Shore Bancshares, Inc.
28969 Information Lane
Easton, Maryland 21601
Phone 410-763-7800
PRESS RELEASE
Shore Bancshares Reports Third Quarter and Nine-Month Results
Easton, Maryland (10/28/2013) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported a net loss of $11.4 million or $(1.35) per diluted common share for the third quarter of 2013, compared to net income of $361 thousand or $0.04 per diluted common share for the second quarter of 2013, and a net loss of $1.8 million or $(0.22) per diluted common share for the third quarter of 2012. The Company reported a net loss of $10.8 million or $(1.28) per diluted common share for the first nine months of 2013, compared to a net loss of $4.6 million or $(0.54) per diluted common share for the first nine months of 2012.
The losses for the three and nine months ended September 30, 2013 were due to pretax losses of $19.8 million recognized in connection with the execution of agreements by the Company’s wholly owned subsidiary, The Talbot Bank of Easton (the “Bank”) to sell loans and other real estate owned (the “Asset Sale”). On October 28, 2013, the Bank entered into agreements to sell assets with an aggregate book value of $45.0 million for a price of $25.2 million. The assets consisted of $11.1 million of nonaccrual loans, $30.4 million of accruing troubled debt restructurings (“TDRs”), $1.8 million of adversely classified performing loans and $1.7 million of other real estate owned. As a result, as of September 30, 2013, the $43.3 million of loans subject to the Asset Sale were transferred to loans held for sale and written down $19.6 million to reflect the value to be realized upon sale. Other real estate owned associated with the Asset Sale was written down $182 thousand. The Asset Sale is currently expected to be consummated in the fourth quarter of 2013, subject to certain closing conditions.
“In order to accelerate the disposition of our nonperforming assets and decrease our overall risk profile, we have made the difficult but prudent decision to sell approximately 50% of problem loans in our portfolio,” said Lloyd L. “Scott” Beatty, Jr., president and chief executive officer. “Disposing these loans will provide us with the opportunity to focus more on growing healthy new business, improving and sustaining earnings, and positioning the Company for future success. We were able to pursue this strategy because of our strong capital position and we continue to maintain solid underlying capital ratios. We believe that the economy in our region has shown some improvement as real estate pricing stabilizes. We hope to continue to work out of the remaining problem loans, many of which are troubled debt restructurings which are performing.”
Balance Sheet Review
Total assets were $1.051 billion at September 30, 2013, a $134.4 million, or 11.3%, decrease when compared to the $1.186 billion at the end of 2012. The decline in total assets was primarily due to a decrease in interest-bearing deposits with other banks ($85.7 million), loans ($66.5 million) and investment securities ($9.9 million). Loans held for sale associated with the pending Asset Sale were $23.6 million at the end of September 2013. Total deposits decreased $118.9 million, or 11.3%, to $930.4 million mainly due to a decline in money market deposit accounts associated with the Company’s participation in the Promontory Insured Network Deposits Program (“IND Program”). In December 2012, the Company decided to partially exit the IND Program as a way to decrease its excess liquidity and, in June 2013, the Company fully exited the IND Program. Total stockholders’ equity declined $12.0 million, or 10.5%, from the end of 2012. For the first nine months of 2013, the ratio of average equity to average assets was 10.49% and the ratio of average tangible equity to average tangible assets was 9.14%.
Page 2 of 13
Review of Quarterly Financial Results
Net interest income was $8.8 million for the third quarter of 2013, compared to $9.0 million for the second quarter of 2013 and $8.7 million for the third quarter of 2012. The decrease in net interest income when compared to the second quarter of 2013 was due to a greater decline in interest income than the decline in interest expense. The decrease in interest income was partially the result of a $308 thousand nonrecurring adjustment to loan income related to a TDR in the second quarter of 2013. The decrease in interest expense was mainly the result of lower balances of and rates paid on money market and savings deposits due to exiting the remainder of the IND Program and terminating the interest rate caps associated with these deposits in June of 2013. The slightly higher net interest income for the third quarter of 2013 when compared to the third quarter of 2012 was due to a greater decline in interest expense than the decline in interest income. The decrease in interest expense was mainly due to exiting the IND Program and terminating the interest rate caps associated with the IND Program. The Company’s net interest margin was 3.54% for the third quarter of 2013, 3.60% for the second quarter of 2013 and 3.15% for the third quarter of 2012.
The provision for credit losses was $2.9 million for the three months ended September 30, 2013. The comparable amounts were $2.7 million and $6.2 million for the three months ended June 30, 2013 and September 30, 2012, respectively. The higher level of provision for credit losses when comparing the third quarter of 2013 to the second quarter of 2013 was primarily due to increases in loan charge-offs while the lower level when comparing to the third quarter of 2012 was mainly due to declines in nonaccrual loans. Net charge-offs were $7.3 million for the third quarter of 2013, $2.7 million for the second quarter of 2013 and $6.2 million for the third quarter of 2012. The charge offs in all three quarters were mainly real estate related loans. Net charge-offs for the third quarter of 2013 included $2.4 million associated with loans in the Asset Sale. The ratio of quarter-to-date annualized net charge-offs to average loans was 3.74% for the third quarter of 2013, 1.38% for the second quarter of 2013 and 3.07% for the third quarter of 2012. The ratio of the allowance for credit losses to period-end loans was 1.57% at September 30, 2013, compared to 2.01% at June 30, 2013 and 1.60% at September 30, 2012.
At September 30, 2013, nonperforming assets excluding nonaccrual loans held for sale were $23.3 million, a decrease of $17.9 million, or 43.5%,when compared to June 30, 2013 and a decrease of $29.2 million, or 55.7%, when compared to September 30, 2012. Similarly, accruing TDRs excluding TDRs held for sale were $29.4 million at September 30, 2013, a decrease of $20.8 million, or 41.4%, when compared to June 30, 2013 and $21.3 million, or 42.0%, when compared to September 30, 2012. Partially offsetting the decline in accruing TDRs was the addition of a $9.6 million credit from one loan relationship.At September 30, 2013, the ratio of nonaccrual loans excluding nonaccrual loans held for sale to total assets was 1.66%, improving from 3.30% and 3.35% at June 30, 2013 and September 30, 2012, respectively. Likewise, the ratio of accruing TDRs excluding TDRs held for sale to total assets at September 30, 2013 was 2.80%, decreasing from 4.77% at June 30, 2013 and 4.31% at September 30, 2012. The positive trend in nonperforming assets and TDRs, as well as the corresponding asset quality ratios, was due primarily to the impact of the Asset Sale. See pages 4 and 9 of this release for additional detail.
Total noninterest income for the third quarter of 2013 decreased $19.0 million when compared to both the second quarter of 2013 and third quarter of 2012 mainly due to the $19.8 million write-downs of loans held for sale and other real estate owned to the value to be realized upon sale in connection with the Asset Sale. Included in noninterest income for the second quarter of 2013 was a $1.3 million loss incurred to recognize the remaining ineffective portion of the previously mentioned interest rate caps related to the IND Program which was substantially offset by $913 thousand in gains on sales of investment securities. These transactions in the prior quarter, along with a $297 thousand nonrecurring adjustment included in other noninterest income from an insurance investment, slightly offset the decline in noninterest income when compared to the second quarter of 2013. Slightly offsetting the decline in noninterest income when compared to the third quarter of 2012 were fewer losses on sales of other real estate owned ($524 thousand), the income from the insurance investment, and higher insurance agency commissions ($297 thousand).
Total noninterest expense remained fairly flat for the third quarter of 2013 when compared to both the second quarter of 2013 and the third quarter of 2012, increasing less than 1.0% for each comparative period.
Review of Nine-Month Financial Results
Net interest income for the first nine months of 2013 was $26.3 million, a decrease of $652 thousand, or 2.4%, when compared to the first nine months of 2012. The decrease was mainly due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances. The decrease was partially offset by lower rates paid on and a decline in average balances of money market and savings deposits, and time deposits. However, the net interest margin improved to 3.48% for the first nine months of 2013 when compared to 3.31% for the first nine months of 2012.
Page 3 of 13
The provisions for credit losses for the nine months ended September 30, 2013 and 2012 were $7.7 million and $18.1million, respectively, while net charge-offs were $12.4 million and $19.4 million, respectively. The ratio of year-to- date annualized net charge-offs to average loans was 2.12% for the first nine months of 2013 and 3.17% for the first nine months of 2012.
Total noninterest income for the nine months ended September 30, 2013 decreased $19.7 million when compared to the same period in 2012. As with the quarterly results, this decline wasmainly due to the $19.8 million write-down of assets associated with the Asset Sale. Also included in total noninterest income for the first nine months of 2013 was the $1.3 million loss incurred to terminate the interest rate caps associated with the IND Program. Slightly offsetting the asset write-down and the loss on the termination of the interest rate caps were higher insurance agency commissions ($648 thousand),larger gains on sales of investment securities ($635 thousand),andthe income from the insurance investment ($297 thousand).
Similar to the quarterly results, total noninterest expense for the first nine months of 2013 remained somewhat flat, increasing $166 thousand, or less than 1.0%, when compared to the same period in 2012.
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; and an insurance premium finance company, Mubell Finance, LLC. Shore Bancshares, Inc. engages in the trust services business through the trust department at CNB under the name “Wye Financial & Trust”. Additional information is available atwww.shbi.com.
Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. 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 byShore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.
The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.
For further information contact: George Rapp, Chief Financial Officer, 410-763-7800
| Shore Bancshares, Inc. | | Page 4 of 13 |
| Financial Highlights | | |
| (Dollars in thousands, except per share data) | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2013 | | | 2012 | | | Change | | | 2013 | | | 2012 | | | Change | |
| PROFITABILITY FOR THE PERIOD | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 8,828 | | | $ | 8,730 | | | | 1.1 | % | | $ | 26,306 | | | $ | 26,958 | | | | (2.4 | )% |
| Provision for credit losses | | | 2,850 | | | | 6,200 | | | | (54.0 | ) | | | 7,700 | | | | 18,095 | | | | (57.4 | ) |
| Noninterest income | | | (15,000 | ) | | | 4,001 | | | | (474.9 | ) | | | (6,548 | ) | | | 13,152 | | | | (149.8 | ) |
| Noninterest expense | | | 9,786 | | | | 9,709 | | | | 0.8 | | | | 30,036 | | | | 29,870 | | | | 0.6 | |
| Loss before income tax benefit | | | (18,808 | ) | | | (3,178 | ) | | | (491.8 | ) | | | (17,978 | ) | | | (7,855 | ) | | | (128.9 | ) |
| Income tax benefit | | | (7,416 | ) | | | (1,357 | ) | | | (446.5 | ) | | | (7,169 | ) | | | (3,291 | ) | | | (117.8 | ) |
| Net loss | | $ | (11,392 | ) | | $ | (1,821 | ) | | | (525.6 | ) | | $ | (10,809 | ) | | $ | (4,564 | ) | | | (136.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | (4.24 | )% | | | (0.61 | )% | | | (363 | )bp | | | (1.33 | )% | | | (0.52 | )% | | | (81 | )bp |
| Return on average equity | | | (39.68 | ) | | | (6.07 | ) | | | (3,361 | ) | | | (12.66 | ) | | | (5.08 | ) | | | (758 | ) |
| Return on average tangible equity (1) | | | (46.03 | ) | | | (6.82 | ) | | | (3,921 | ) | | | (14.57 | ) | | | (5.65 | ) | | | (892 | ) |
| Net interest margin | | | 3.54 | | | | 3.15 | | | | 39 | | | | 3.48 | | | | 3.31 | | | | 17 | |
| Efficiency ratio - GAAP | | | (159.17 | ) | | | 76.03 | | | | (23,520 | ) | | | 151.42 | | | | 74.23 | | | | 7,719 | |
| Efficiency ratio - Non-GAAP (1) | | | 71.18 | | | | 76.95 | | | | (577 | ) | | | 75.20 | | | | 74.35 | | | | 85 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net loss per common share | | $ | (1.35 | ) | | $ | (0.22 | ) | | | (513.6 | )% | | $ | (1.28 | ) | | $ | (0.54 | ) | | | (137.0 | )% |
| Diluted net loss per common share | | | (1.35 | ) | | | (0.22 | ) | | | (513.6 | ) | | | (1.28 | ) | | | (0.54 | ) | | | (137.0 | ) |
| Dividends paid per common share | | | - | | | | - | | | | - | | | | - | | | | 0.01 | | | | (100.0 | ) |
| Book value per common share at period end | | | 12.06 | | | | 13.97 | | | | (13.7 | ) | | | | | | | | | | | | |
| Tangible book value per common share at period end (1) | | | 10.16 | | | | 12.04 | | | | (15.6 | ) | | | | | | | | | | | | |
| Market value at period end | | | 8.80 | | | | 6.02 | | | | 46.2 | | | | | | | | | | | | | |
| Market range: | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | | 9.06 | | | | 6.33 | | | | 43.1 | | | | 9.06 | | | | 7.45 | | | | 21.6 | |
| Low | | | 7.06 | | | | 4.98 | | | | 41.8 | | | | 5.20 | | | | 4.91 | | | | 5.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 772,008 | | | $ | 808,244 | | | | (4.5 | )% | | $ | 780,359 | | | $ | 819,088 | | | | (4.7 | )% |
| Securities | | | 124,020 | | | | 137,871 | | | | (10.0 | ) | | | 137,240 | | | | 135,411 | | | | 1.4 | |
| Earning assets | | | 993,068 | | | | 1,108,256 | | | | (10.4 | ) | | | 1,014,243 | | | | 1,094,247 | | | | (7.3 | ) |
| Assets | | | 1,064,919 | | | | 1,184,146 | | | | (10.1 | ) | | | 1,088,150 | | | | 1,169,158 | | | | (6.9 | ) |
| Deposits | | | 932,867 | | | | 1,040,693 | | | | (10.4 | ) | | | 954,390 | | | | 1,024,390 | | | | (6.8 | ) |
| Stockholders' equity | | | 113,904 | | | | 119,321 | | | | (4.5 | ) | | | 114,120 | | | | 119,916 | | | | (4.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CREDIT QUALITY DATA AT PERIOD END | | | | | | | | | | | | | | | | | | | | | | | | |
| Net charge-offs | | $ | 7,272 | | | $ | 6,235 | | | | 16.6 | % | | $ | 12,390 | | | $ | 19,428 | | | | (36.2 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | $ | 17,501 | | | $ | 39,442 | | | | (55.6 | ) | | | | | | | | | | | | |
| Loans 90 days past due and still accruing | | | 9 | | | | 4,675 | | | | (99.8 | ) | | | | | | | | | | | | |
| Other real estate owned | | | 5,776 | | | | 8,418 | | | | (31.4 | ) | | | | | | | | | | | | |
| Total nonperforming assets excluding nonaccrual loans held for sale | | | 23,286 | | | | 52,535 | | | | (55.7 | ) | | | | | | | | | | | | |
| Nonaccrual loans held for sale | | | 7,265 | | | | - | | | | - | | | | | | | | | | | | | |
| Total nonperforming assets including nonaccrual loans held for sale | | $ | 30,551 | | | $ | 52,535 | | | | (41.8 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Accruing troubled debt restructurings (TDRs) excluding TDRs held for sale | | $ | 29,439 | | | $ | 50,785 | | | | (42.0 | ) | | | | | | | | | | | | |
| Accruing TDRs held for sale | | | 14,842 | | | | - | | | | - | | | | | | | | | | | | | |
| Total accruing TDRs including TDRs held for sale | | $ | 44,281 | | | $ | 50,785 | | | | (12.8 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total nonperforming assets and accruing TDRs excluding nonaccrual | | | | | | | | | | | | | | | | | | | | | | | | |
| loans and TDRs held for sale | | $ | 52,725 | | | $ | 103,320 | | | | (49.0 | ) | | | | | | | | | | | | |
| Nonaccrual loans and TDRs held for sale | | | 22,107 | | | | - | | | | - | | | | | | | | | | | | | |
| Total nonperforming assets and accruing TDRs including nonaccrual | | | | | | | | | | | | | | | | | | | | | | | | |
| loans and TDRs held for sale | | $ | 74,832 | | | $ | 103,320 | | | | (27.6 | ) | | | | | | | | | | | | |
| (1) See the reconciliation table on page 13 of 13. |
| Shore Bancshares, Inc. | | Page 5 of 13 |
| Financial Highlights | | |
| (Dollars in thousands, except per share data) | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2013 | | | 2012 | | | Change | | | 2013 | | | 2012 | | | Change | |
| CAPITAL AND CREDIT QUALITY RATIOS | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity to average assets | | | 10.70 | % | | | 10.08 | % | | | 62 | bp | | | 10.49 | % | | | 10.26 | % | | | 23 | bp |
| Average tangible equity to average tangible assets (1) | | | 9.33 | | | | 8.81 | | | | 52 | | | | 9.14 | | | | 8.97 | | | | 17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Annualized net charge-offs to average loans | | | 3.74 | | | | 3.07 | | | | 67 | | | | 2.12 | | | | 3.17 | | | | (105 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses as a percent of: | | | | | | | | | | | | | | | | | | | | | | | | |
| Period-end loans | | | 1.57 | | | | 1.60 | | | | (3 | ) | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 64.57 | | | | 32.85 | | | | 3,172 | | | | | | | | | | | | | |
| Nonaccrual loans including nonaccrual loans held for sale | | | 45.63 | | | | 32.85 | | | | 1,278 | | | | | | | | | | | | | |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 48.53 | | | | 24.66 | | | | 2,387 | | | | | | | | | | | | | |
| Nonperforming assets including nonaccrual loans held for sale | | | 36.99 | | | | 24.66 | | | | 1,233 | | | | | | | | | | | | | |
| Accruing TDRs excluding TDRs held for sale | | | 38.39 | | | | 25.51 | | | | 1,288 | | | | | | | | | | | | | |
| Accruing TDRs including TDRs held for sale | | | 25.52 | | | | 25.51 | | | | 1 | | | | | | | | | | | | | |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 21.43 | | | | 12.54 | | | | 889 | | | | | | | | | | | | | |
