Exhibit 99.1
Shore Bancshares, Inc.
18 E. Dover Street
Easton, Maryland 21601
Phone 410-763-7800
PRESS RELEASE
Shore Bancshares Reports Third Quarter and Nine-Month Results
Easton, Maryland (10/25/2011) - Shore Bancshares, Inc. (NASDAQ - SHBI) today reported net income of $94 thousand or $0.01 per diluted common share for the third quarter of 2011, compared to a net loss of $233 thousand or $(0.03) per diluted common share for the second quarter of 2011, and a net loss of $1.4 million or $(0.17) per diluted common share for the third quarter of 2010. The Company reported a net loss of $1.2 million or $(0.14) per diluted common share for the first nine months of 2011, compared to a net loss of $2.5 million or $(0.30) per diluted common share for the first nine months of 2010.
During the third quarter of 2011, the Company recorded goodwill impairment charges of $1.2 million and other intangible assets impairment charges of $120 thousand. Most of the impairment charges related to the Company’s retail insurance business and $274 thousand of the goodwill impairment was not tax deductible. A decrease in the provision for credit losses of $1.7 million, partially offset by the impairment charges, was the primary reason for the improved results when comparing the third quarter of 2011 to the second quarter of 2011. When comparing the third quarter of 2011 to the third quarter of 2010, the main reasons for the improved results were lower impairment charges of $1.7 million and a decrease in the provision for credit losses of $543 thousand, which were partially offset by a decline in net interest income of $564 thousand.
When comparing the results of the first nine months of 2011 to the first nine months of 2010, the principal factors creating the difference were lower impairment charges of $1.7 million and a decrease in the provision for credit losses of $1.3 million, which were partially offset by a decline in net interest income of $1.8 million.
“We are still experiencing elevated credit losses associated with the disposition of nonperforming loans, as evidenced by the $3.7 million we set aside during the third quarter for possible loan losses, but it is encouraging to note that the loan loss provision was less this quarter than for the linked second quarter ($5.4 million) and also for the third quarter a year ago ($4.2 million). We are cautiously optimistic that the level of new nonperforming loans has substantially peaked and our focused efforts to dispose of existing problem loans are making consistent headway ultimately to reduce our ratio of nonperforming assets to total assets. It’s a very slow process, however, as real estate values across our markets remain at historical lows,” said W. Moorhead Vermilye, chief executive officer.
Mr. Vermilye added, “On a positive note, total deposits increased 3.3% to $1.012 billion when compared to December 31, 2010. The net interest margin remained solid at 3.77% for the third quarter of 2011, versus 3.80% for the second quarter of 2011 and 4.00% for the third quarter of 2010.”
“Our company is the dominant locally-managed financial institution covering the Delmarva peninsula and we are committed to supporting customers in every way through this tough business climate. Our deposit market share stability confirms that our loyal customers understand we are in this business for the long term as an independent local banking leader,” Vermilye said.
The Company’s return on average assets for the third quarter of 2011 was 0.03%, compared to (0.08)% and (0.49)% for the quarters ended June 30, 2011 and September 30, 2010, respectively. The return on average equity was 0.31% for the third quarter of 2011, compared to (0.77)% for the second quarter of 2011 and (4.43)% for the third quarter of 2010. The return on average tangible equity was 4.21% for the third quarter of 2011, compared to (0.60)% for the second quarter of 2011 and 4.31% for the third quarter of 2010.
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The Company’s return on average assets for the first nine months of 2011 was (0.14)%, compared to (0.30)% for the first nine months of 2010. The return on average equity was (1.34)% and (2.66)% for the first nine months of 2011and 2010, respectively, while the return on average tangible equity was (0.09)% and 0.22% for the first nine months of 2011and 2010, respectively.
Total assets were $1.158 billion at September 30, 2011, a 2.4% increase when compared to the $1.130 billion at the end of 2010. Total loans decreased 3.7% to $862.6 million and total deposits increased 3.3% to $1.012 billion when compared to December 31, 2010. Total stockholders’ equity decreased 1.2% from the end of 2010. Average equity to average assets was 10.74% and 11.09% for the first nine months of 2011 and 2010, respectively, while average tangible equity to average tangible assets was 9.27% and 9.40% for the first nine months of 2011 and 2010, respectively. Capital levels remain well above regulatory minimums to be considered well-capitalized.
Review of Quarterly Financial Results
Net interest income for the third quarter of 2011 was $10.1 million, a 1.8% increase from the second quarter of 2011 and a decrease of 5.3% from the same period last year. The increase in net interest income when compared to the second quarter of 2011 was primarily due to an increase in the balances of average earning assets. The decrease in net interest income when compared to the third quarter of 2010 was primarily due to lower yields earned on average earning assets. The Company’s net interest margin was 3.77% for the third quarter of 2011, 3.80% for the second quarter of 2011 and 4.00% for the third quarter of 2010.
The provision for credit losses was $3.7 million for the three months ended September 30, 2011. The comparable amounts were $5.4 million and $4.2 million for the three months ended June 30, 2011 and September 30, 2010, respectively. The ratio of the allowance for credit losses to period-end loans was 1.57% at September 30, 2011, compared to 1.86% at June 30, 2011 and 1.45% at September 30, 2010. Management believes that the provision for credit losses and the resulting allowance were adequate at September 30, 2011 to provide for probable losses in our loan portfolio.
The level of provision for credit losses was primarily in response to loan charge-offs which remain at historically high levels and a very weak economy. Net charge-offs were $6.5 million for both the third and second quarters of 2011 and $4.3 million for the third quarter of 2010. The ratio of quarter-to-date annualized net charge-offs to average loans was 2.95% for the third quarter of 2011, 2.96% for the second quarter of 2011 and 1.90% for the third quarter of 2010. In addition, nonperforming assets have increased $13.3 million when compared to the end of June 2011 and $45.6 million when compared to the end of September 2010. The increase from the end of the prior quarter was primarily in loans past due 90 days and still accruing. This increase was mainly due to three large credits totaling $9.7 million. Subsequent to September 30, 2011, two of the relationships, which totaled $8.2 million, were brought current. Management believes that the third loan, which totaled $1.5 million, is well-secured, and it is in the process of collection. The ratio of nonperforming assets to total assets was 8.02% at September 30, 2011. The comparable nonperforming assets to total assets ratio was 7.08% at June 30, 2011, and 4.16% at September 30, 2010.
Total noninterest income for the third quarter of 2011 increased $142 thousand, or 3.2%, when compared to the second quarter of 2011 and decreased $120 thousand, or 2.6%, when compared to the third quarter of 2010. The increase when compared to the second quarter of 2011 was primarily due to $352 thousand more in gains on sales of investment securities which were partially offset by $163 thousand less in insurance agency commissions. The decline in noninterest income during the third quarter of 2011 when compared to the third quarter of 2010 was primarily due to a decline in insurance agency commissions of $201 thousand, service charges on deposit accounts of $144 thousand and other noninterest income of $161 thousand, offset by $354 thousand in gains on sales of investment securities. The lower service charges on deposit accounts were due to a decrease in customer use of overdraft protection programs. Included in other noninterest income for the third quarter of 2010 was a $224 thousand gain relating to the surrender of directors’ life insurance policies.
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Total noninterest expense for the third quarter of 2011 increased $1.5 million, or 16.1%, when compared to the second quarter of 2011 mainly due to the goodwill and other intangible assets impairment charges of $1.3 million. The increase in noninterest expense also included higher expenses related to other real estate owned activities which were partially offset by lower expenses related to FDIC insurance premiums and insurance agency commissions. When compared to the third quarter of 2010, total noninterest expense for the third quarter of 2011 decreased $2.0 million, or 15.5%, primarily due to lower impairment charges of $1.7 million and lower expenses related to salaries and FDIC insurance premiums, offset slightly by higher expenses related to other real estate owned activities included in other noninterest expenses.
