Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-822-1400
PRESS RELEASE
Shore Bancshares Reports Second Quarter Earnings
Easton, Maryland (07/24/2007)- Shore Bancshares, Inc. (NASDAQ - SHBI) reported second quarter earnings of $3.4 million or $0.40 per diluted share, compared to $3.8 million or $0.45 per diluted share for the second quarter of 2006. Net income for the six-month period ended June 30, 2007 was $6.8 million or $0.81 per diluted share, compared to $7.3 million or $0.87 per diluted share for the first half of 2006.
“Notwithstanding the intensity of competition and the duration of the current rate cycle, we believe the Company’s results of operations for the first half of 2007 were solid. Our key performance ratios, such as the net interest margin and returns on assets and equity, have held up relatively well and continue to compare favorably to community banking industry averages,” said W. Moorhead Vermilye, President and Chief Executive Officer. “During the first half of 2007, we saw the normalization of insurance contingency fees, which were approximately $283,000 lower than reported for the first half of 2006. We made a major investment in new leadership at Centreville National Bank by appointing Win Trice as that bank’s new CEO. Reserves were prudently increased in step with loan growth at our Delaware bank subsidiary and we continued to invest in its new Wal-Mart branch near Dover, Delaware, which has exceeded expectations in terms of growth in new accounts.”
“As we move into the second half of 2007, we remain focused on longer-term objectives, such as the diversification of fee income, superior asset quality, conservative balance sheet management and solidifying our leadership throughout the Delmarva peninsula,” added Vermilye.
The Company’s return on average assets for the second quarter of 2007 was 1.43%, compared to 1.75% for the same period last year. The return on average stockholders’ equity was 11.69% for the quarter ended June 30, 2007, compared to 14.57% for the same quarter last year.
The Company’s return on average assets for the six months ended June 30, 2007 was 1.43%, compared to 1.70% for the six months ended June 30, 2006. The return on average stockholders’ equity was 11.89% for the six months ended June 30, 2007, compared to 13.93% for the same period last year.
At June 30, 2007, total assets were $940.8 million, total deposits were $764.7 million, and total stockholders’ equity was $114.9 million. Loan growth of approximately $31 million since December 31, 2006 was funded primarily by a reduction in cash balances. Total assets declined $4.9 million as a result of a $9.5 million decline in deposits concentrated in interest-bearing checking, money market and savings balances. Certificates of deposit increased $7.3 million during the six-month period ended June 30, 2007.
Review of Financial Results for the Quarter
Net interest income for the second quarter of 2007 was $10.2 million, an increase of 3.4% over the $9.9 million earned during the same period last year. The Company’s net interest margin was 4.66% for the second quarter of 2007, compared to 5.00% for the second quarter of 2006. The market for deposits remained competitive throughout the second quarter of 2007, resulting in higher rates paid for interest-bearing deposits. The cost of funds increased 79 basis points from 2.15% to 2.94% for the quarter ended June 30, 2007 when compared to the same quarter in 2006. The competitive environment for deposits was the primary cause of the increase in the cost of funds.
The provision for credit losses for the three-month periods ended June 30, 2007 and 2006 was $413,000 and $240,000, respectively. Net charge-offs were $34,000 and $95,000 for the three months ended June 30, 2007 and 2006, respectively. The increase in the provision for the second quarter of 2007 when compared to the same period last year reflects the continued growth of the Company’s loan portfolio as well as the anticipated losses inherent in nonperforming loans. Management believes that the provision for credit losses and the resulting allowance are adequate at June 30, 2007.
Noninterest income for the second quarter of 2007 declined $58,000 when compared to the second quarter of 2006. Increases in income from trust operations and secondary market mortgage commissions were offset by a decline in insurance commissions when compared to the second quarter of 2006. The Company also realized nonrecurring gains on life insurance policies in 2006 relating to a deferred compensation plan.
Noninterest expense for the second quarter of 2007 increased $700,000 when compared to the second quarter of 2006. The increase is primarily attributable to the increased cost of operating two additional bank branches as well as the additional cost associated with segregating the CEO positions at Shore Bancshares and The Talbot Bank of Easton, Maryland, the Company’s largest subsidiary, and hiring a new CEO for The Talbot Bank in the third quarter of 2006. The Company also incurred additional operating expense in conjunction with the search to fill the CEO position at The Centreville National Bank, following the retirement of the previous CEO on December 31, 2006. A portion of the increase in salaries and benefits costs of $320,000, as well as the increases in occupancy and equipment expense of $114,000, increased data processing cost $72,000 and increases in other operating expense of $194,000 relate to the overall growth of the Company in comparison to a year ago
Review of Six-Month Financial Results
Net interest income for the first six months of 2007 increased 4.3% or $824,000 when compared to the first six months of 2006. The increase is the result of growth in the loan portfolio. The Company experienced an increase in the overall cost of funds from 2.06% at June 30, 2006 to 2.92% at June 30, 2007, resulting in a decline in the net interest margin from 4.90% for the six months ended June 30, 2006 to 4.56% for the six months ended June 30, 2007.
