SHORE BANCSHARES INC - FORM 8-K - EX-99.1

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8-K - SHORE BANCSHARES INC	v238198_8k.htm

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.

Page 2 of 11

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.

Page 3 of 11

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

Shore Bancshares, Inc.	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.

Shore Bancshares, Inc.	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	)

Shore Bancshares, Inc.	Page 6 of 11
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	%

Shore Bancshares, Inc.	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.

Shore Bancshares, Inc.	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	%

Shore Bancshares, Inc.	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.

SHORE BANCSHARES INC - FORM 8-K - EX-99.1 - October 27, 2011

Attached files

SHORE BANCSHARES INC Reports