Review of Nine-Month Financial Results
Net interest income for the first nine months of 2011 was $29.9 million, a decrease of 5.8% when compared to the first nine 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 nine months of 2010 to 3.79% for the first nine months of 2011.
The provisions for credit losses for the nine months ended September 30, 2011 and 2010 were $15.4 million and $16.7 million, respectively. Net charge-offs were $16.1 million and $14.5 million for the nine months ended September 30, 2011 and 2010, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 2.45% for the first nine months of 2011 and 2.13% for the first nine months of 2010.
Total noninterest income for the nine months ended September 30, 2011 declined $794 thousand when compared to the same period in 2010. As with the third quarter 2011 results, the decrease in noninterest income was mainly due to a decline in insurance agency commissions, service charges on deposit accounts and other noninterest income which reflected the $224 thousand gain relating to the surrender of directors’ life insurance policies during the third quarter of 2010. These decreases in noninterest income were partially offset by $435 thousand in gains on sales of investment securities.
Total noninterest expense for the nine months ended September 30, 2011 decreased $2.9 million when compared to the same period in 2010. The primary reason for the decrease was lower expenses related to impairment charges, salaries, FDIC insurance premiums and insurance agency commissions. These expenses were somewhat 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”.
For further information contact: W. Moorhead Vermilye, Chief Executive Officer, 410-763-7800
| Page 4 of 11 |
| Financial Highlights | |
| (Dollars in thousands, except per share data) | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2011 | | | 2010 | | | Change | | | 2011 | | | 2010 | | | Change | |
| PROFITABILITY FOR THE PERIOD | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 10,123 | | | $ | 10,687 | | | | (5.3 | )% | | $ | 29,927 | | | $ | 31,773 | | | | (5.8 | )% |
| Provision for credit losses | | | 3,650 | | | | 4,193 | | | | (13.0 | ) | | | 15,435 | | | | 16,727 | | | | (7.7 | ) |
| Noninterest income | | | 4,523 | | | | 4,643 | | | | (2.6 | ) | | | 13,299 | | | | 14,093 | | | | (5.6 | ) |
| Noninterest expense | | | 10,677 | | | | 12,629 | | | | (15.5 | ) | | | 29,762 | | | | 32,638 | | | | (8.8 | ) |
| Income (loss) before income taxes | | | 319 | | | | (1,492 | ) | | | 121.4 | | | | (1,971 | ) | | | (3,499 | ) | | | 43.7 | |
| Income tax expense (benefit) | | | 225 | | | | (92 | ) | | | 344.6 | | | | (749 | ) | | | (982 | ) | | | 23.7 | |
| Net income (loss) | | $ | 94 | | | $ | (1,400 | ) | | | 106.7 | | | $ | (1,222 | ) | | $ | (2,517 | ) | | | 51.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | 0.03 | % | | | (0.49 | )% | | | 52 | bp | | | (0.14 | )% | | | (0.30 | )% | | | 16 | bp |
| Return on average equity | | | 0.31 | | | | (4.43 | ) | | | 474 | | | | (1.34 | ) | | | (2.66 | ) | | | 132 | |
| Return on average tangible equity (1) | | | 4.21 | | | | 4.31 | | | | (10 | ) | | | (0.09 | ) | | | 0.22 | | | | (31 | ) |
| Net interest margin | | | 3.77 | | | | 4.00 | | | | (23 | ) | | | 3.79 | | | | 3.99 | | | | (20 | ) |
| Efficiency ratio - GAAP | | | 72.90 | | | | 82.38 | | | | (948 | ) | | | 68.85 | | | | 71.16 | | | | (231 | ) |
| Efficiency ratio - Non-GAAP (1) | | | 64.40 | | | | 62.56 | | | | 184 | | | | 65.51 | | | | 63.98 | | | | 153 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net income (loss) per common share | | $ | 0.01 | | | $ | (0.17 | ) | | | 105.9 | % | | $ | (0.14 | ) | | $ | (0.30 | ) | | | 53.3 | % |
| Diluted net income (loss) per common share | | | 0.01 | | | | (0.17 | ) | | | 105.9 | | | | (0.14 | ) | | | (0.30 | ) | | | 53.3 | |
| Dividends paid per common share | | | 0.01 | | | | 0.06 | | | | (83.3 | ) | | | 0.08 | | | | 0.18 | | | | (55.6 | ) |
| Book value per common share at period end | | | 14.31 | | | | 14.49 | | | | (1.2 | ) | | | | | | | | | | | | |
| Tangible book value per common share at period end (1) | | | 12.32 | | | | 12.37 | | | | (0.4 | ) | | | | | | | | | | | | |
| Market value at period end | | | 4.36 | | | | 9.48 | | | | (54.0 | ) | | | | | | | | | | | | |
| Market range: | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | | 7.06 | | | | 12.10 | | | | (41.7 | ) | | | 11.11 | | | | 14.80 | | | | (24.9 | ) |
| Low | | | 3.95 | | | | 9.20 | | | | (57.1 | ) | | | 3.95 | | | | 9.20 | | | | (57.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| PERIOD-END BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 862,566 | | | $ | 906,490 | | | | (4.8 | )% | | | | | | | | | | | | |
| Securities | | | 112,328 | | | | 104,075 | | | | 7.9 | | | | | | | | | | | | | |
| Assets | | | 1,157,536 | | | | 1,134,503 | | | | 2.0 | | | | | | | | | | | | | |
| Deposits | | | 1,011,919 | | | | 982,428 | | | | 3.0 | | | | | | | | | | | | | |
| Stockholders' equity | | | 120,986 | | | | 122,355 | | | | (1.1 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 869,221 | | | $ | 904,293 | | | | (3.9 | )% | | $ | 879,509 | | | $ | 907,965 | | | | (3.1 | )% |
| Securities | | | 113,938 | | | | 105,466 | | | | 8.0 | | | | 110,482 | | | | 108,469 | | | | 1.9 | |
| Earning assets | | | 1,069,636 | | | | 1,066,063 | | | | 0.3 | | | | 1,062,846 | | | | 1,070,833 | | | | (0.7 | ) |
| Assets | | | 1,142,588 | | | | 1,139,043 | | | | 0.3 | | | | 1,132,964 | | | | 1,139,747 | | | | (0.6 | ) |
| Deposits | | | 994,968 | | | | 984,018 | | | | 1.1 | | | | 984,733 | | | | 980,968 | | | | 0.4 | |
| Stockholders' equity | | | 121,327 | | | | 125,308 | | | | (3.2 | ) | | | 121,656 | | | | 126,343 | | | | (3.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CAPITAL AND CREDIT QUALITY RATIOS | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity to average assets | | | 10.62 | % | | | 11.00 | % | | | (38 | )bp | | | 10.74 | % | | | 11.09 | % | | | (35 | )bp |
| Average tangible equity to average tangible assets (1) | | | 9.17 | | | | 9.33 | | | | (16 | ) | | | 9.27 | | | | 9.40 | | | | (13 | ) |
| Annualized net charge-offs to average loans | | | 2.95 | | | | 1.90 | | | | 105 | | | | 2.45 | | | | 2.13 | | | | 32 | |