| Nonperforming assets and accruing TDRs including nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 15.10 | | | | 12.54 | | | | 256 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total loans: | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 2.44 | | | | 4.88 | | | | (244 | ) | | | | | | | | | | | | |
| Accruing TDRs excluding TDRs held for sale | | | 4.10 | | | | 6.29 | | | | (219 | ) | | | | | | | | | | | | |
| Nonaccrual loans and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 6.53 | | | | 11.17 | | | | (464 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total loans+other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 3.21 | | | | 6.43 | | | | (322 | ) | | | | | | | | | | | | |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 7.28 | | | | 12.65 | | | | (537 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 1.66 | | | | 3.35 | | | | (169 | ) | | | | | | | | | | | | |
| Nonaccrual loans including nonaccrual loans held for sale | | | 2.36 | | | | 3.35 | | | | (99 | ) | | | | | | | | | | | | |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 2.21 | | | | 4.46 | | | | (225 | ) | | | | | | | | | | | | |
| Nonperforming assets including nonaccrual loans held for sale | | | 2.91 | | | | 4.46 | | | | (155 | ) | | | | | | | | | | | | |
| Accruing TDRs excluding TDRs held for sale | | | 2.80 | | | | 4.31 | | | | (151 | ) | | | | | | | | | | | | |
| Accruing TDRs including TDRs held for sale | | | 4.21 | | | | 4.31 | | | | (10 | ) | | | | | | | | | | | | |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 5.01 | | | | 8.77 | | | | (376 | ) | | | | | | | | | | | | |
| Nonperforming assets and accruing TDRs including nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 7.12 | | | | 8.77 | | | | (165 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) See the reconciliation table on page 13 of 13. | | | | | | | | | | | | | | | | | | | | | | | | |
| Shore Bancshares, Inc. | | Page 6 of 13 |
| Consolidated Balance Sheets | | |
| (In thousands, except per share data) | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | September 30, 2013 | | | September 30, 2013 | |
| | | September 30, | | | December 31, | | | September 30, | | | compared to | | | compared to | |
| | | 2013 | | | 2012 | | | 2012 | | | December 31, 2012 | | | September 30, 2012 | |
| ASSETS | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 26,133 | | | $ | 26,579 | | | $ | 22,005 | | | | (1.7 | )% | | | 18.8 | % |
| Interest-bearing deposits with other banks | | | 79,165 | | | | 164,864 | | | | 138,422 | | | | (52.0 | ) | | | (42.8 | ) |
| Federal funds sold | | | 1,624 | | | | 8,750 | | | | 23,021 | | | | (81.4 | ) | | | (92.9 | ) |
| Investments available for sale (at fair value) | | | 135,862 | | | | 145,508 | | | | 126,372 | | | | (6.6 | ) | | | 7.5 | |
| Investments held to maturity | | | 2,357 | | | | 2,657 | | | | 4,075 | | | | (11.3 | ) | | | (42.2 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Loans held for sale | | | 23,635 | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Loans | | | 718,627 | | | | 785,082 | | | | 808,030 | | | | (8.5 | ) | | | (11.1 | ) |
| Less: allowance for credit losses | | | (11,301 | ) | | | (15,991 | ) | | | (12,955 | ) | | | (29.3 | ) | | | (12.8 | ) |
| Loans, net | | | 707,326 | | | | 769,091 | | | | 795,075 | | | | (8.0 | ) | | | (11.0 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Premises and equipment, net | | | 15,175 | | | | 15,593 | | | | 15,537 | | | | (2.7 | ) | | | (2.3 | ) |
| Goodwill | | | 12,454 | | | | 12,454 | | | | 12,454 | | | | - | | | | - | |
| Other intangible assets, net | | | 3,594 | | | | 3,816 | | | | 3,890 | | | | (5.8 | ) | | | (7.6 | ) |
| Other real estate owned, net | | | 5,776 | | | | 7,659 | | | | 8,418 | | | | (24.6 | ) | | | (31.4 | ) |
| Other assets | | | 38,283 | | | | 28,836 | | | | 29,364 | | | | 32.8 | | | | 30.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 1,051,384 | | | $ | 1,185,807 | | | $ | 1,178,633 | | | | (11.3 | ) | | | (10.8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | $ | 166,225 | | | $ | 153,992 | | | $ | 156,579 | | | | 7.9 | | | | 6.2 | |
| Interest-bearing deposits | | | 764,188 | | | | 895,281 | | | | 881,935 | | | | (14.6 | ) | | | (13.4 | ) |
| Total deposits | | | 930,413 | | | | 1,049,273 | | | | 1,038,514 | | | | (11.3 | ) | | | (10.4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | | 11,468 | | | | 13,761 | | | | 13,079 | | | | (16.7 | ) | | | (12.3 | ) |
| Accrued expenses and other liabilities | | | 7,502 | | | | 8,747 | | | | 8,422 | | | | (14.2 | ) | | | (10.9 | ) |
| Long-term debt | | | - | | | | - | | | | 455 | | | | - | | | | (100.0 | ) |
| Total liabilities | | | 949,383 | | | | 1,071,781 | | | | 1,060,470 | | | | (11.4 | ) | | | (10.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | |
| Common stock, par value $0.01; authorized | | | | | | | | | | | | | | | | | | | | |
| 35,000,000 shares | | | 85 | | | | 85 | | | | 85 | | | | - | | | | - | |
| Additional paid in capital | | | 32,187 | | | | 32,155 | | | | 32,120 | | | | 0.1 | | | | 0.2 | |
| Retained earnings | | | 70,269 | | | | 81,078 | | | | 86,152 | | | | (13.3 | ) | | | (18.4 | ) |
| Accumulated other comprehensive (loss) income | | | (540 | ) | | | 708 | | | | (194 | ) | | | (176.3 | ) | | | (178.4 | ) |
| Total stockholders' equity | | | 102,001 | | | | 114,026 | | | | 118,163 | | | | (10.5 | ) | | | (13.7 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,051,384 | | | $ | 1,185,807 | | | $ | 1,178,633 | | | | (11.3 | ) | | | (10.8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Period-end common shares outstanding | | | 8,461 | | | | 8,457 | | | | 8,457 | | | | - | | | | - | |
| Book value per common share | | $ | 12.06 | | | $ | 13.48 | | | $ | 13.97 | | | | (10.5 | ) | | | (13.7 | ) |
| Shore Bancshares, Inc. | | Page 7 of 13 |
| Consolidated Statements of Operations | | |
| (In thousands, except per share data) | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2013 | | | 2012 | | | % Change | | | 2013 | | | 2012 | | | % Change | |
| INTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 9,767 | | | $ | 10,604 | | | | (7.9 | )% | | $ | 29,816 | | | $ | 32,505 | | | | (8.3 | )% |
| Interest and dividends on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 357 | | | | 685 | | | | (47.9 | ) | | | 1,568 | | | | 2,149 | | | | (27.0 | ) |
| Tax-exempt | | | 5 | | | | 22 | | | | (77.3 | ) | | | 14 | | | | 92 | | | | (84.8 | ) |
| Interest on federal funds sold | | | - | | | | 3 | | | | (100.0 | ) | | | 3 | | | | 7 | | | | (57.1 | ) |
| Interest on deposits with other banks | | | 53 | | | | 79 | | | | (32.9 | ) | | | 143 | | | | 188 | | | | (23.9 | ) |
| Total interest income | | | 10,182 | | | | 11,393 | | | | (10.6 | ) | | | 31,544 | | | | 34,941 | | | | (9.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest on deposits | | | 1,348 | | | | 2,647 | | | | (49.1 | ) | | | 5,218 | | | | 7,931 | | | | (34.2 | ) |
| Interest on short-term borrowings | | | 6 | | | | 10 | | | | (40.0 | ) | | | 20 | | | | 36 | | | | (44.4 | ) |
| Interest on long-term debt | | | - | | | | 6 | | | | (100.0 | ) | | | - | | | | 16 | | | | (100.0 | ) |
| Total interest expense | | | 1,354 | | | | 2,663 | | | | (49.2 | ) | | | 5,238 | | | | 7,983 | | | | (34.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME | | | 8,828 | | | | 8,730 | | | | 1.1 | | | | 26,306 | | | | 26,958 | | | | (2.4 | ) |
| Provision for credit losses | | | 2,850 | | | | 6,200 | | | | (54.0 | ) | | | 7,700 | | | | 18,095 | | | | (57.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME AFTER PROVISION | | | | | | | | | | | | | | | | | | | | | | | | |
| FOR CREDIT LOSSES | | | 5,978 | | | | 2,530 | | | | 136.3 | | | | 18,606 | | | | 8,863 | | | | 109.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 600 | | | | 628 | | | | (4.5 | ) | | | 1,772 | | | | 1,898 | | | | (6.6 | ) |
