EASTON, Md., Oct. 23, 2014 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $1.262 million or $0.10 per diluted common share for the third quarter of 2014, compared to net income of $1.305 million or $0.13 per diluted common share for the second quarter of 2014, and a net loss of $11.4 million or $(1.35) per diluted common share for the third quarter of 2013. The Company reported net income of $3.8 million or $0.37 per diluted common share for the first nine months of 2014, compared to a net loss of $10.8 million or $(1.28) per diluted common share for the first nine months of 2013.

On September 30, 2014, CNB, one of the two banking subsidiaries of Shore Bancshares, Inc. announced the appointment of CNB CFO, Edward C. Allen as President and Chief Executive Officer, effective immediately following the resignation of F. Winfield Trice, Jr. as the bank's President, Chief Executive Officer, and member of the CNB Board of Directors. As a result of Mr. Trice's resignation, the Company recorded approximately $400 thousand in severance and related benefit expenses which represents $.02 per common share in after tax expense.

When comparing the third quarter of 2014 to the second quarter of 2014, the primary reasons net income decreased was the resignation discussed above resulting in an increase of salaries and wage expense in the third quarter of $397 thousand, which was mainly offset by an increase in net interest income of $189 thousand and a decrease in credit loss provision of $175 thousand. When comparing the third quarter of 2014 to the third quarter of 2013, the main reason for the improved results was a decline in the provision for credit losses of $21.7 million, which was impacted by the sale of loans and other real estate owned (the "Asset Sale") by the company's other banking subsidiary, The Talbot Bank of Easton in 2013. When comparing the first nine months of 2014 to the first nine months of 2013, improved earnings were due to a decline in the provision for credit losses of $24.6 million partially offset by a decrease in net interest income of $900 thousand.

"Excluding the onetime severance charge to net income net of tax, we reflected a 16.2% increase over the linked quarter. We are pleased with the improvement of our credit metrics and our continued positive earnings trend," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer. "Our credit profile continues to improve with total nonperforming assets and accruing troubled debt restructurings declining $2.0 million, or 4.5%, from the end of the second quarter of 2014, and $32 million, or 42.9%, since September 30, 2013."

Balance Sheet Review

Total assets were $1.096 billion at September 30, 2014, a $42.1 million, or 4.0%, increase when compared to $1.054 billion at the end of 2013. The slightly higher amount of total assets was primarily due to the second quarter capital raise which was invested in AFS investment securities which increased $76.2 million, which was partially offset by the decline in interest-bearing deposits with other banks of $30.3 million and loans, including loans held for sale of $3.5 million. Loans held for sale at December 31, 2013 were reclassified to loans during the first quarter of 2014.

Total deposits at September 30, 2014 increased $7.2 million, or .77%, when compared to December 31, 2013. The increase in total deposits was mainly due to an increase in noninterest-bearing deposits of $17.4 million, partially offset by a decline in interest-bearing demand deposits of $10.2 million. Total stockholders' equity increased $35.4 million, or 34.2%, when compared to the end of 2013 primarily due to the stock sale in the second quarter of 2014 which resulted in $31.2 million in net proceeds. At September 30, 2014, the ratio of total equity to total assets was 12.65% and the ratio of total tangible equity to total tangible assets was 11.58%, higher than the 9.80% and 8.41%, respectively, at December 31, 2013.

Total assets at September 30, 2014 increased $44.9 million, or 4.3%, when compared to total assets at September 30, 2013. The increase in assets was due to higher investment securities of $87.4 million that was partially offset by a decline in loans and loans held for sale of $13.6 million and $23.6 million, respectively. The decline in loans was primarily a result of the Asset Sale during the fourth quarter of 2013, loan charge offs and net loan repayments. Total deposits increased $10.2 million, or 1.1%, when compared to September 30, 2013. The increase in total deposits was mainly due to an increase in noninterest-bearing deposits of $24 million, which was partially offset by a decline in interest-bearing deposits of $13.7 million. Total stockholders' equity increased $36.7 million, or 36.0%, when compared to September 30, 2013 primarily as a result of the stock sale.

Review of Quarterly Financial Results

Net interest income was $8.6 million for the third quarter of 2014, compared to $8.4 million for the second quarter of 2014 and $8.8 million for the third quarter of 2013. The increase in net interest income when compared to the second quarter of 2014 was mainly due to higher volumes of and yields earned on average investment securities and lower volumes of and rates paid on average time deposits. The decline in net interest income for the third quarter of 2014 when compared to the third quarter of 2013 was primarily due to lower volumes of and yields earned on loans, partially offset by lower volumes of and rates paid on time deposits and money market and savings deposits. The Company's net interest margin was 3.38% for the third quarter of 2014, compared to 3.49% for the second quarter of 2014 and 3.54% for the third quarter of 2013 the decrease in net interest margin was primarily due to lower volumes of and yields earned on loans, partially offset by higher volumes of and rates paid on investment securities.