| Allowance for credit losses to period-end loans | | | 1.57 | | | | 1.45 | | | | 12 | | | | | | | | | | | | | |
| Allowance for credit losses to nonaccrual loans | | | 27.31 | | | | 35.76 | | | | (845 | ) | | | | | | | | | | | | |
| Allowance for credit losses to nonperforming loans (2) | | | 16.31 | | | | 28.76 | | | | (1,245 | ) | | | | | | | | | | | | |
| Nonaccrual loans to total loans | | | 5.75 | | | | 4.06 | | | | 169 | | | | | | | | | | | | | |
| Nonaccrual loans to total assets | | | 4.28 | | | | 3.24 | | | | 104 | | | | | | | | | | | | | |
| Nonperforming assets to total loans+other real estate and other assets owned (3) | | | 10.65 | | | | 5.20 | | | | 545 | | | | | | | | | | | | | |
| Nonperforming assets to total assets | | | 8.02 | | | | 4.16 | | | | 386 | | | | | | | | | | | | | |
| (1) | See the reconciliation table on page 11 of 11. |
| (2) | Nonperforming loans include nonaccrual, 90 days past due and still accruing and accruing troubled debt restructurings. |
| (3) | Nonperforming assets include nonperforming loans and other real estate and other assets owned. |
| Page 5 of 11 |
| Consolidated Balance Sheets | |
| (In thousands, except per share data) | |
| | | | | | | | | | | | September 30, 2011 | | | September 30, 2011 | |
| | | September 30, | | | December 31, | | | September 30, | | | compared to | | | compared to | |
| | | 2011 | | | 2010 | | | 2010 | | | December 31, 2010 | | | September 30, 2010 | |
| ASSETS | | | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 26,519 | | | $ | 19,680 | | | $ | 21,764 | | | | 34.8 | % | | | 21.8 | % |
| Interest-bearing deposits with other banks | | | 92,293 | | | | 21,593 | | | | 18,014 | | | | 327.4 | | | | 412.3 | |
| Federal funds sold | | | 9,966 | | | | 36,691 | | | | 35,161 | | | | (72.8 | ) | | | (71.7 | ) |
| Investments available for sale (at fair value) | | | 105,804 | | | | 99,055 | | | | 96,219 | | | | 6.8 | | | | 10.0 | |
| Investments held to maturity | | | 6,524 | | | | 6,727 | | | | 7,856 | | | | (3.0 | ) | | | (17.0 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Loans | | | 862,566 | | | | 895,404 | | | | 906,490 | | | | (3.7 | ) | | | (4.8 | ) |
| Less: allowance for credit losses | | | (13,540 | ) | | | (14,227 | ) | | | (13,153 | ) | | | (4.8 | ) | | | 2.9 | |
| Loans, net | | | 849,026 | | | | 881,177 | | | | 893,337 | | | | (3.6 | ) | | | (5.0 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Premises and equipment, net | | | 14,236 | | | | 14,483 | | | | 14,714 | | | | (1.7 | ) | | | (3.2 | ) |
| Goodwill | | | 12,454 | | | | 13,678 | | | | 12,954 | | | | (8.9 | ) | | | (3.9 | ) |
| Other intangible assets, net | | | 4,334 | | | | 4,840 | | | | 4,969 | | | | (10.5 | ) | | | (12.8 | ) |
| Other real estate and other assets owned, net | | | 9,865 | | | | 3,702 | | | | 1,517 | | | | 166.5 | | | | 550.3 | |
| Other assets | | | 26,515 | | | | 28,685 | | | | 27,998 | | | | (7.6 | ) | | | (5.3 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,157,536 | | | $ | 1,130,311 | | | $ | 1,134,503 | | | | 2.4 | | | | 2.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | $ | 135,822 | | | $ | 124,188 | | | $ | 121,480 | | | | 9.4 | | | | 11.8 | |
| Interest-bearing deposits | | | 876,097 | | | | 855,328 | | | | 860,948 | | | | 2.4 | | | | 1.8 | |
| Total deposits | | | 1,011,919 | | | | 979,516 | | | | 982,428 | | | | 3.3 | | | | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | | 15,292 | | | | 16,041 | | | | 17,782 | | | | (4.7 | ) | | | (14.0 | ) |
| Accrued expenses and other liabilities | | | 8,407 | | | | 11,309 | | | | 10,509 | | | | (25.7 | ) | | | (20.0 | ) |
| Long-term debt | | | 932 | | | | 932 | | | | 1,429 | | | | - | | | | (34.8 | ) |
| Total liabilities | | | 1,036,550 | | | | 1,007,798 | | | | 1,012,148 | | | | 2.9 | | | | 2.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | |
| Common stock, par value $0.01; authorized 35,000,000 shares | | | 85 | | | | 84 | | | | 84 | | | | 1.2 | | | | 1.2 | |
| Warrant | | | 1,543 | | | | 1,543 | | | | 1,543 | | | | - | | | | - | |
| Additional paid in capital | | | 30,438 | | | | 30,242 | | | | 30,173 | | | | 0.6 | | | | 0.9 | |
| Retained earnings | | | 90,560 | | | | 92,458 | | | | 92,115 | | | | (2.1 | ) | | | (1.7 | ) |
| Accumulated other comprehensive loss | | | (1,640 | ) | | | (1,814 | ) | | | (1,560 | ) | | | 9.6 | | | | (5.1 | ) |
| Total stockholders' equity | | | 120,986 | | | | 122,513 | | | | 122,355 | | | | (1.2 | ) | | | (1.1 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,157,536 | | | $ | 1,130,311 | | | $ | 1,134,503 | | | | 2.4 | | | | 2.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Period-end common shares outstanding | | | 8,457 | | | | 8,443 | | | | 8,443 | | | | 0.2 | | | | 0.2 | |
| Book value per common share | | $ | 14.31 | | | $ | 14.51 | | | $ | 14.49 | | | | (1.4 | ) | | | (1.2 | ) |
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| Consolidated Statements of Income | |
| (In thousands, except per share data) | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2011 | | | 2010 | | | % Change | | | 2011 | | | 2010 | | | % Change | |
| INTEREST INCOME | | | | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 12,003 | | | $ | 13,083 | | | | (8.3 | )% | | $ | 35,900 | | | $ | 39,004 | | | | (8.0 | )% |
| Interest and dividends on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 795 | | | | 677 | | | | 17.4 | | | | 2,234 | | | | 2,405 | | | | (7.1 | ) |
| Tax-exempt | | | 38 | | | | 50 | | | | (24.0 | ) | | | 116 | | | | 165 | | | | (29.7 | ) |
| Interest on federal funds sold | | | 3 | | | | 21 | | | | (85.7 | ) | | | 24 | | | | 47 | | | | (48.9 | ) |
| Interest on deposits with other banks | | | 29 | | | | 6 | | | | 383.3 | | | | 47 | | | | 11 | | | | 327.3 | |
| Total interest income | | | 12,868 | | | | 13,837 | | | | (7.0 | ) | | | 38,321 | | | | 41,632 | | | | (8.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest on deposits | | | 2,720 | | | | 3,117 | | | | (12.7 | ) | | | 8,322 | | | | 9,744 | | | | (14.6 | ) |
| Interest on short-term borrowings | | | 15 | | | | 17 | | | | (11.8 | ) | | | 41 | | | | 68 | | | | (39.7 | ) |
| Interest on long-term debt | | | 10 | | | | 16 | | | | (37.5 | ) | | | 31 | | | | 47 | | | | (34.0 | ) |