| Trust and investment fee income | | | 401 | | | | 410 | | | | (2.2 | ) | | | 1,184 | | | | 1,279 | | | | (7.4 | ) |
| Investment securities gains | | | - | | | | 278 | | | | (100.0 | ) | | | 913 | | | | 278 | | | | 228.4 | |
| Insurance agency commissions | | | 2,724 | | | | 2,427 | | | | 12.2 | | | | 8,170 | | | | 7,522 | | | | 8.6 | |
| Loss on termination of cash flow hedge | | | - | | | | - | | | | - | | | | (1,306 | ) | | | - | | | | - | |
| Loss on asset sale | | | (19,792 | ) | | | - | | | | - | | | | (19,792 | ) | | | - | | | | - | |
| Other noninterest income | | | 1,067 | | | | 258 | | | | 313.6 | | | | 2,511 | | | | 2,175 | | | | 15.4 | |
| Total noninterest income | | | (15,000 | ) | | | 4,001 | | | | (474.9 | ) | | | (6,548 | ) | | | 13,152 | | | | (149.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | | 4,420 | | | | 4,386 | | | | 0.8 | | | | 13,010 | | | | 13,178 | | | | (1.3 | ) |
| Employee benefits | | | 971 | | | | 945 | | | | 2.8 | | | | 3,111 | | | | 3,071 | | | | 1.3 | |
| Occupancy expense | | | 566 | | | | 625 | | | | (9.4 | ) | | | 1,775 | | | | 1,950 | | | | (9.0 | ) |
| Furniture and equipment expense | | | 275 | | | | 265 | | | | 3.8 | | | | 768 | | | | 728 | | | | 5.5 | |
| Data processing | | | 718 | | | | 703 | | | | 2.1 | | | | 2,127 | | | | 2,063 | | | | 3.1 | |
| Directors' fees | | | 86 | | | | 131 | | | | (34.4 | ) | | | 262 | | | | 367 | | | | (28.6 | ) |
| Amortization of intangible assets | | | 74 | | | | 96 | | | | (22.9 | ) | | | 222 | | | | 318 | | | | (30.2 | ) |
| Insurance agency commissions expense | | | 409 | | | | 275 | | | | 48.7 | | | | 1,328 | | | | 1,004 | | | | 32.3 | |
| FDIC insurance premium expense | | | 467 | | | | 376 | | | | 24.2 | | | | 1,200 | | | | 993 | | | | 20.8 | |
| Write-downs of other real estate owned | | | 37 | | | | 224 | | | | (83.5 | ) | | | 765 | | | | 1,077 | | | | (29.0 | ) |
| Other noninterest expenses | | | 1,763 | | | | 1,683 | | | | 4.8 | | | | 5,468 | | | | 5,121 | | | | 6.8 | |
| Total noninterest expense | | | 9,786 | | | | 9,709 | | | | 0.8 | | | | 30,036 | | | | 29,870 | | | | 0.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss before income tax benefit | | | (18,808 | ) | | | (3,178 | ) | | | (491.8 | ) | | | (17,978 | ) | | | (7,855 | ) | | | (128.9 | ) |
| Income tax benefit | | | (7,416 | ) | | | (1,357 | ) | | | (446.5 | ) | | | (7,169 | ) | | | (3,291 | ) | | | (117.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET LOSS | | $ | (11,392 | ) | | $ | (1,821 | ) | | | (525.6 | ) | | $ | (10,809 | ) | | $ | (4,564 | ) | | | (136.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | | 8,461 | | | | 8,457 | | | | - | | | | 8,460 | | | | 8,457 | | | | - | |
| Weighted average shares outstanding - diluted | | | 8,472 | | | | 8,457 | | | | 0.2 | | | | 8,463 | | | | 8,457 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net loss per common share | | $ | (1.35 | ) | | $ | (0.22 | ) | | | (513.6 | ) | | $ | (1.28 | ) | | $ | (0.54 | ) | | | (137.0 | ) |
| Diluted net loss per common share | | | (1.35 | ) | | | (0.22 | ) | | | (513.6 | ) | | | (1.28 | ) | | | (0.54 | ) | | | (137.0 | ) |
| Dividends paid per common share | | | - | | | | - | | | | - | | | | - | | | | 0.01 | | | | (100.0 | ) |
| Shore Bancshares, Inc. | | Page 8 of 13 |
| Consolidated Average Balance Sheets | | |
| (Dollars in thousands) | | |
| | | |
| | | For the Three Months Ended | | | For the Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | |
| | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | |
| Earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 772,008 | | | | 5.03 | % | | $ | 808,244 | | | | 5.23 | % | | $ | 780,359 | | | | 5.12 | % | | $ | 819,088 | | | | 5.31 | % |
| Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 123,499 | | | | 1.15 | | | | 135,257 | | | | 2.01 | | | | 136,680 | | | | 1.53 | | | | 131,863 | | | | 2.18 | |
| Tax-exempt | | | 521 | | | | 5.27 | | | | 2,614 | | | | 5.07 | | | | 560 | | | | 4.97 | | | | 3,548 | | | | 5.27 | |
| Federal funds sold | | | 1,618 | | | | 0.07 | | | | 11,971 | | | | 0.11 | | | | 4,241 | | | | 0.10 | | | | 10,992 | | | | 0.09 | |
| Interest-bearing deposits | | | 95,422 | | | | 0.22 | | | | 150,170 | | | | 0.21 | | | | 92,403 | | | | 0.21 | | | | 128,756 | | | | 0.19 | |
| Total earning assets | | | 993,068 | | | | 4.08 | % | | | 1,108,256 | | | | 4.10 | % | | | 1,014,243 | | | | 4.17 | % | | | 1,094,247 | | | | 4.28 | % |
| Cash and due from banks | | | 22,088 | | | | | | | | 20,158 | | | | | | | | 23,177 | | | | | | | | 19,920 | | | | | |
| Other assets | | | 65,001 | | | | | | | | 69,921 | | | | | | | | 67,036 | | | | | | | | 69,514 | | | | | |
| Allowance for credit losses | | | (15,238 | ) | | | | | | | (14,189 | ) | | | | | | | (16,306 | ) | | | | | | | (14,523 | ) | | | | |
| Total assets | | $ | 1,064,919 | | | | | | | $ | 1,184,146 | | | | | | | $ | 1,088,150 | | | | | | | $ | 1,169,158 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | $ | 172,143 | | | | 0.16 | % | | $ | 167,423 | | | | 0.18 | % | | $ | 169,476 | | | | 0.16 | % | | $ | 157,835 | | | | 0.18 | % |
| Money market and savings deposits (1) | | | 207,162 | | | | 0.12 | | | | 279,003 | | | | 1.19 | | | | 225,351 | | | | 0.61 | | | | 278,297 | | | | 1.16 | |
| Certificates of deposit $100,000 or more | | | 198,495 | | | | 1.23 | | | | 238,624 | | | | 1.46 | | | | 206,076 | | | | 1.31 | | | | 240,595 | | | | 1.46 | |
| Other time deposits | | | 192,878 | | | | 1.24 | | | | 207,547 | | | | 1.66 | | | | 197,201 | | | | 1.34 | | | | 204,789 | | | | 1.74 | |
| Interest-bearing deposits | | | 770,678 | | | | 0.69 | | | | 892,597 | | | | 1.18 | | | | 798,104 | | | | 0.87 | | | | 881,516 | | | | 1.20 | |
| Short-term borrowings | | | 10,695 | | | | 0.23 | | | | 14,909 | | | | 0.27 | | | | 11,140 | | | | 0.25 | | | | 15,448 | | | | 0.31 | |
| Long-term debt | | | - | | | | - | | | | 455 | | | | 4.58 | | | | - | | | | - | | | | 455 | | | | 4.61 | |
| Total interest-bearing liabilities | | | 781,373 | | | | 0.69 | % | | | 907,961 | | | | 1.17 | % | | | 809,244 | | | | 0.87 | % | | | 897,419 | | | | 1.19 | % |
| Noninterest-bearing deposits | | | 162,189 | | | | | | | | 148,096 | | | | | | | | 156,286 | | | | | | | | 142,874 | | | | | |
| Accrued expenses and other liabilities | | | 7,453 | | | | | | | | 8,768 | | | | | | | | 8,500 | | | | | | | | 8,949 | | | | | |
| Stockholders' equity | | | 113,904 | | | | | | | | 119,321 | | | | | | | | 114,120 | | | | | | | | 119,916 | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,064,919 | | | | | | | $ | 1,184,146 | | | | | | | $ | 1,088,150 | | | | | | | $ | 1,169,158 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | 3.39 | % | | | | | | | 2.93 | % | | | | | | | 3.30 | % | | | | | | | 3.09 | % |
| Net interest margin | | | | | | | 3.54 | % | | | | | | | 3.15 | % | | | | | | | 3.48 | % | | | | | | | 3.31 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits associated with them. This adjustment increased interest expense $0 and $524 thousand for the third quarter of 2013 and 2012, respectively, and $695 thousand and $1.5 million for the first nine months of 2013 and 2012, respectively. The interest rate caps were terminated in June of 2013. |
| Shore Bancshares, Inc. | | Page 9 of 13 |
| Financial Highlights By Quarter | | |
| (Dollars in thousands, except per share data) | | |
| | | 3rd quarter | | | 2nd quarter | | | 1st quarter | | | 4th quarter | | | 3rd quarter | | | 3Q 13 | | | 3Q 13 | |
| | | 2013 | | | 2013 | | | 2013 | | | 2012 | | | 2012 | | | compared to | | | compared to | |
