shares issued and outstanding 8,367,974 | 84 | | 55 | | 56 |
| Additional paid in capital | 29,423 | | 28,689 | | 29,013 |
| Retained earnings | 78,540 | | 69,690 | | 73,642 |
| Accumulated other comprehensive income | (1,816) | | (506) | | (1,263) |
| Total stockholder's equity | 106,231 | | 97,928 | | 101,448 |
| | | | | | |
| Total liabilities and stockholder's equity | $887,585 | | $819,795 | | $851,638 |
| | | | | | |
| Consolidated Statements of Income | | | | | | | |
| (Dollars in thousands, except per share data) | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2006 | | 2005 | | 2006 | | 2005 |
| Interest Income: | | | | | | | |
| Interest and fees on loans and leases | $12,481 | | $10,195 | | $23,936 | | $19,794 |
| Interest on deposits with banks | 71 | | 6 | | 242 | | 11 |
| Interest and dividends on securities: | | | | | | | |
| Taxable | 1,045 | | 939 | | 2,065 | | 1,809 |
| Exempt from federal income taxes | 135 | | 144 | | 278 | | 293 |
| Interest on federal funds sold | 211 | | 206 | | 487 | | 390 |
| Total interest income | 13,943 | | 11,490 | | 27,008 | | 22,297 |
| | | | | | | | |
| Interest expense: | | | | | | | |
| Interest on deposits | 3,642 | | 2,579 | | 6,960 | | 4,958 |
| Interest on short-term borrowings | 238 | | 119 | | 502 | | 207 |
| Interest on long-term borrowings | 154 | | 62 | | 223 | | 125 |
| | | | | | | | |
| Total interest expense | 4,034 | | 2,760 | | 7,685 | | 5,290 |
| Net interest income | 9,909 | | 8,730 | | 19,323 | | 17,007 |
| Provision for credit losses | 240 | | 180 | | 551 | | 360 |
| Net interest income after provision for credit losses | 9,669 | | 8,550 | | 18,772 | | 16,647 |
| | | | | | | | |
| Noninterest income: | | | | | | | |
| Securities gains (losses) | 0 | | 0 | | 0 | | 58 |
| Service charges on deposit accounts | 779 | | 727 | | 1,523 | | 1,289 |
| Insurance agency commissions | 1,661 | | 1,704 | | 3,992 | | 3,788 |
| Other income | 879 | | 607 | | 1,510 | | 1,065 |
| Total noninterest income | 3,319 | | 3,038 | | 7,025 | | 6,200 |
| Noninterest expenses: | | | | | | | |
| Salaries and employee benefits | 4,395 | | 3,736 | | 8,863 | | 7,715 |
| Occupancy expense of premises | 390 | | 371 | | 799 | | 771 |
| Equipment expenses | 318 | | 266 | | 641 | | 521 |
| Data processing | 395 | | 348 | | 772 | | 702 |
| Directors' fees | 122 | | 129 | | 299 | | 319 |
| Amortization of intangible assets | 84 | | 84 | | 168 | | 168 |
| Other expenses | 1,343 | | 1,145 | | 2,596 | | 2,176 |
| Total noninterest expense | 7,047 | | 6,079 | | 14,138 | | 12,372 |
| | | | | | | | |
| Income before income taxes | 5,941 | | 5,509 | | 11,659 | | 10,475 |
| Income tax expense | 2,190 | | 2,008 | | 4,357 | | 3,868 |
| | | | | | | | |
| Net income | $3,751 | | $3,501 | | $7,302 | | $6,607 |
| | | | | | | | |
| Basic net income per share (1) | $0.45 | | $0.42 | | $0.87 | | $0.80 |
| Diluted net income per share (1) | $0.45 | | $0.42 | | $0.87 | | $0.79 |
| Dividends declared per share (1) | $0.15 | | $0.13 | | $0.29 | | $0.25 |
(1) All per share data has been adjusted to give retroactive effect of a 3 for 2 stock split in the form of a stock dividend declared on May 4, 2006.