| Total interest expense | | | 2,745 | | | | 3,150 | | | | (12.9 | ) | | | 8,394 | | | | 9,859 | | | | (14.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME | | | 10,123 | | | | 10,687 | | | | (5.3 | ) | | | 29,927 | | | | 31,773 | | | | (5.8 | ) |
| Provision for credit losses | | | 3,650 | | | | 4,193 | | | | (13.0 | ) | | | 15,435 | | | | 16,727 | | | | (7.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | | | 6,473 | | | | 6,494 | | | | (0.3 | ) | | | 14,492 | | | | 15,046 | | | | (3.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 697 | | | | 841 | | | | (17.1 | ) | | | 2,145 | | | | 2,458 | | | | (12.7 | ) |
| Trust and investment fee income | | | 389 | | | | 357 | | | | 9.0 | | | | 1,183 | | | | 1,145 | | | | 3.3 | |
| Investment securities gains | | | 354 | | | | - | | | | - | | | | 435 | | | | - | | | | - | |
| Insurance agency commissions | | | 2,312 | | | | 2,513 | | | | (8.0 | ) | | | 7,297 | | | | 7,997 | | | | (8.8 | ) |
| Other noninterest income | | | 771 | | | | 932 | | | | (17.3 | ) | | | 2,239 | | | | 2,493 | | | | (10.2 | ) |
| Total noninterest income | | | 4,523 | | | | 4,643 | | | | (2.6 | ) | | | 13,299 | | | | 14,093 | | | | (5.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | | 4,097 | | | | 4,404 | | | | (7.0 | ) | | | 12,447 | | | | 13,257 | | | | (6.1 | ) |
| Employee benefits | | | 878 | | | | 897 | | | | (2.1 | ) | | | 2,917 | | | | 2,936 | | | | (0.6 | ) |
| Occupancy expense | | | 585 | | | | 547 | | | | 6.9 | | | | 1,749 | | | | 1,766 | | | | (1.0 | ) |
| Furniture and equipment expense | | | 262 | | | | 325 | | | | (19.4 | ) | | | 825 | | | | 938 | | | | (12.0 | ) |
| Data processing | | | 661 | | | | 696 | | | | (5.0 | ) | | | 2,192 | | | | 1,987 | | | | 10.3 | |
| Directors' fees | | | 198 | | | | 118 | | | | 67.8 | | | | 417 | | | | 344 | | | | 21.2 | |
| Goodwill and other intangible assets impairment | | | 1,344 | | | | 3,051 | | | | (55.9 | ) | | | 1,344 | | | | 3,051 | | | | (55.9 | ) |
| Amortization of intangible assets | | | 129 | | | | 128 | | | | 0.8 | | | | 386 | | | | 386 | | | | - | |
| Insurance agency commissions expense | | | 250 | | | | 338 | | | | (26.0 | ) | | | 982 | | | | 1,230 | | | | (20.2 | ) |
| FDIC insurance premium expense | | | 180 | | | | 448 | | | | (59.8 | ) | | | 1,044 | | | | 1,389 | | | | (24.8 | ) |
| Other noninterest expenses | | | 2,093 | | | | 1,677 | | | | 24.8 | | | | 5,459 | | | | 5,354 | | | | 2.0 | |
| Total noninterest expense | | | 10,677 | | | | 12,629 | | | | (15.5 | ) | | | 29,762 | | | | 32,638 | | | | (8.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | 319 | | | | (1,492 | ) | | | 121.4 | | | | (1,971 | ) | | | (3,499 | ) | | | 43.7 | |
| Income tax expense (benefit) | | | 225 | | | | (92 | ) | | | 344.6 | | | | (749 | ) | | | (982 | ) | | | 23.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | 94 | | | $ | (1,400 | ) | | | 106.7 | | | $ | (1,222 | ) | | $ | (2,517 | ) | | | 51.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | | 8,457 | | | | 8,443 | | | | 0.2 | | | | 8,449 | | | | 8,441 | | | | 0.1 | |
| Weighted average shares outstanding - diluted | | | 8,457 | | | | 8,443 | | | | 0.2 | | | | 8,449 | | | | 8,441 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net income (loss) per common share | | $ | 0.01 | | | $ | (0.17 | ) | | | 105.9 | | | $ | (0.14 | ) | | $ | (0.30 | ) | | | 53.3 | |
| Diluted net income (loss) per common share | | | 0.01 | | | | (0.17 | ) | | | 105.9 | | | | (0.14 | ) | | | (0.30 | ) | | | 53.3 | |
| Dividends paid per common share | | | 0.01 | | | | 0.06 | | | | (83.3 | ) | | | 0.08 | | | | 0.18 | | | | (55.6 | ) |
| Shore Bancshares, Inc. | Page 7 of 11 |
| Consolidated Average Balance Sheets | |
| (Dollars in thousands) | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | |
| | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | |
| Earning assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 869,221 | | | | 5.49 | % | | $ | 904,293 | | | | 5.76 | % | | $ | 879,509 | | | | 5.47 | % | | $ | 907,965 | | | | 5.76 | % |
| Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 109,498 | | | | 2.88 | | | | 99,572 | | | | 2.70 | | | | 105,939 | | | | 2.82 | | | | 102,100 | | | | 3.15 | |
| Tax-exempt | | | 4,440 | | | | 5.12 | | | | 5,894 | | | | 5.16 | | | | 4,543 | | | | 5.16 | | | | 6,369 | | | | 5.26 | |
| Federal funds sold | | | 15,905 | | | | 0.07 | | | | 40,638 | | | | 0.20 | | | | 28,896 | | | | 0.11 | | | | 41,709 | | | | 0.15 | |
| Interest-bearing deposits | | | 70,572 | | | | 0.16 | | | | 15,666 | | | | 0.15 | | | | 43,959 | | | | 0.14 | | | | 12,690 | | | | 0.12 | |
| Total earning assets | | | 1,069,636 | | | | 4.79 | % | | | 1,066,063 | | | | 5.18 | % | | | 1,062,846 | | | | 4.84 | % | | | 1,070,833 | | | | 5.22 | % |
| Cash and due from banks | | | 20,414 | | | | | | | | 21,865 | | | | | | | | 19,356 | | | | | | | | 15,455 | | | | | |
| Other assets | | | 69,394 | | | | | | | | 65,081 | | | | | | | | 67,588 | | | | | | | | 66,942 | | | | | |
| Allowance for credit losses | | | (16,856 | ) | | | | | | | (13,966 | ) | | | | | | | (16,826 | ) | | | | | | | (13,483 | ) | | | | |
| Total assets | | $ | 1,142,588 | | | | | | | $ | 1,139,043 | | | | | | | $ | 1,132,964 | | | | | | | $ | 1,139,747 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | $ | 154,685 | | | | 0.20 | % | | $ | 132,023 | | | | 0.24 | % | | $ | 141,447 | | | | 0.21 | % | | $ | 130,872 | | | | 0.25 | % |
| Money market and savings deposits | | | 266,871 | | | | 1.03 | | | | 259,511 | | | | 0.81 | | | | 263,216 | | | | 0.97 | | | | 258,628 | | | | 0.73 | |
| Certificates of deposit $100,000 or more | | | 235,362 | | | | 1.63 | | | | 258,542 | | | | 1.91 | | | | 246,362 | | | | 1.67 | | | | 256,470 | | | | 2.08 | |
| Other time deposits | | | 204,836 | | | | 1.91 | | | | 212,098 | | | | 2.37 | | | | 206,470 | | | | 2.01 | | | | 215,911 | | | | 2.53 | |
| Interest-bearing deposits | | | 861,754 | | | | 1.25 | | | | 862,174 | | | | 1.44 | | | | 857,495 | | | | 1.30 | | | | 861,881 | | | | 1.51 | |
| Short-term borrowings | | | 15,640 | | | | 0.37 | | | | 16,092 | | | | 0.38 | | | | 14,947 | | | | 0.36 | | | | 16,673 | | | | 0.55 | |
| Long-term debt | | | 932 | | | | 4.46 | | | | 1,429 | | | | 4.36 | | | | 932 | | | | 4.51 | | | | 1,429 | | | | 4.40 | |