| | | (3Q 13) | | | (2Q 13) | | | (1Q 13) | | | (4Q 12) | | | (3Q 12) | | | 2Q 13 | | | 3Q 12 | |
| PROFITABILITY FOR THE PERIOD | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable-equivalent net interest income | | $ | 8,852 | | | $ | 9,028 | | | $ | 8,504 | | | $ | 8,413 | | | $ | 8,769 | | | | (1.9 | )% | | | 0.9 | % |
| Less: Taxable-equivalent adjustment | | | 24 | | | | 27 | | | | 27 | | | | 32 | | | | 39 | | | | (11.1 | ) | | | (38.5 | ) |
| Net interest income | | | 8,828 | | | | 9,001 | | | | 8,477 | | | | 8,381 | | | | 8,730 | | | | (1.9 | ) | | | 1.1 | |
| Provision for credit losses | | | 2,850 | | | | 2,700 | | | | 2,150 | | | | 9,650 | | | | 6,200 | | | | 5.6 | | | | (54.0 | ) |
| Noninterest income | | | (15,000 | ) | | | 3,962 | | | | 4,490 | | | | 2,606 | | | | 4,001 | | | | (478.6 | ) | | | (474.9 | ) |
| Noninterest expense | | | 9,786 | | | | 9,759 | | | | 10,491 | | | | 9,685 | | | | 9,709 | | | | 0.3 | | | | 0.8 | |
| (Loss) income before income taxes | | | (18,808 | ) | | | 504 | | | | 326 | | | | (8,348 | ) | | | (3,178 | ) | | | (3,831.7 | ) | | | (491.8 | ) |
| Income tax (benefit) expense | | | (7,416 | ) | | | 143 | | | | 104 | | | | (3,274 | ) | | | (1,357 | ) | | | (5,286.0 | ) | | | (446.5 | ) |
| Net (loss) income | | $ | (11,392 | ) | | $ | 361 | | | $ | 222 | | | $ | (5,074 | ) | | $ | (1,821 | ) | | | (3,255.7 | ) | | | (525.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average assets | | | (4.24 | )% | | | 0.13 | % | | | 0.08 | % | | | (1.71 | )% | | | (0.61 | )% | | | (437 | )bp | | | (363 | )bp |
| Return on average equity | | | (39.68 | ) | | | 1.27 | | | | 0.79 | | | | (17.15 | ) | | | (6.07 | ) | | | (4,095 | ) | | | (3,361 | ) |
| Return on average tangible equity (1) | | | (46.03 | ) | | | 1.66 | | | | 1.11 | | | | (19.73 | ) | | | (6.82 | ) | | | (4,769 | ) | | | (3,921 | ) |
| Net interest margin | | | 3.54 | | | | 3.60 | | | | 3.30 | | | | 3.02 | | | | 3.15 | | | | (6 | ) | | | 39 | |
| Efficiency ratio - GAAP | | | (159.17 | ) | | | 75.13 | | | | 80.74 | | | | 87.89 | | | | 76.03 | | | | (23,430 | ) | | | (23,520 | ) |
| Efficiency ratio - Non-GAAP (1) | | | 71.18 | | | | 74.45 | | | | 80.17 | | | | 77.77 | | | | 76.95 | | | | (327 | ) | | | (577 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net (loss) income per common share | | $ | (1.35 | ) | | $ | 0.04 | | | $ | 0.03 | | | $ | (0.60 | ) | | $ | (0.22 | ) | | | (3,475.0 | )% | | | (513.6 | )% |
| Diluted net (loss) income per common share | | | (1.35 | ) | | | 0.04 | | | | 0.03 | | | | (0.60 | ) | | | (0.22 | ) | | | (3,475.0 | ) | | | (513.6 | ) |
| Dividends paid per common share | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Book value per common share at period end | | | 12.06 | | | | 13.43 | | | | 13.51 | | | | 13.48 | | | | 13.97 | | | | (10.2 | ) | | | (13.7 | ) |
| Tangible book value per common share at period end (1) | | | 10.16 | | | | 11.52 | | | | 11.60 | | | | 11.56 | | | | 12.04 | | | | (11.8 | ) | | | (15.6 | ) |
| Market value at period end | | | 8.80 | | | | 7.36 | | | | 6.79 | | | | 5.39 | | | | 6.02 | | | | 19.6 | | | | 46.2 | |
| Market range: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | | 9.06 | | | | 7.75 | | | | 6.91 | | | | 6.98 | | | | 6.33 | | | | 16.9 | | | | 43.1 | |
| Low | | | 7.06 | | | | 5.97 | | | | 5.20 | | | | 4.65 | | | | 4.98 | | | | 18.3 | | | | 41.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 772,008 | | | $ | 785,442 | | | $ | 783,757 | | | $ | 799,512 | | | $ | 808,244 | | | | (1.7 | )% | | | (4.5 | )% |
| Securities | | | 124,020 | | | | 141,193 | | | | 146,756 | | | | 144,459 | | | | 137,871 | | | | (12.2 | ) | | | (10.0 | ) |
| Earning assets | | | 993,068 | | | | 1,005,474 | | | | 1,044,755 | | | | 1,108,585 | | | | 1,108,256 | | | | (1.2 | ) | | | (10.4 | ) |
| Assets | | | 1,064,919 | | | | 1,077,852 | | | | 1,122,310 | | | | 1,183,135 | | | | 1,184,146 | | | | (1.2 | ) | | | (10.1 | ) |
| Deposits | | | 932,867 | | | | 943,577 | | | | 987,325 | | | | 1,042,842 | | | | 1,040,693 | | | | (1.1 | ) | | | (10.4 | ) |
| Stockholders' equity | | | 113,904 | | | | 114,208 | | | | 114,250 | | | | 117,700 | | | | 119,321 | | | | (0.3 | ) | | | (4.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CREDIT QUALITY DATA AT PERIOD END | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net charge-offs | | $ | 7,272 | | | $ | 2,712 | | | $ | 2,406 | | | $ | 6,614 | | | $ | 6,235 | | | | 168.1 | % | | | 16.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | $ | 17,501 | | | $ | 34,818 | | | $ | 31,813 | | | $ | 36,474 | | | $ | 39,442 | | | | (49.7 | ) | | | (55.6 | ) |
| Loans 90 days past due and still accruing | | | 9 | | | | 3 | | | | 22 | | | | 460 | | | | 4,675 | | | | 200.0 | | | | (99.8 | ) |
| Other real estate owned | | | 5,776 | | | | 6,408 | | | | 8,366 | | | | 7,659 | | | | 8,418 | | | | (9.9 | ) | | | (31.4 | ) |
| Total nonperforming assets excluding nonaccrual loans held for sale | | | 23,286 | | | | 41,229 | | | | 40,201 | | | | 44,593 | | | | 52,535 | | | | (43.5 | ) | | | (55.7 | ) |
| Nonaccrual loans held for sale | | | 7,265 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total nonperforming assets including nonaccrual loans held for sale | | $ | 30,551 | | | $ | 41,229 | | | $ | 40,201 | | | $ | 44,593 | | | $ | 52,535 | | | | (25.9 | ) | | | (41.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accruing troubled debt restructurings (TDRs) excluding TDRs held for sale | | $ | 29,439 | | | $ | 50,278 | | | $ | 52,545 | | | $ | 52,353 | | | $ | 50,785 | | | | (41.4 | ) | | | (42.0 | ) |
| Accruing TDRs held for sale | | | 14,842 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total accruing TDRs including TDRs held for sale | | $ | 44,281 | | | $ | 50,278 | | | $ | 52,545 | | | $ | 52,353 | | | $ | 50,785 | | | | (11.9 | ) | | | (12.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total nonperforming assets and accruing TDRs excluding nonaccrual | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| loans and TDRs held for sale | | $ | 52,725 | | | $ | 91,507 | | | $ | 92,746 | | | $ | 96,946 | | | $ | 103,320 | | | | (42.4 | ) | | | (49.0 | ) |
| Nonaccrual loans and TDRs held for sale | | | 22,107 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total nonperforming assets and accruing TDRs including nonaccrual | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| loans and TDRs held for sale | | $ | 74,832 | | | $ | 91,507 | | | $ | 92,746 | | | $ | 96,946 | | | $ | 103,320 | | | | (18.2 | ) | | | (27.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) See the reconciliation table on page 13 of 13. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shore Bancshares, Inc. | | Page 10 of 13 |
| Financial Highlights By Quarter | | |
| (Dollars in thousands, except per share data) | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 3rd quarter | | | 2nd quarter | | | 1st quarter | | | 4th quarter | | | 3rd quarter | | | 3Q 13 | | | 3Q 13 | |
| | | 2013 | | | 2013 | | | 2013 | | | 2012 | | | 2012 | | | compared to | | | compared to | |
| | | (3Q 13) | | | (2Q 13) | | | (1Q 13) | | | (4Q 12) | | | (3Q 12) | | | 2Q 13 | | | 3Q 12 | |
| CAPITAL AND CREDIT QUALITY RATIOS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity to average assets | | | 10.70 | % | | | 10.60 | % | | | 10.18 | % | | | 9.95 | % | | | 10.08 | % | | | 10 | bp | | | 62 | bp |