The provisions for credit losses for the six-month periods ended June 30, 2007 and 2006 were $655,000 and $551,000, respectively. Net charge-offs were $70,000 and $225,000 for the six months ended June 30, 2007 and 2006, respectively. The increased provision in 2007 reflects the overall growth of the loan portfolio as well as the identification of losses inherent in nonperforming loans. Credit quality has improved since December 31, 2006, but the identification of several troubled loans during the second quarter of 2007 increased the nonperforming assets to total assets ratio from 0.09% to 0.24% at June 30, 2007. Annualized net charge-offs to total loans was 0.02% at June 30, 2007.
Noninterest income for the six months ended June 30, 2007 totaled $6.9 million, a decrease of 1.7% when compared to $7.0 million for the same period in 2006. The decline is primarily attributable to a decrease in insurance agency commissions relating to contingency income received, which varies from year to year depending on a number of factors outside of the control of the Company. The Company received an unusually large amount of contingency income in 2006. During the first half of 2007, service charge income declined $52,000, insurance agency commissions, which includes contingency income, declined $391,000 and other noninterest income increased $326,000 when compared to the same six-month period in 2006. The increase in other noninterest income is primarily attributable to trust and investment management fee increases of approximately $144,000 due to growth in assets under management and increased commission income from mortgages originated for sale on the secondary market of $309,000.
Noninterest expense for the six months ended June 30, 2007 increased $1.5 million or 10.6% when compared to the same period in 2006. The increase is primarily attributable to the increased cost of operating two additional bank branches, increased commission expense related to the increased income from the trust and advisory services and secondary market mortgage programs, as well as additional cost associated with segregating the CEO positions at Shore Bancshares and The Talbot Bank of Easton, Maryland, and hiring a new CEO for The Talbot Bank in the third quarter of 2006. The Company also incurred additional operating expense in conjunction with the search to fill the CEO position at The Centreville National Bank, following the retirement of the previous CEO on December 31, 2006.
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. Forward-looking 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 the periodic reports that Shore Bancshares, Inc. files with the Securities and Exchange Commission.
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, | | | |
| | | 2007 | | 2006 | | % Change | | 2007 | | 2006 | | % Change | |
| PROFITABILITY FOR THE PERIOD: | | | | | | | | | | | | | |
| Net interest income | | $ | 10,242 | | $ | 9,909 | | | 3.4 | % | $ | 20,147 | | $ | 19,323 | | | 4.3 | % |
| Provision for loan and lease losses | | | 413 | | | 240 | | | 72.1 | % | | 655 | | | 551 | | | 18.9 | % |
| Noninterest income | | | 3,261 | | | 3,319 | | | -1.7 | % | | 6,909 | | | 7,025 | | | -1.7 | % |
| Noninterest expense | | | 7,747 | | | 7,047 | | | 9.9 | % | | 15,638 | | | 14,138 | | | 10.6 | % |
| Income before income taxes | | | 5,343 | | | 5,941 | | | -10.1 | % | | 10,763 | | | 11,659 | | | -7.7 | % |
| Income taxes | | | 1,987 | | | 2,190 | | | -9.3 | % | | 4,004 | | | 4,357 | | | -8.1 | % |
| Net income | | | 3,356 | | | 3,751 | | | -10.5 | % | | 6,759 | | | 7,302 | | | -7.4 | % |
| Return on average assets | | | 1.43 | % | | 1.75 | % | | -18.3 | % | | 1.43 | % | | 1.70 | % | | -16.0 | % |
| Return on average equity | | | 11.69 | % | | 14.57 | % | | -19.8 | % | | 11.89 | % | | 13.93 | % | | -14.7 | % |