| Total interest-bearing liabilities | | | 878,326 | | | | 1.24 | % | | | 879,695 | | | | 1.42 | % | | | 873,374 | | | | 1.29 | % | | | 879,983 | | | | 1.50 | % |
| Noninterest-bearing deposits | | | 133,214 | | | | | | | | 121,844 | | | | | | | | 127,238 | | | | | | | | 119,087 | | | | | |
| Accrued expenses and other liabilities | | | 9,721 | | | | | | | | 12,196 | | | | | | | | 10,696 | | | | | | | | 14,334 | | | | | |
| Stockholders' equity | | | 121,327 | | | | | | | | 125,308 | | | | | | | | 121,656 | | | | | | | | 126,343 | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,142,588 | | | | | | | $ | 1,139,043 | | | | | | | $ | 1,132,964 | | | | | | | $ | 1,139,747 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | 3.55 | % | | | | | | | 3.76 | % | | | | | | | 3.55 | % | | | | | | | 3.72 | % |
| Net interest margin | | | | | | | 3.77 | % | | | | | | | 4.00 | % | | | | | | | 3.79 | % | | | | | | | 3.99 | % |
| Page 8 of 11 |
| Financial Highlights By Quarter | |
| (Dollars in thousands, except per share data) | |
| | | 3rd quarter | | | 2nd quarter | | | 1st quarter | | | 4th quarter | | | 3rd quarter | | | 3Q 11 | | | 3Q 11 | |
| | | 2011 | | | 2011 | | | 2011 | | | 2010 | | | 2010 | | | compared to | | | compared to | |
| | | (3Q 11) | | | (2Q 11) | | | (1Q 11) | | | (4Q 10) | | | (3Q 10) | | | 2Q 11 | | | 3Q 10 | |
| PROFITABILITY FOR THE PERIOD | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable-equivalent net interest income | | $ | 10,172 | | | $ | 10,001 | | | $ | 9,921 | | | $ | 10,932 | | | $ | 10,754 | | | | 1.7 | % | | | (5.4 | )% |
| Taxable-equivalent adjustment | | | 49 | | | | 59 | | | | 59 | | | | 66 | | | | 67 | | | | (16.9 | ) | | | (26.9 | ) |
| Net interest income | | | 10,123 | | | | 9,942 | | | | 9,862 | | | | 10,866 | | | | 10,687 | | | | 1.8 | | | | (5.3 | ) |
| Provision for credit losses | | | 3,650 | | | | 5,395 | | | | 6,390 | | | | 4,392 | | | | 4,193 | | | | (32.3 | ) | | | (13.0 | ) |
| Noninterest income | | | 4,523 | | | | 4,381 | | | | 4,395 | | | | 3,948 | | | | 4,643 | | | | 3.2 | | | | (2.6 | ) |
| Noninterest expense | | | 10,677 | | | | 9,194 | | | | 9,891 | | | | 9,082 | | | | 12,629 | | | | 16.1 | | | | (15.5 | ) |
| Income (loss) before income taxes | | | 319 | | | | (266 | ) | | | (2,024 | ) | | | 1,340 | | | | (1,492 | ) | | | 219.9 | | | | 121.4 | |
| Income tax expense (benefit) | | | 225 | | | | (33 | ) | | | (941 | ) | | | 490 | | | | (92 | ) | | | 781.8 | | | | 344.6 | |
| Net income (loss) | | $ | 94 | | | $ | (233 | ) | | $ | (1,083 | ) | | $ | 850 | | | $ | (1,400 | ) | | | 140.3 | | | | 106.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | 0.03 | % | | | (0.08 | )% | | | (0.39 | )% | | | 0.30 | % | | | (0.49 | )% | | | 11 | bp | | | 52 | bp |
| Return on average equity | | | 0.31 | | | | (0.77 | ) | | | (3.59 | ) | | | 2.73 | | | | (4.43 | ) | | | 108 | | | | 474 | |
| Return on average tangible equity (1) | | | 4.21 | | | | (0.60 | ) | | | (3.92 | ) | | | 3.49 | | | | 4.31 | | | | 481 | | | | (10 | ) |
| Net interest margin | | | 3.77 | | | | 3.80 | | | | 3.79 | | | | 4.09 | | | | 4.00 | | | | (3 | ) | | | (23 | ) |
| Efficiency ratio - GAAP | | | 72.90 | | | | 64.19 | | | | 69.38 | | | | 61.31 | | | | 82.38 | | | | 871 | | | | (948 | ) |
| Efficiency ratio - Non-GAAP (1) | | | 64.40 | | | | 63.31 | | | | 68.85 | | | | 60.44 | | | | 62.56 | | | | 109 | | | | 184 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net income (loss) per common share | | $ | 0.01 | | | $ | (0.03 | ) | | $ | (0.13 | ) | | $ | 0.10 | | | $ | (0.17 | ) | | | 133.3 | % | | | 105.9 | % |
| Diluted net income (loss) per common share | | | 0.01 | | | | (0.03 | ) | | | (0.13 | ) | | | 0.10 | | | | (0.17 | ) | | | 133.3 | | | | 105.9 | |
| Dividends paid per common share | | | 0.01 | | | | 0.01 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | - | | | | (83.3 | ) |
| Book value per common share at period end | | | 14.31 | | | | 14.30 | | | | 14.32 | | | | 14.51 | | | | 14.49 | | | | 0.1 | | | | (1.2 | ) |
| Tangible book value per common share at period end (1) | | | 12.32 | | | | 12.14 | | | | 12.14 | | | | 12.32 | | | | 12.37 | | | | 1.5 | | | | (0.4 | ) |
| Market value at period end | | | 4.36 | | | | 6.98 | | | | 9.75 | | | | 10.54 | | | | 9.48 | | | | (37.5 | ) | | | (54.0 | ) |
| Market range: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | | 7.06 | | | | 10.21 | | | | 11.11 | | | | 10.73 | | | | 12.10 | | | | (30.9 | ) | | | (41.7 | ) |
| Low | | | 3.95 | | | | 6.51 | | | | 9.42 | | | | 9.25 | | | | 9.20 | | | | (39.3 | ) | | | (57.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PERIOD-END BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 862,566 | | | $ | 877,331 | | | $ | 884,715 | | | $ | 895,404 | | | $ | 906,490 | | | | (1.7 | )% | | | (4.8 | )% |
| Securities | | | 112,328 | | | | 113,271 | | | | 106,920 | | | | 105,782 | | | | 104,075 | | | | (0.8 | ) | | | 7.9 | |
| Assets | | | 1,157,536 | | | | 1,124,191 | | | | 1,131,334 | | | | 1,130,311 | | | | 1,134,503 | | | | 3.0 | | | | 2.0 | |
| Deposits | | | 1,011,919 | | | | 973,442 | | | | 986,486 | | | | 979,516 | | | | 982,428 | | | | 4.0 | | | | 3.0 | |
| Stockholders' equity | | | 120,986 | | | | 120,941 | | | | 120,926 | | | | 122,513 | | | | 122,355 | | | | - | | | | (1.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 869,221 | | | $ | 881,976 | | | $ | 887,531 | | | $ | 903,075 | | | $ | 904,293 | | | | (1.4 | )% | | | (3.9 | )% |
| Securities | | | 113,938 | | | | 111,190 | | | | 106,235 | | | | 103,600 | | | | 105,466 | | | | 2.5 | | | | 8.0 | |
| Earning assets | | | 1,069,636 | | | | 1,056,658 | | | | 1,062,164 | | | | 1,060,645 | | | | 1,066,063 | | | | 1.2 | | | | 0.3 | |
| Assets | | | 1,142,588 | | | | 1,125,213 | | | | 1,131,259 | | | | 1,128,517 | | | | 1,139,043 | | | | 1.5 | | | | 0.3 | |
| Deposits | | | 994,968 | | | | 976,840 | | | | 982,249 | | | | 978,444 | | | | 984,018 | | | | 1.9 | | | | 1.1 | |
| Stockholders' equity | | | 121,327 | | | | 121,187 | | | | 122,466 | | | | 123,341 | | | | 125,308 | | | | 0.1 | | | | (3.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CAPITAL AND CREDIT QUALITY RATIOS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity to average assets | | | 10.62 | % | | | 10.77 | % | | | 10.83 | % | | | 10.93 | % | | | 11.00 | % | | | (15 | )bp | | | (38 | )bp |