| Average tangible equity to average tangible assets (1) | | | 9.33 | | | | 9.23 | | | | 8.86 | | | | 8.69 | | | | 8.81 | | | | 10 | | | | 52 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Annualized net charge-offs to average loans | | | 3.74 | | | | 1.38 | | | | 1.25 | | | | 3.29 | | | | 3.07 | | | | 236 | | | | 67 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses as a percent of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period-end loans | | | 1.57 | | | | 2.01 | | | | 2.00 | | | | 2.04 | | | | 1.60 | | | | (44 | ) | | | (3 | ) |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 64.57 | | | | 45.16 | | | | 49.46 | | | | 43.84 | | | | 32.85 | | | | 1,941 | | | | 3,172 | |
| Nonaccrual loans including nonaccrual loans held for sale | | | 45.63 | | | | 45.16 | | | | 49.46 | | | | 43.84 | | | | 32.85 | | | | 47 | | | | 1,278 | |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 48.53 | | | | 38.14 | | | | 39.14 | | | | 35.86 | | | | 24.66 | | | | 1,039 | | | | 2,387 | |
| Nonperforming assets including nonaccrual loans held for sale | | | 36.99 | | | | 38.14 | | | | 39.14 | | | | 35.86 | | | | 24.66 | | | | (115 | ) | | | 1,233 | |
| Accruing TDRs excluding TDRs held for sale | | | 38.39 | | | | 31.27 | | | | 29.95 | | | | 30.54 | | | | 25.51 | | | | 712 | | | | 1,288 | |
| Accruing TDRs including TDRs held for sale | | | 25.52 | | | | 31.27 | | | | 29.95 | | | | 30.54 | | | | 25.51 | | | | (575 | ) | | | 1 | |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 21.43 | | | | 17.18 | | | | 16.97 | | | | 16.49 | | | | 12.54 | | | | 425 | | | | 889 | |
| Nonperforming assets and accruing TDRs including nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 15.10 | | | | 17.18 | | | | 16.97 | | | | 16.49 | | | | 12.54 | | | | (208 | ) | | | 256 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 2.44 | | | | 4.45 | | | | 4.05 | | | | 4.65 | | | | 4.88 | | | | (201 | ) | | | (244 | ) |
| Accruing TDRs excluding TDRs held for sale | | | 4.10 | | | | 6.43 | | | | 6.69 | | | | 6.67 | | | | 6.29 | | | | (233 | ) | | | (219 | ) |
| Nonaccrual loans and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 6.53 | | | | 10.88 | | | | 10.74 | | | | 11.31 | | | | 11.17 | | | | (435 | ) | | | (464 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total loans+other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 3.21 | | | | 5.23 | | | | 5.06 | | | | 5.63 | | | | 6.43 | | | | (202 | ) | | | (322 | ) |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 7.28 | | | | 11.60 | | | | 11.68 | | | | 12.23 | | | | 12.65 | | | | (432 | ) | | | (537 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percent of total assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans excluding nonaccrual loans held for sale | | | 1.66 | | | | 3.30 | | | | 2.88 | | | | 3.08 | | | | 3.35 | | | | (164 | ) | | | (169 | ) |
| Nonaccrual loans including nonaccrual loans held for sale | | | 2.36 | | | | 3.30 | | | | 2.88 | | | | 3.08 | | | | 3.35 | | | | (94 | ) | | | (99 | ) |
| Nonperforming assets excluding nonaccrual loans held for sale | | | 2.21 | | | | 3.91 | | | | 3.64 | | | | 3.76 | | | | 4.46 | | | | (170 | ) | | | (225 | ) |
| Nonperforming assets including nonaccrual loans held for sale | | | 2.91 | | | | 3.91 | | | | 3.64 | | | | 3.76 | | | | 4.46 | | | | (100 | ) | | | (155 | ) |
| Accruing TDRs excluding TDRs held for sale | | | 2.80 | | | | 4.77 | | | | 4.76 | | | | 4.41 | | | | 4.31 | | | | (197 | ) | | | (151 | ) |
| Accruing TDRs including TDRs held for sale | | | 4.21 | | | | 4.77 | | | | 4.76 | | | | 4.41 | | | | 4.31 | | | | (56 | ) | | | (10 | ) |
| Nonperforming assets and accruing TDRs excluding nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 5.01 | | | | 8.68 | | | | 8.40 | | | | 8.18 | | | | 8.77 | | | | (367 | ) | | | (376 | ) |
| Nonperforming assets and accruing TDRs including nonaccrual loans and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TDRs held for sale | | | 7.12 | | | | 8.68 | | | | 8.40 | | | | 8.18 | | | | 8.77 | | | | (156 | ) | | | (165 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) See the reconciliation table on page 13 of 13. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shore Bancshares, Inc. | | Page 11 of 13 |
| Consolidated Statements of Operations By Quarter | | |
| (In thousands, except per share data) | | |
| | | | | | | | | | | | | | | | | | 3Q 13 | | | 3Q 13 | |
| | | | | | | | | | | | | | | | | | compared to | | | compared to | |
| | | 3Q 13 | | | 2Q 13 | | | 1Q 13 | | | 4Q 12 | | | 3Q 12 | | | 2Q 13 | | | 3Q 12 | |
| INTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 9,767 | | | $ | 10,142 | | | $ | 9,907 | | | $ | 10,193 | | | $ | 10,604 | | | | (3.7 | )% | | | (7.9 | )% |
| Interest and dividends on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 357 | | | | 568 | | | | 643 | | | | 666 | | | | 685 | | | | (37.1 | ) | | | (47.9 | ) |
| Tax-exempt | | | 5 | | | | 4 | | | | 5 | | | | 12 | | | | 22 | | | | 25.0 | | | | (77.3 | ) |
| Interest on federal funds sold | | | - | | | | 1 | | | | 2 | | | | 3 | | | | 3 | | | | (100.0 | ) | | | (100.0 | ) |
| Interest on deposits with other banks | | | 53 | | | | 40 | | | | 50 | | | | 86 | | | | 79 | | | | 32.5 | | | | (32.9 | ) |
| Total interest income | | | 10,182 | | | | 10,755 | | | | 10,607 | | | | 10,960 | | | | 11,393 | | | | (5.3 | ) | | | (10.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| INTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest on deposits | | | 1,348 | | | | 1,748 | | | | 2,122 | | | | 2,570 | | | | 2,647 | | | | (22.9 | ) | | | (49.1 | ) |
| Interest on short-term borrowings | | | 6 | | | | 6 | | | | 8 | | | | 9 | | | | 10 | | | | - | | | | (40.0 | ) |
| Interest on long-term debt | | | - | | | | - | | | | - | | | | - | | | | 6 | | | | - | | | | (100.0 | ) |
| Total interest expense | | | 1,354 | | | | 1,754 | | | | 2,130 | | | | 2,579 | | | | 2,663 | | | | (22.8 | ) | | | (49.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME | | | 8,828 | | | | 9,001 | | | | 8,477 | | | | 8,381 | | | | 8,730 | | | | (1.9 | ) | | | 1.1 | |
| Provision for credit losses | | | 2,850 | | | | 2,700 | | | | 2,150 | | | | 9,650 | | | | 6,200 | | | | 5.6 | | | | (54.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INTEREST INCOME AFTER PROVISION | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FOR CREDIT LOSSES | | | 5,978 | | | | 6,301 | | | | 6,327 | | | | (1,269 | ) | | | 2,530 | | | | (5.1 | ) | | | 136.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 600 | | | | 600 | | | | 572 | | | | 653 | | | | 628 | | | | - | | | | (4.5 | ) |
| Trust and investment fee income | | | 401 | | | | 393 | | | | 390 | | | | 365 | | | | 410 | | | | 2.0 | | | | (2.2 | ) |
| Investment securities gains | | | - | | | | 913 | | | | - | | | | - | | | | 278 | | | | (100.0 | ) | | | (100.0 | ) |
| Insurance agency commissions | | | 2,724 | | | | 2,633 | | | | 2,813 | | | | 2,292 | | | | 2,427 | | | | 3.5 | | | | 12.2 | |
| Loss on termination of cash flow hedge | | | - | | | | (1,306 | ) | | | - | | | | (1,339 | ) | | | - | | | | (100.0 | ) | | | - | |
| Loss on asset sale | | | (19,792 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Other noninterest income | | | 1,067 | | | | 729 | | | | 715 | | | | 635 | | | | 258 | | | | 46.4 | | | | 313.6 | |
| Total noninterest income | | | (15,000 | ) | | | 3,962 | | | | 4,490 | | | | 2,606 | | | | 4,001 | | | | (478.6 | ) | | | (474.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NONINTEREST EXPENSE | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | | 4,420 | | | | 4,307 | | | | 4,283 | | | | 4,240 | | | | 4,386 | | | | 2.6 | | | | 0.8 | |
| Employee benefits | | | 971 | | | | 1,006 | | | | 1,134 | | | | 923 | | | | 945 | | | | (3.5 | ) | | | 2.8 | |
| Occupancy expense | | | 566 | | | | 612 | | | | 597 | | | | 609 | | | | 625 | | | | (7.5 | ) | | | (9.4 | ) |
| Furniture and equipment expense | | | 275 | | | | 243 | | | | 250 | | | | 235 | | | | 265 | | | | 13.2 | | | | 3.8 | |
| Data processing | | | 718 | | | | 706 | | | | 703 | | | | 654 | | | | 703 | | | | 1.7 | | | | 2.1 | |