| Net interest margin | | | 4.66 | % | | 5.00 | % | | -6.8 | % | | 4.56 | % | | 4.90 | % | | -6.9 | % |
| Efficiency ratio - GAAP based | | | 57.37 | % | | 53.27 | % | | 7.7 | % | | 57.80 | % | | 53.66 | % | | 7.7 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA: | | | | | | | | | | | | | | | | | | | |
| Basic net income | | $ | 0.40 | | $ | 0.45 | | | -11.1 | % | $ | 0.81 | | $ | 0.87 | | | -6.9 | % |
| Diluted net income | | $ | 0.40 | | $ | 0.45 | | | -11.1 | % | $ | 0.81 | | $ | 0.87 | | | -6.9 | % |
| Dividends declared | | $ | 0.16 | | $ | 0.15 | | | 6.7 | % | $ | 0.32 | | $ | 0.29 | | | 10.3 | % |
| Book Value | | $ | 13.72 | | $ | 12.69 | | | 8.0 | % | $ | 13.72 | | $ | 12.69 | | | 8.0 | % |
| Tangible book value | | $ | 12.12 | | $ | 11.06 | | | 9.6 | % | $ | 12.12 | | $ | 11.06 | | | 9.6 | % |
| Average fully diluted shares | | | 8,393,302 | | | 8,393,253 | | | 0.0 | % | | 8,394,797 | | | 8,389,552 | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | |
| AT PERIOD-END: | | | | | | | | | | | | | | | | | | | |
| Assets | | $ | 940,763 | | $ | 887,585 | | | 6.0 | % | $ | 940,763 | | $ | 887,585 | | | 6.0 | % |
| Deposits | | $ | 764,728 | | $ | 715,562 | | | 6.9 | % | $ | 764,728 | | $ | 715,562 | | | 6.9 | % |
| Loans and leases | | $ | 731,210 | | $ | 675,772 | | | 8.2 | % | $ | 731,210 | | $ | 675,772 | | | 8.2 | % |
| Securities | | $ | 126,305 | | $ | 117,799 | | | 7.2 | % | $ | 126,305 | | $ | 117,799 | | | 7.2 | % |
| Stockholders' equity | | $ | 114,930 | | $ | 106,231 | | | 8.2 | % | $ | 114,930 | | $ | 106,231 | | | 8.2 | % |
| | | | | | | | | | | | | | | | | | | | |
| CAPITAL AND CREDIT QUALITY RATIOS: | | | | | | | | | | | | | | | |
| Average equity to average assets | | | 12.21 | % | | 11.98 | % | | | | | 12.04 | % | | 12.22 | % | | | |
| Allowance for loan and lease losses to loans and leases | | | 0.94 | % | | 0.82 | % | | | | | 0.94 | % | | 0.82 | % | | | |
| Nonperforming assets to total assets | | | 0.24 | % | | 0.09 | % | | | | | 0.24 | % | | 0.09 | % | | | |
| Annualized net (charge-offs) recoveries to average loan and leases | | | 0.02 | % | | 0.06 | % | | | | | 0.02 | % | | 0.07 | % | | | |
| | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheets | | | | | |
| (Dollars in thousands, except per share data) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | June 30, | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2006 | |
| ASSETS | | | | | | | |
| Cash and due from banks | | $ | 16,743 | | $ | 16,061 | | $ | 26,511 | |
| Federal funds sold | | | 15,226 | | | 29,385 | | | 19,622 | |
| Interest-bearing deposits with banks | | | 15,553 | | | 12,543 | | | 33,540 | |
| Investments available-for-sale (at fair value) | | | 112,353 | | | 103,440 | | | 116,275 | |
| Investments held-to-maturity | | | 13,952 | | | 14,359 | | | 13,971 | |
| | | | | | | | | | | |
| Total loans and leases | | | 731,210 | | | 675,772 | | | 699,719 | |
| Less: allowance for loan and lease losses | | | (6,884 | ) | | (5,562 | ) | | (6,300 | ) |
| Net loans and leases | | | 724,326 | | | 670,210 | | | 693,419 | |
| | | | | | | | | | | |
| Premises and equipment, net | | | 15,965 | | | 15,946 | | | 15,974 | |
| Accrued interest receivable | | | 5,065 | | | 4,270 | | | 4,892 | |
| Goodwill | | | 11,939 | | | 11,939 | | | 11,939 | |
| Other intangible assets, net | | | 1,421 | | | 1,737 | | | 1,569 | |
| Other assets | | | 8,220 | | | 7,695 | | | 7,937 | |
| | | | | | | | | | | |
| Total assets | | $ | 940,763 | | $ | 887,585 | | $ | 945,649 | |
| | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | |
| Noninterest-bearing deposits | | | 110,305 | | | 112,659 | | | 109,962 | |
| Interest-bearing deposits | | | 654,423 | | | 602,903 | | | 664,220 | |
| | | | | | | | | | | |
| Total deposits | | | 764,728 | | | 715,562 | | | 774,182 | |
| | | | | | | | | | | |
| Short-term borrowings | | | 27,560 | | | 35,426 | | | 26,524 | |