| Average tangible equity to average tangible assets (1) | | | 9.17 | | | | 9.29 | | | | 9.35 | | | | 9.50 | | | | 9.33 | | | | (12 | ) | | | (16 | ) |
| Annualized net charge-offs to average loans | | | 2.95 | | | | 2.96 | | | | 1.44 | | | | 1.46 | | | | 1.90 | | | | (1 | ) | | | 105 | |
| Allowance for credit losses to period-end loans | | | 1.57 | | | | 1.86 | | | | 1.97 | | | | 1.59 | | | | 1.45 | | | | (29 | ) | | | 12 | |
| Allowance for credit losses to nonaccrual loans | | | 27.31 | | | | 33.74 | | | | 35.83 | | | | 39.26 | | | | 35.76 | | | | (643 | ) | | | (845 | ) |
| Allowance for credit losses to nonperforming loans (2) | | | 16.31 | | | | 22.80 | | | | 22.40 | | | | 22.82 | | | | 28.76 | | | | (649 | ) | | | (1,245 | ) |
| Nonaccrual loans to total loans | | | 5.75 | | | | 5.53 | | | | 5.51 | | | | 4.05 | | | | 4.06 | | | | 22 | | | | 169 | |
| Nonaccrual loans to total assets | | | 4.28 | | | | 4.31 | | | | 4.31 | | | | 3.21 | | | | 3.24 | | | | (3 | ) | | | 104 | |
| Nonperforming assets to total loans+other real estate and other assets owned (3) | | | 10.65 | | | | 8.99 | | | | 9.31 | | | | 7.34 | | | | 5.20 | | | | 166 | | | | 545 | |
| Nonperforming assets to total assets | | | 8.02 | | | | 7.08 | | | | 7.32 | | | | 5.84 | | | | 4.16 | | | | 94 | | | | 386 | |
| (1) | See the reconciliation table on page 11 of 11. |
| (2) | Nonperforming loans include nonaccrual, 90 days past due and still accruing and accruing troubled debt restructurings. |
| (3) | Nonperforming assets include nonperforming loans and other real estate and other assets owned. |
| Page 9 of 11 |
| Consolidated Statements of Income By Quarter | |
| (In thousands, except per share data) | |
| | | | | | | | | | | | | | | | | | 3Q 11 | | | 3Q 11 | |
| | | | | | | | | | | | | | | | | | compared to | | | compared to | |
| | | 3Q 11 | | | 2Q 11 | | | 1Q 11 | | | 4Q 10 | | | 3Q 10 | | | 2Q 11 | | | 3Q 10 | |
| INTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 12,003 | | | $ | 11,896 | | | $ | 12,001 | | | $ | 12,958 | | | $ | 13,083 | | | | 0.9 | % | | | (8.3 | )% |
| Interest and dividends on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 795 | | | | 782 | | | | 657 | | | | 804 | | | | 677 | | | | 1.7 | | | | 17.4 | |
| Tax-exempt | | | 38 | | | | 40 | | | | 38 | | | | 47 | | | | 50 | | | | (5.0 | ) | | | (24.0 | ) |
| Interest on federal funds sold | | | 3 | | | | 5 | | | | 16 | | | | 13 | | | | 21 | | | | (40.0 | ) | | | (85.7 | ) |
| Interest on deposits with other banks | | | 29 | | | | 12 | | | | 6 | | | | 7 | | | | 6 | | | | 141.7 | | | | 383.3 | |
| Total interest income | | | 12,868 | | | | 12,735 | | | | 12,718 | | | | 13,829 | | | | 13,837 | | | | 1.0 | | | | (7.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest on deposits | | | 2,720 | | | | 2,769 | | | | 2,833 | | | | 2,937 | | | | 3,117 | | | | (1.8 | ) | | | (12.7 | ) |
| Interest on short-term borrowings | | | 15 | | | | 13 | | | | 13 | | | | 15 | | | | 17 | | | | 15.4 | | | | (11.8 | ) |
| Interest on long-term debt | | | 10 | | | | 11 | | | | 10 | | | | 11 | | | | 16 | | | | (9.1 | ) | | | (37.5 | ) |
| Total interest expense | | | 2,745 | | | | 2,793 | | | | 2,856 | | | | 2,963 | | | | 3,150 | | | | (1.7 | ) | | | (12.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME | | | 10,123 | | | | 9,942 | | | | 9,862 | | | | 10,866 | | | | 10,687 | | | | 1.8 | | | | (5.3 | ) |
| Provision for credit losses | | | 3,650 | | | | 5,395 | | | | 6,390 | | | | 4,392 | | | | 4,193 | | | | (32.3 | ) | | | (13.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | | | 6,473 | | | | 4,547 | | | | 3,472 | | | | 6,474 | | | | 6,494 | | | | 42.4 | | | | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 697 | | | | 744 | | | | 704 | | | | 799 | | | | 841 | | | | (6.3 | ) | | | (17.1 | ) |
| Trust and investment fee income | | | 389 | | | | 418 | | | | 376 | | | | 358 | | | | 357 | | | | (6.9 | ) | | | 9.0 | |
| Investment securities gains | | | 354 | | | | 2 | | | | 79 | | | | - | | | | - | | | | 17,600.0 | | | | - | |
| Insurance agency commissions | | | 2,312 | | | | 2,475 | | | | 2,510 | | | | 2,116 | | | | 2,513 | | | | (6.6 | ) | | | (8.0 | ) |
| Other noninterest income | | | 771 | | | | 742 | | | | 726 | | | | 675 | | | | 932 | | | | 3.9 | | | | (17.3 | ) |
| Total noninterest income | | | 4,523 | | | | 4,381 | | | | 4,395 | | | | 3,948 | | | | 4,643 | | | | 3.2 | | | | (2.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | | 4,097 | | | | 4,104 | | | | 4,246 | | | | 4,220 | | | | 4,404 | | | | (0.2 | ) | | | (7.0 | ) |
| Employee benefits | | | 878 | | | | 886 | | | | 1,153 | | | | 893 | | | | 897 | | | | (0.9 | ) | | | (2.1 | ) |
| Occupancy expense | | | 585 | | | | 568 | | | | 596 | | | | 562 | | | | 547 | | | | 3.0 | | | | 6.9 | |
| Furniture and equipment expense | | | 262 | | | | 291 | | | | 272 | | | | 262 | | | | 325 | | | | (10.0 | ) | | | (19.4 | ) |
| Data processing | | | 661 | | | | 680 | | | | 851 | | | | 620 | | | | 696 | | | | (2.8 | ) | | | (5.0 | ) |
| Directors' fees | | | 198 | | | | 112 | | | | 107 | | | | 68 | | | | 118 | | | | 76.8 | | | | 67.8 | |
| Goodwill and other intangible assets impairment | | | 1,344 | | | | - | | | | - | | | | - | | | | 3,051 | | | | - | | | | (55.9 | ) |
| Amortization of intangible assets | | | 129 | | | | 128 | | | | 129 | | | | 129 | | | | 128 | | | | 0.8 | | | | 0.8 | |
| Insurance agency commissions expense | | | 250 | | | | 357 | | | | 375 | | | | 339 | | | | 338 | | | | (30.0 | ) | | | (26.0 | ) |
| FDIC insurance premium expense | | | 180 | | | | 404 | | | | 460 | | | | 445 | | | | 448 | | | | (55.4 | ) | | | (59.8 | ) |
| Other noninterest expenses | | | 2,093 | | | | 1,664 | | | | 1,702 | | | | 1,544 | | | | 1,677 | | | | 25.8 | | | | 24.8 | |
| Total noninterest expense | | | 10,677 | | | | 9,194 | | | | 9,891 | | | | 9,082 | | | | 12,629 | | | | 16.1 | | | | (15.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | 319 | | | | (266 | ) | | | (2,024 | ) | | | 1,340 | | | | (1,492 | ) | | | 219.9 | | | | 121.4 | |
| Income tax expense (benefit) | | | 225 | | | | (33 | ) | | | (941 | ) | | | 490 | | | | (92 | ) | | | 781.8 | | | | 344.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | 94 | | | $ | (233 | ) | | $ | (1,083 | ) | | $ | 850 | | | $ | (1,400 | ) | | | 140.3 | | | | 106.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | | 8,457 | | | | 8,446 | | | | 8,443 | | | | 8,443 | | | | 8,443 | | | | 0.1 | | | | 0.2 | |