| Directors' fees | | | 86 | | | | 55 | | | | 121 | | | | 107 | | | | 131 | | | | 56.4 | | | | (34.4 | ) |
| Amortization of intangible assets | | | 74 | | | | 74 | | | | 74 | | | | 74 | | | | 96 | | | | - | | | | (22.9 | ) |
| Insurance agency commissions expense | | | 409 | | | | 458 | | | | 461 | | | | 387 | | | | 275 | | | | (10.7 | ) | | | 48.7 | |
| FDIC insurance premium expense | | | 467 | | | | 367 | | | | 366 | | | | 387 | | | | 376 | | | | 27.2 | | | | 24.2 | |
| Write-downs of other real estate owned | | | 37 | | | | 56 | | | | 672 | | | | 251 | | | | 224 | | | | (33.9 | ) | | | (83.5 | ) |
| Other noninterest expenses | | | 1,763 | | | | 1,875 | | | | 1,830 | | | | 1,818 | | | | 1,683 | | | | (6.0 | ) | | | 4.8 | |
| Total noninterest expense | | | 9,786 | | | | 9,759 | | | | 10,491 | | | | 9,685 | | | | 9,709 | | | | 0.3 | | | | 0.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) income before income taxes | | | (18,808 | ) | | | 504 | | | | 326 | | | | (8,348 | ) | | | (3,178 | ) | | | (3,831.7 | ) | | | (491.8 | ) |
| Income tax (benefit) expense | | | (7,416 | ) | | | 143 | | | | 104 | | | | (3,274 | ) | | | (1,357 | ) | | | (5,286.0 | ) | | | (446.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) INCOME | | $ | (11,392 | ) | | $ | 361 | | | $ | 222 | | | $ | (5,074 | ) | | $ | (1,821 | ) | | | (3,255.7 | ) | | | (525.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding - basic | | | 8,461 | | | | 8,461 | | | | 8,458 | | | | 8,457 | | | | 8,457 | | | | - | | | | - | |
| Weighted average shares outstanding - diluted | | | 8,472 | | | | 8,465 | | | | 8,458 | | | | 8,457 | | | | 8,457 | | | | 0.1 | | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic net (loss) income per common share | | $ | (1.35 | ) | | $ | 0.04 | | | $ | 0.03 | | | $ | (0.60 | ) | | $ | (0.22 | ) | | | (3,475.0 | ) | | | (513.6 | ) |
| Diluted net (loss) income per common share | | | (1.35 | ) | | | 0.04 | | | | 0.03 | | | | (0.60 | ) | | | (0.22 | ) | | | (3,475.0 | ) | | | (513.6 | ) |
| Dividends paid per common share | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Shore Bancshares, Inc. | | Page 12 of 13 |
| Consolidated Average Balance Sheets By Quarter | | |
| (Dollars in thousands) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average balance | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3Q 13 | | | 3Q 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | compared to | | | compared to | |
| | | 3Q 13 | | | 2Q 13 | | | 1Q 13 | | | 4Q 12 | | | 3Q 12 | | | 2Q 13 | | | 3Q 12 | |
| | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | Average | | | Yield/ | | | | | | | |
| | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | balance | | | rate | | | | | | | |
| Earning assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 772,008 | | | | 5.03 | % | | $ | 785,442 | | | | 5.19 | % | | $ | 783,757 | | | | 5.14 | % | | $ | 799,512 | | | | 5.09 | % | | $ | 808,244 | | | | 5.23 | % | | | (1.7 | )% | | | (4.5 | )% |
| Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 123,499 | | | | 1.15 | | | | 140,614 | | | | 1.62 | | | | 146,176 | | | | 1.78 | | | | 143,137 | | | | 1.85 | | | | 135,257 | | | | 2.01 | | | | (12.2 | ) | | | (8.7 | ) |
| Tax-exempt | | | 521 | | | | 5.27 | | | | 579 | | | | 4.81 | | | | 580 | | | | 4.85 | | | | 1,322 | | | | 5.05 | | | | 2,614 | | | | 5.07 | | | | (10.0 | ) | | | (80.1 | ) |
| Federal funds sold | | | 1,618 | | | | 0.07 | | | | 2,992 | | | | 0.10 | | | | 8,184 | | | | 0.11 | | | | 7,782 | | | | 0.12 | | | | 11,971 | | | | 0.11 | | | | (45.9 | ) | | | (86.5 | ) |
| Interest-bearing deposits | | | 95,422 | | | | 0.22 | | | | 75,847 | | | | 0.21 | | | | 106,058 | | | | 0.19 | | | | 156,832 | | | | 0.22 | | | | 150,170 | | | | 0.21 | | | | 25.8 | | | | (36.5 | ) |
| Total earning assets | | | 993,068 | | | | 4.08 | % | | | 1,005,474 | | | | 4.30 | % | | | 1,044,755 | | | | 4.13 | % | | | 1,108,585 | | | | 3.94 | % | | | 1,108,256 | | | | 4.10 | % | | | (1.2 | ) | | | (10.4 | ) |
| Cash and due from banks | | | 22,088 | | | | | | | | 22,510 | | | | | | | | 24,966 | | | | | | | | 21,258 | | | | | | | | 20,158 | | | | | | | | (1.9 | ) | | | 9.6 | |
| Other assets | | | 65,001 | | | | | | | | 66,967 | | | | | | | | 69,185 | | | | | | | | 67,596 | | | | | | | | 69,921 | | | | | | | | (2.9 | ) | | | (7.0 | ) |
| Allowance for credit losses | | | (15,238 | ) | | | | | | | (17,099 | ) | | | | | | | (16,596 | ) | | | | | | | (14,304 | ) | | | | | | | (14,189 | ) | | | | | | | (10.9 | ) | | | 7.4 | |
| Total assets | | $ | 1,064,919 | | | | | | | $ | 1,077,852 | | | | | | | $ | 1,122,310 | | | | | | | $ | 1,183,135 | | | | | | | $ | 1,184,146 | | | | | | | | (1.2 | ) | | | (10.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | $ | 172,143 | | | | 0.16 | % | | $ | 162,589 | | | | 0.15 | % | | $ | 173,714 | | | | 0.17 | % | | $ | 169,398 | | | | 0.18 | % | | $ | 167,423 | | | | 0.18 | % | | | 5.9 | | | | 2.8 | |
| Money market and savings deposits (1) | | | 207,162 | | | | 0.12 | | | | 225,117 | | | | 0.67 | | | | 244,182 | | | | 0.97 | | | | 281,593 | | | | 1.21 | | | | 279,003 | | | | 1.19 | | | | (8.0 | ) | | | (25.7 | ) |
| Certificates of deposit $100,000 or more | | | 198,495 | | | | 1.23 | | | | 203,641 | | | | 1.32 | | | | 216,288 | | | | 1.39 | | | | 231,232 | | | | 1.40 | | | | 238,624 | | | | 1.46 | | | | (2.5 | ) | | | (16.8 | ) |
| Other time deposits | | | 192,878 | | | | 1.24 | | | | 197,644 | | | | 1.30 | | | | 201,171 | | | | 1.47 | | | | 204,213 | | | | 1.59 | | | | 207,547 | | | | 1.66 | | | | (2.4 | ) | | | (7.1 | ) |
| Interest-bearing deposits | | | 770,678 | | | | 0.69 | | | | 788,991 | | | | 0.89 | | | | 835,355 | | | | 1.03 | | | | 886,436 | | | | 1.15 | | | | 892,597 | | | | 1.18 | | �� | | (2.3 | ) | | | (13.7 | ) |
| Short-term borrowings | | | 10,695 | | | | 0.23 | | | | 10,752 | | | | 0.24 | | | | 11,987 | | | | 0.27 | | | | 13,573 | | | | 0.27 | | | | 14,909 | | | | 0.27 | | | | (0.5 | ) | | | (28.3 | ) |
| Long-term debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 455 | | | | 4.58 | | | | - | | | | (100.0 | ) |
| Total interest-bearing liabilities | | | 781,373 | | | | 0.69 | % | | | 799,743 | | | | 0.88 | % | | | 847,342 | | | | 1.02 | % | | | 900,009 | | | | 1.14 | % | | | 907,961 | | | | 1.17 | % | | | (2.3 | ) | | | (13.9 | ) |
| Noninterest-bearing deposits | | | 162,189 | | | | | | | | 154,586 | | | | | | | | 151,970 | | | | | | | | 156,406 | | | | | | | | 148,096 | | | | | | | | 4.9 | | | | 9.5 | |
| Accrued expenses and other liabilities | | | 7,453 | | | | | | | | 9,315 | | | | | | | | 8,748 | | | | | | | | 9,020 | | | | | | | | 8,768 | | | | | | | | (20.0 | ) | | | (15.0 | ) |
| Stockholders' equity | | | 113,904 | | | | | | | | 114,208 | | | | | | | | 114,250 | | | | | | | | 117,700 | | | | | | | | 119,321 | | | | | | | | (0.3 | ) | | | (4.5 | ) |
| Total liabilities and stockholders' equity | | $ | 1,064,919 | | | | | | | $ | 1,077,852 | | | | | | | $ | 1,122,310 | | | | | | | $ | 1,183,135 | | | | | | | $ | 1,184,146 | | | | | | | | (1.2 | ) | | | (10.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest spread | | | | | | | 3.39 | % | | | | | | | 3.42 | % | | | | | | | 3.11 | % | | | | | | | 2.80 | % | | | | | | | 2.93 | % | | | | | | | | |
| Net interest margin | | | | | | | 3.54 | % | | | | | | | 3.60 | % | | | | | | | 3.30 | % | | | | | | | 3.02 | % | | | | | | | 3.15 | % | | | | | | | | |
| (1) | Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits associated with them. This adjustment increased interest expense $0 for the third quarter of 2013, $279 thousand for the second quarter of 2013, $416 thousand for the first quarter of 2013, $552 thousand for the fourth quarter of 2012 and $524 thousand for the third quarter of 2012. The interest rate caps were terminated in June of 2013. |