| Other long-term borrowings | | | 27,000 | | | 25,000 | | | 27,000 | |
| Accrued interest payable and other liabilities | | | 6,545 | | | 5,366 | | | 6,616 | |
| | | | | | | | | | | |
| Total liabilities | | | 825,833 | | | 781,354 | | | 834,322 | |
| | | | | | | | | | | |
| STOCKHOLDER'S EQUITY | | �� | | | | | | | | |
| | | | | | | | | | | |
| Common stock | | | 84 | | | 84 | | | 84 | |
| Additional paid in capital | | | 29,487 | | | 29,423 | | | 29,688 | |
| Retained earnings | | | 86,356 | | | 78,540 | | | 82,279 | |
| Accumulated other comprehensive income | | | (997 | ) | | (1,816 | ) | | (724 | ) |
| Total stockholder's equity | | | 114,930 | | | 106,231 | | | 111,327 | |
| | | | | | | | | | | |
| Total liabilities and stockholder's equity | | $ | 940,763 | | $ | 887,585 | | $ | 945,649 | |
| Consolidated Statements of Income | | | | | | | | | |
| (Dollars in thousands, except per share data) | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| Interest Income: | | | | | | | | | |
| Interest and fees on loans and leases | | $ | 14,210 | | $ | 12,481 | | $ | 27,834 | | $ | 23,936 | |
| Interest on deposits with banks | | | 329 | | | 71 | | | 667 | | | 242 | |
| Interest and dividends on securities: | | | 0 | | | | | | | | | | |
| Taxable | | | 1,291 | | | 1,045 | | | 2,575 | | | 2,065 | |
| Exempt from federal income taxes | | | 135 | | | 135 | | | 259 | | | 278 | |
| Interest on federal funds sold | | | 290 | | | 211 | | | 810 | | | 487 | |
| Total interest income | | | 16,255 | | | 13,943 | | | 32,145 | | | 27,008 | |
| | | | | | | | | | | | | | |
| Interest expense: | | | | | | | | | | | | | |
| Interest on deposits | | | 5,402 | | | 3,642 | | | 10,770 | | | 6,960 | |
| Interest on short-term borrowings | | | 248 | | | 238 | | | 494 | | | 502 | |
| Interest on long-term borrowings | | | 363 | | | 154 | | | 734 | | | 223 | |
| | | | | | | | | | | | | | |
| Total interest expense | | | 6,013 | | | 4,034 | | | 11,998 | | | 7,685 | |
| Net interest income | | | 10,242 | | | 9,909 | | | 20,147 | | | 19,323 | |
| Provision for loan and lease losses | | | 413 | | | 240 | | | 655 | | | 551 | |
| Net interest income after provision for loan and lease losses | | | 9,829 | | | 9,669 | | | 19,492 | | | 18,772 | |
| | | | | | | | | | | | | | |
| Noninterest income: | | | | | | | | | | | | | |
| Securities gains (losses) | | | 1 | | | 0 | | | 1 | | | 0 | |
| Service charges on deposit accounts | | | 782 | | | 779 | | | 1,471 | | | 1,523 | |
| Insurance agency commissions | | | 1,562 | | | 1,661 | | | 3,601 | | | 3,992 | |
| Other income | | | 916 | | | 879 | | | 1,836 | | | 1,510 | |
| Total noninterest income | | | 3,261 | | | 3,319 | | | 6,909 | | | 7,025 | |
| Noninterest expenses: | | | | | | | | | | | | | |
| Salaries and employee benefits | | | 4,715 | | | 4,395 | | | 9,648 | | | 8,863 | |
| Occupancy expense of premises | | | 474 | | | 390 | | | 984 | | | 799 | |
| Equipment expenses | | | 348 | | | 318 | | | 670 | | | 641 | |
| Data processing | | | 467 | | | 395 | | | 899 | | | 772 | |
| Directors' fees | | | 128 | | | 122 | | | 291 | | | 299 | |
| Amortization of intangible assets | | | 64 | | | 84 | | | 147 | | | 168 | |
| Other expenses | | | 1,551 | | | 1,343 | | | 2,999 | | | 2,596 | |
| Total noninterest expense | | | 7,747 | | | 7,047 | | | 15,638 | | | 14,138 | |
| | | | | | | | | | | | | | |
| Income before income taxes | | | 5,343 | | | 5,941 | | | 10,763 | | | 11,659 | |
| Income tax expense | | | 1,987 | | | 2,190 | | | 4,004 | | | 4,357 | |
| | | | | | | | | | | | | | |
| Net income | | $ | 3,356 | | $ | 3,751 | | $ | 6,759 | | $ | 7,302 | |
| | | | | | | | | | | | | | |
| Basic net income per share | | $ | 0.40 | | $ | 0.45 | | $ | 0.81 | | $ | 0.87 | |
| Diluted net income per share | | $ | 0.40 | | $ | 0.45 | | $ | 0.81 | | $ | 0.87 | |
| Dividends declared per share | | $ | 0.16 | | $ | 0.15 | | $ | 0.32 | | $ | 0.29 | |