| Weighted average shares outstanding - diluted | | | 8,457 | | | | 8,446 | | | | 8,443 | | | | 8,443 | | | | 8,443 | | | | 0.1 | | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net income (loss) per common share | | $ | 0.01 | | | $ | (0.03 | ) | | $ | (0.13 | ) | | $ | 0.10 | | | $ | (0.17 | ) | | | 133.3 | | | | 105.9 | |
| Diluted net income (loss) per common share | | | 0.01 | | | | (0.03 | ) | | | (0.13 | ) | | | 0.10 | | | | (0.17 | ) | | | 133.3 | | | | 105.9 | |
| Dividends paid per common share | | | 0.01 | | | | 0.01 | | | | 0.06 | | | | 0.06 | | | | 0.06 | | | | - | | | | (83.3 | ) |
| Shore Bancshares, Inc. | Page 10 of 11 |
| Consolidated Average Balance Sheets By Quarter | |
| (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3Q 11 | | | 3Q 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | compared to | | | compared to | |
| | | 3Q 11 | | | 2Q 11 | | | 1Q 11 | | | 4Q 10 | | | 3Q 10 | | | 2Q 11 | | | 3Q 10 | |
| | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | | | | | | | |
| | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | | | | | | | |
| Earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 869,221 | | | | 5.49 | % | | $ | 881,976 | | | | 5.43 | % | | $ | 887,531 | | | | 5.50 | % | | $ | 903,075 | | | | 5.71 | % | | $ | 904,293 | | | | 5.76 | % | | | (1.5 | )% | | | (3.9 | )% |
| Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 109,498 | | | | 2.88 | | | | 106,609 | | | | 2.94 | | | | 101,625 | | | | 2.62 | | | | 98,378 | | | | 3.24 | | | | 99,572 | | | | 2.70 | | | | 2.7 | | | | 10.0 | |
| Tax-exempt | | | 4,440 | | | | 5.12 | | | | 4,581 | | | | 5.27 | | | | 4,610 | | | | 5.08 | | | | 5,222 | | | | 5.40 | | | | 5,894 | | | | 5.16 | | | | (3.1 | ) | | | (24.7 | ) |
| Federal funds sold | | | 15,905 | | | | 0.07 | | | | 24,310 | | | | 0.09 | | | | 46,813 | | | | 0.14 | | | | 34,018 | | | | 0.16 | | | | 40,638 | | | | 0.20 | | | | (34.6 | ) | | | (60.9 | ) |
| Interest-bearing deposits | | | 70,572 | | | | 0.16 | | | | 39,182 | | | | 0.12 | | | | 21,585 | | | | 0.12 | | | | 19,952 | | | | 0.12 | | | | 15,666 | | | | 0.15 | | | | 80.1 | | | | 350.5 | |
| Total earning assets | | | 1,069,636 | | | | 4.79 | % | | | 1,056,658 | | | | 4.86 | % | | | 1,062,164 | | | | 4.88 | % | | | 1,060,645 | | | | 5.20 | % | | | 1,066,063 | | | | 5.18 | % | | | 1.2 | | | | 0.3 | |
| Cash and due from banks | | | 20,414 | | | | | | | | 18,327 | | | | | | | | 19,316 | | | | | | | | 19,867 | | | | | | | | 21,865 | | | | | | | | 11.4 | | | | (6.6 | ) |
| Other assets | | | 69,394 | | | | | | | | 68,190 | | | | | | | | 65,426 | | | | | | | | 62,305 | | | | | | | | 65,081 | | | | | | | | 1.8 | | | | 6.6 | |
| Allowance for credit losses | | | (16,856 | ) | | | | | | | (17,962 | ) | | | | | | | (15,647 | ) | | | | | | | (14,300 | ) | | | | | | | (13,966 | ) | | | | | | | (6.2 | ) | | | 20.7 | |
| Total assets | | $ | 1,142,588 | | | | | | | $ | 1,125,213 | | | | | | | $ | 1,131,259 | | | | | | | $ | 1,128,517 | | | | | | | $ | 1,139,043 | | | | | | | | 1.5 | | | | 0.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | $ | 154,685 | | | | 0.20 | % | | $ | 137,775 | | | | 0.22 | % | | $ | 131,628 | | | | 0.22 | % | | $ | 128,592 | | | | 0.22 | % | | $ | 132,023 | | | | 0.24 | % | | | 12.3 | | | | 17.2 | |
| Money market and savings deposits | | | 266,871 | | | | 1.03 | | | | 261,869 | | | | 0.97 | | | | 260,841 | | | | 0.93 | | | | 258,713 | | | | 0.84 | | | | 259,511 | | | | 0.81 | | | | 1.9 | | | | 2.8 | |
| Certificates of deposit $100,000 or more | | | 235,362 | | | | 1.63 | | | | 244,805 | | | | 1.67 | | | | 259,179 | | | | 1.70 | | | | 256,167 | | | | 1.77 | | | | 258,542 | | | | 1.91 | | | | (3.9 | ) | | | (9.0 | ) |
| Other time deposits | | | 204,836 | | | | 1.91 | | | | 206,310 | | | | 2.02 | | | | 208,301 | | | | 2.10 | | | | 208,808 | | | | 2.23 | | | | 212,098 | | | | 2.37 | | | | (0.7 | ) | | | (3.4 | ) |
| Interest-bearing deposits | | | 861,754 | | | | 1.25 | | | | 850,759 | | | | 1.31 | | | | 859,949 | | | | 1.34 | | | | 852,280 | | | | 1.37 | | | | 862,174 | | | | 1.44 | | | | 1.3 | | | | (0.1 | ) |
| Short-term borrowings | | | 15,640 | | | | 0.37 | | | | 15,020 | | | | 0.36 | | | | 14,165 | | | | 0.37 | | | | 15,381 | | | | 0.39 | | | | 16,092 | | | | 0.38 | | | | 4.1 | | | | (2.8 | ) |
| Long-term debt | | | 932 | | | | 4.46 | | | | 932 | | | | 4.51 | | | | 932 | | | | 4.56 | | | | 932 | | | | 4.46 | | | | 1,429 | | | | 4.36 | | | | - | | | | (34.8 | ) |
| Total interest-bearing liabilities | | | 878,326 | | | | 1.24 | % | | | 866,711 | | | | 1.29 | % | | | 875,046 | | | | 1.32 | % | | | 868,593 | | | | 1.35 | % | | | 879,695 | | | | 1.42 | % | | | 1.3 | | | | (0.2 | ) |
| Noninterest-bearing deposits | | | 133,214 | | | | | | | | 126,081 | | | | | | | | 122,300 | | | | | | | | 126,164 | | | | | | | | 121,844 | | | | | | | | 5.7 | | | | 9.3 | |
| Accrued expenses and other liabilities | | | 9,721 | | | | | | | | 11,234 | | | | | | | | 11,447 | | | | | | | | 10,419 | | | | | | | | 12,196 | | | | | | | | (13.5 | ) | | | (20.3 | ) |
| Stockholders' equity | | | 121,327 | | | | | | | | 121,187 | | | | | | | | 122,466 | | | | | | | | 123,341 | | | | | | | | 125,308 | | | | | | | | 0.1 | | | | (3.2 | ) |
| Total liabilities and stockholders' equity | | $ | 1,142,588 | | | | | | | $ | 1,125,213 | | | | | | | $ | 1,131,259 | | | | | | | $ | 1,128,517 | | | | | | | $ | 1,139,043 | | | | | | | | 1.5 | | | | 0.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | 3.55 | % | | | | | | | 3.57 | % | | | | | | | 3.56 | % | | | | | | | 3.85 | % | | | | | | | 3.76 | % | | | | | | | | |
| Net interest margin | | | | | | | 3.77 | % | | | | | | | 3.80 | % | | | | | | | 3.79 | % | | | | | | | 4.09 | % | | | | | | | 4.00 | % | | | | | | | | |
| Page 11 of 11 |
| Reconciliation of Non-GAAP Measures | |
| (In thousands, except per share data) | |
| | | | | | | | | | | | | | | | | | YTD | | | YTD | |