| Shore Bancshares, Inc. | | Page 13 of 13 |
| Reconciliation of Generally Accepted Accounting Principles (GAAP) | | |
| and Non-GAAP Measures | | |
| (In thousands, except per share data) | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | YTD | | | YTD | |
| | | 3Q 13 | | | 2Q 13 | | | 1Q 13 | | | 4Q 12 | | | 3Q 12 | | | 09/30/2013 | | | 09/30/2012 | |
| | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles return on average equity and return on | | | | | | | | | | | | | | | | | | | | | |
| average tangible equity (Note 1): | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income | | $ | (11,392 | ) | | $ | 361 | | | $ | 222 | | | $ | (5,074 | ) | | $ | (1,821 | ) | | $ | (10,809 | ) | | $ | (4,564 | ) |
| Net (loss) income - annualized (A) | | $ | (45,197 | ) | | $ | 1,448 | | | $ | 900 | | | $ | (20,186 | ) | | $ | (7,244 | ) | | $ | (14,452 | ) | | $ | (6,096 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income, excluding net amortization of intangible assets | | $ | (11,347 | ) | | $ | 406 | | | $ | 267 | | | $ | (5,029 | ) | | $ | (1,763 | ) | | $ | (10,675 | ) | | $ | (4,371 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income, excluding net amortization of intangible | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| assets - annualized (B) | | $ | (45,018 | ) | | $ | 1,628 | | | $ | 1,083 | | | $ | (20,007 | ) | | $ | (7,014 | ) | | $ | (14,272 | ) | | $ | (5,839 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average stockholders' equity (C) | | $ | 113,904 | | | $ | 114,208 | | | $ | 114,250 | | | $ | 117,700 | | | $ | 119,321 | | | $ | 114,120 | | | $ | 119,916 | |
| Less: Average goodwill and other intangible assets | | | (16,092 | ) | | | (16,166 | ) | | | (16,242 | ) | | | (16,313 | ) | | | (16,401 | ) | | | (16,166 | ) | | | (16,501 | ) |
| Average tangible equity (D) | | $ | 97,812 | | | $ | 98,042 | | | $ | 98,008 | | | $ | 101,387 | | | $ | 102,920 | | | $ | 97,954 | | | $ | 103,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average equity (GAAP) (A)/(C) | | | (39.68 | )% | | | 1.27 | % | | | 0.79 | % | | | (17.15 | )% | | | (6.07 | )% | | | (12.66 | )% | | | (5.08 | )% |
| Return on average tangible equity (Non-GAAP) (B)/(D) | | | (46.03 | )% | | | 1.66 | % | | | 1.11 | % | | | (19.73 | )% | | | (6.82 | )% | | | (14.57 | )% | | | (5.65 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles GAAP efficiency ratio and non-GAAP | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| efficiency ratio (Note 2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest expense (E) | | $ | 9,786 | | | $ | 9,759 | | | $ | 10,491 | | | $ | 9,685 | | | $ | 9,709 | | | $ | 30,036 | | | $ | 29,870 | |
| Less: Amortization of intangible assets | | | (74 | ) | | | (74 | ) | | | (74 | ) | | | (74 | ) | | | (96 | ) | | | (222 | ) | | | (318 | ) |
| Other nonrecurring adjustments | | | - | | | | 49 | | | | - | | | | - | | | | - | | | | 49 | | | | - | |
| Adjusted noninterest expense (F) | | $ | 9,712 | | | $ | 9,734 | | | $ | 10,417 | | | $ | 9,611 | | | $ | 9,613 | | | $ | 29,863 | | | $ | 29,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable-equivalent net interest income (G) | | $ | 8,852 | | | $ | 9,028 | | | $ | 8,504 | | | $ | 8,413 | | | $ | 8,769 | | | $ | 26,384 | | | $ | 27,089 | |
| Nonrecurring adjustment | | | - | | | | (308 | ) | | | - | | | | - | | | | - | | | | (308 | ) | | | - | |
| Taxable-equivalent net interest income excluding nonrecurring adjustment (H) | | $ | 8,852 | | | $ | 8,720 | | | $ | 8,504 | | | $ | 8,413 | | | $ | 8,769 | | | $ | 26,076 | | | $ | 27,089 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest income (I) | | $ | (15,000 | ) | | $ | 3,962 | | | $ | 4,490 | | | $ | 2,606 | | | $ | 4,001 | | | $ | (6,548 | ) | | $ | 13,152 | |
| Less: Investment securities (gains)/losses | | | - | | | | (913 | ) | | | - | | | | - | | | | (278 | ) | | | (913 | ) | | | (278 | ) |
| Other nonrecurring (gains)/losses | | | 19,792 | | | | 1,306 | | | | - | | | | 1,339 | | | | - | | | | 21,098 | | | | (217 | ) |
| Adjusted noninterest income (J) | | $ | 4,792 | | | $ | 4,355 | | | $ | 4,490 | | | $ | 3,945 | | | $ | 3,723 | | | $ | 13,637 | | | $ | 12,657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Efficiency ratio (GAAP) (E)/(G)+(I) | | | (159.17 | )% | | | 75.13 | % | | | 80.74 | % | | | 87.89 | % | | | 76.03 | % | | | 151.42 | % | | | 74.23 | % |
| Efficiency ratio (Non-GAAP) (F)/(H)+(J) | | | 71.18 | % | | | 74.45 | % | | | 80.17 | % | | | 77.77 | % | | | 76.95 | % | | | 75.20 | % | | | 74.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles book value per common share and tangible | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| book value per common share (Note 1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stockholders' equity (K) | | $ | 102,001 | | | $ | 113,594 | | | $ | 114,348 | | | $ | 114,026 | | | $ | 118,163 | | | | | | | | | |
| Less: Goodwill and other intangible assets | | | (16,048 | ) | | | (16,122 | ) | | | (16,196 | ) | | | (16,270 | ) | | | (16,344 | ) | | | | | | | | |
| Tangible equity (L) | | $ | 85,953 | | | $ | 97,472 | | | $ | 98,152 | | | $ | 97,756 | | | $ | 101,819 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares outstanding (M) | | | 8,461 | | | | 8,461 | | | | 8,461 | | | | 8,457 | | | | 8,457 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Book value per common share (GAAP) (K)/(M) | | $ | 12.06 | | | $ | 13.43 | | | $ | 13.51 | | | $ | 13.48 | | | $ | 13.97 | | | | | | | | | |
| Tangible book value per common share (Non-GAAP) (L)/(M) | | $ | 10.16 | | | $ | 11.52 | | | $ | 11.60 | | | $ | 11.56 | | | $ | 12.04 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following reconciles average equity to average assets and | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| average tangible equity to average tangible assets (Note 1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average stockholders' equity (N) | | $ | 113,904 | | | $ | 114,208 | | | $ | 114,250 | | | $ | 117,700 | | | $ | 119,321 | | | $ | 114,120 | | | $ | 119,916 | |
| Less: Average goodwill and other intangible assets | | | (16,092 | ) | | | (16,166 | ) | | | (16,242 | ) | | | (16,313 | ) | | | (16,401 | ) | | | (16,166 | ) | | | (16,501 | ) |
| Average tangible equity (O) | | $ | 97,812 | | | $ | 98,042 | | | $ | 98,008 | | | $ | 101,387 | | | $ | 102,920 | | | $ | 97,954 | | | $ | 103,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average assets (P) | | $ | 1,064,919 | | | $ | 1,077,852 | | | $ | 1,122,310 | | | $ | 1,183,135 | | | $ | 1,184,146 | | | $ | 1,088,150 | | | $ | 1,169,158 | |
| Less: Average goodwill and other intangible assets | | | (16,092 | ) | | | (16,166 | ) | | | (16,242 | ) | | | (16,313 | ) | | | (16,401 | ) | | | (16,166 | ) | | | (16,501 | ) |
| Average tangible assets (Q) | | $ | 1,048,827 | | | $ | 1,061,686 | | | $ | 1,106,068 | | | $ | 1,166,822 | | | $ | 1,167,745 | | | $ | 1,071,984 | | | $ | 1,152,657 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average equity/average assets (GAAP) (N)/(P) | | | 10.70 | % | | | 10.60 | % | | | 10.18 | % | | | 9.95 | % | | | 10.08 | % | | | 10.49 | % | | | 10.26 | % |
| Average tangible equity/average tangible assets (Non-GAAP) (O)/(Q) | | | 9.33 | % | | | 9.23 | % | | | 8.86 | % | | | 8.69 | % | | | 8.81 | % | | | 9.14 | % | | | 8.97 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Note 1: Management believes that reporting tangible equity and tangible assets approximates 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. |