| | | 3Q 11 | | | 2Q 11 | | | 1Q 11 | | | 4Q 10 | | | 3Q 10 | | | 09/30/2011 | | | 09/30/2010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles return on average equity and return on average tangible equity (Note 1): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 94 | | | $ | (233 | ) | | $ | (1,083 | ) | | $ | 850 | | | $ | (1,400 | ) | | $ | (1,222 | ) | | $ | (2,517 | ) |
| Net income (loss) - annualized (A) | | $ | 373 | | | $ | (935 | ) | | $ | (4,392 | ) | | $ | 3,372 | | | $ | (5,554 | ) | | $ | (1,634 | ) | | $ | (3,365 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss), excluding net amortization and impairment charges of intangible assets | | $ | 1,094 | | | $ | (155 | ) | | $ | (1,005 | ) | | $ | 928 | | | $ | 1,134 | | | $ | (66 | ) | | $ | 173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss), excluding net amortization and impairment charges of intangible assets - annualized (B) | | $ | 4,340 | | | $ | (622 | ) | | $ | (4,076 | ) | | $ | 3,682 | | | $ | 4,499 | | | $ | (88 | ) | | $ | 231 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average stockholders' equity (C) | | $ | 121,327 | | | $ | 121,187 | | | $ | 122,466 | | | $ | 123,341 | | | $ | 125,308 | | | $ | 121,656 | | | $ | 126,343 | |
| Less: Average goodwill and other intangible assets | | | (18,190 | ) | | | (18,334 | ) | | | (18,465 | ) | | | (17,877 | ) | | | (21,016 | ) | | | (18,329 | ) | | | (21,166 | ) |
| Average tangible equity (D) | | $ | 103,137 | | | $ | 102,853 | | | $ | 104,001 | | | $ | 105,464 | | | $ | 104,292 | | | $ | 103,327 | | | $ | 105,177 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average equity (GAAP) (A)/(C) | | | 0.31 | % | | | (0.77 | )% | | | (3.59 | )% | | | 2.73 | % | | | (4.43 | )% | | | (1.34 | )% | | | (2.66 | )% |
| Return on average tangible equity (Non-GAAP) (B)/(D) | | | 4.21 | % | | | (0.60 | )% | | | (3.92 | )% | | | 3.49 | % | | | 4.31 | % | | | (0.09 | )% | | | 0.22 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest expense (E) | | $ | 10,677 | | | $ | 9,194 | | | $ | 9,891 | | | $ | 9,082 | | | $ | 12,629 | | | $ | 29,762 | | | $ | 32,638 | |
| Less: Amortization of intangible assets | | | (129 | ) | | | (128 | ) | | | (129 | ) | | | (129 | ) | | | (128 | ) | | | (386 | ) | | | (386 | ) |
| Impairment charges | | | (1,344 | ) | | | - | | | | - | | | | - | | | | (3,051 | ) | | | (1,344 | ) | | | (3,051 | ) |
| Adjusted noninterest expense (F) | | $ | 9,204 | | | $ | 9,066 | | | $ | 9,762 | | | $ | 8,953 | | | $ | 9,450 | | | $ | 28,032 | | | $ | 29,201 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income (G) | | $ | 10,123 | | | $ | 9,942 | | | $ | 9,862 | | | $ | 10,866 | | | $ | 10,687 | | | $ | 29,927 | | | $ | 31,773 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest income (H) | | $ | 4,523 | | | $ | 4,381 | | | $ | 4,395 | | | $ | 3,948 | | | $ | 4,643 | | | $ | 13,299 | | | $ | 14,093 | |
| Less: Investment securities (gains)/losses | | | (354 | ) | | | (2 | ) | | | (79 | ) | | | - | | | | - | | | | (435 | ) | | | - | |
| Other nonrecurring (gains)/losses | | | - | | | | - | | | | - | | | | - | | | | (224 | ) | | | - | | | | (224 | ) |
| Adjusted noninterest income (I) | | $ | 4,169 | | | $ | 4,379 | | | $ | 4,316 | | | $ | 3,948 | | | $ | 4,419 | | | $ | 12,864 | | | $ | 13,869 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Efficiency ratio (GAAP) (E)/(G)+(H) | | | 72.90 | % | | | 64.19 | % | | | 69.38 | % | | | 61.31 | % | | | 82.38 | % | | | 68.85 | % | | | 71.16 | % |
| Efficiency ratio (Non-GAAP) (F)/(G)+(I) | | | 64.40 | % | | | 63.31 | % | | | 68.85 | % | | | 60.44 | % | | | 62.56 | % | | | 65.51 | % | | | 63.98 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles book value per common share and tangible book value per common share (Note 1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stockholders' equity (J) | | $ | 120,986 | | | $ | 120,941 | | | $ | 120,926 | | | $ | 122,513 | | | $ | 122,355 | | | | | | | | | |
| Less: Goodwill and other intangible assets | | | (16,788 | ) | | | (18,261 | ) | | | (18,389 | ) | | | (18,518 | ) | | | (17,923 | ) | | | | | | | | |
| Tangible equity (K) | | $ | 104,198 | | | $ | 102,680 | | | $ | 102,537 | | | $ | 103,995 | | | $ | 104,432 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares outstanding (L) | | | 8,457 | | | | 8,457 | | | | 8,443 | | | | 8,443 | | | | 8,443 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Book value per common share (GAAP) (J)/(L) | | $ | 14.31 | | | $ | 14.30 | | | $ | 14.32 | | | $ | 14.51 | | | $ | 14.49 | | | | | | | | | |
| Tangible book value per common share (Non-GAAP) (K)/(L) | | $ | 12.32 | | | $ | 12.14 | | | $ | 12.14 | | | $ | 12.32 | | | $ | 12.37 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles average equity to average assets and average tangible equity to average tangible assets (Note 1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average stockholders' equity (M) | | $ | 121,327 | | | $ | 121,187 | | | $ | 122,466 | | | $ | 123,341 | | | $ | 125,308 | | | $ | 121,656 | | | $ | 126,343 | |
| Less: Average goodwill and other intangible assets | | | (18,190 | ) | | | (18,334 | ) | | | (18,465 | ) | | | (17,877 | ) | | | (21,016 | ) | | | (18,329 | ) | | | (21,166 | ) |
| Average tangible equity (N) | | $ | 103,137 | | | $ | 102,853 | | | $ | 104,001 | | | $ | 105,464 | | | $ | 104,292 | | | $ | 103,327 | | | $ | 105,177 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average assets (O) | | $ | 1,142,588 | | | $ | 1,125,213 | | | $ | 1,131,259 | | | $ | 1,128,517 | | | $ | 1,139,043 | | | $ | 1,132,964 | | | $ | 1,139,747 | |
| Less: Average goodwill and other intangible assets | | | (18,190 | ) | | | (18,334 | ) | | | (18,465 | ) | | | (17,877 | ) | | | (21,016 | ) | | | (18,329 | ) | | | (21,166 | ) |
| Average tangible assets (P) | | $ | 1,124,398 | | | $ | 1,106,879 | | | $ | 1,112,794 | | | $ | 1,110,640 | | | $ | 1,118,027 | | | $ | 1,114,635 | | | $ | 1,118,581 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity/average assets (GAAP) (M)/(O) | | | 10.62 | % | | | 10.77 | % | | | 10.83 | % | | | 10.93 | % | | | 11.00 | % | | | 10.74 | % | | | 11.09 | % |
| Average tangible equity/average tangible assets (Non-GAAP) (N)/(P) | | | 9.17 | % | | | 9.29 | % | | | 9.35 | % | | | 9.50 | % | | | 9.33 | % | | | 9.27 | % | | | 9.40 | % |
| 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 of controlling cash-based operating activities. |