The provision for credit losses was $775 thousand for the three months ended September 30, 2014. The comparable amounts were $950 thousand and $22.5 million for the three months ended June 30, 2014 and September 30, 2013, respectively. The lower level of provision for credit losses when comparing the third quarter of 2014 to the second quarter of 2014 was primarily due to declines in nonaccrual loans and loan net charge-offs. The lower level of provision for credit losses when comparing the third quarter of 2014 to the third quarter of 2013 was primarily due to decreases in both loan net charge-offs and nonaccrual loans. Net charge-offs were $1.2 million for the third quarter of 2014, $1.9 million for the second quarter of 2014 and $26.8 million for the third quarter of 2013. The ratio of annualized net charge-offs to average loans was .70% for the third quarter of 2014, 1.10% for the second quarter of 2014 and 13.81% for the third quarter of 2013. The ratio of the allowance for credit losses to period-end loans was 1.22% at September 30, 2014, lower than the 1.28% at June 30, 2014 and 1.57% at September 30, 2013, which reflects improved credit quality in the loan portfolio.

At September 30, 2014, nonperforming assets were $17.5 million, a decline of $1.9 million, or 9.6%, when compared to June 30, 2014. Additionally, accruing troubled debt restructurings ("TDRs") decreased .61% to $25.2 million at September 30, 2014 from $25.4 million at June 30, 2014. When comparing September 30, 2014 to September 30, 2013, nonperforming assets decreased $13 million, or 42.7%, and accruing TDRs decreased $19 million, or 43%. The positive trend in nonperforming assets and TDRs when comparing September 30, 2014 to September 30, 2013 was mainly accomplished with the previously-mentioned Asset Sale as well as the continued workout efforts over the last 12 months. At September 30, 2014, the ratio of nonperforming assets to total assets was 1.60%, lower than the 1.82% and 2.21% at June 30, 2014 and September 30, 2013, respectively. In addition, the ratio of accruing TDRs to total assets at September 30, 2014 was 2.30%, compared to 2.39% at June 30, 2014 and 4.21% at September 30, 2013.

Total noninterest income for the third quarter of 2014 decreased $534 thousand, or 11.8%, when compared to the second quarter of 2014 and decreased $798 thousand, or 16.7 %, when compared to the third quarter of 2013. The decrease from the second quarter of 2014 was due to the sale of Tri-State General Insurance Agency, LTD ("TSGIA") the Company's wholesale insurance subsidiary, which resulted in a gain of $114 thousand recorded in the second quarter of 2014, and the loss of commission income of $728 thousand for the third quarter of 2014. These transactions in the prior quarter were partially offset by an increase in retail commissions of $370 thousand. The decreases from the third quarter of 2013 were the result of a nonrecurring adjustment from an insurance investment of $297 thousand and the loss of commission income of $756 thousand as the result of the TSGIA sale discussed above, partially offset by increases in retail commissions of $208 thousand.

Total noninterest expense for the third quarter of 2014 decreased $98 thousand, or 1.0%, when compared to the second quarter of 2014 and decreased $149 thousand, or 1.5%, when compared to the third quarter of 2013. The decreases from the second quarter of 2014 and the third quarter of 2013 were primarily due to a decline in operating expenses of $836 thousand as a result of the sale of TSGIA discussed above. This decline was offset by increases in salary and wages of $397 thousand as a result of the cost of severance and related benefits for the former Chief Executive Officer of CNB and $189 thousand in write-downs of other real estate owned. The decreases from the third quarter of 2013 were the result of the transactions noted in the prior quarter of 2014.

Review of Nine-Month Financial Results

Net interest income for the first nine months of 2014 was $25.4 million, a decrease of 3.4% when compared to the first nine months of 2013. The decrease was primarily due to lower volumes of and yields earned on loans, partially offset by lower volumes of and rates paid on time deposits and money market and savings deposits. The average balance on loans along with the decrease in rates resulted in the net interest margin declining to 3.46% for the first nine months of 2014 when compared to 3.48% for the first nine months of 2013.

The provision for credit losses for the nine months ended September 30, 2014 and 2013 were $2.7 million and $27.3 million, respectively, while net charge-offs were $4.8 million and $32 million, respectively. The ratio of year-to-date annualized net charge-offs to average loans was .91% for the first nine months of 2014 and 5.48% for the first nine months of 2013.

Total noninterest income for the nine months ended September 30, 2014 increased $66 thousand, or 0.5%, when compared to the same period in 2013. Included in total noninterest income for the first nine months of 2013 were the $1.3 million loss incurred to terminate the interest rate caps and the $913 thousand in gains on sales of investment securities. In addition, insurance agency commissions decreased $381 thousand, other noninterest income decreased $150 thousand and trust and investment fee income grew $198 thousand in the first nine months of 2014 when compared to the first nine months of 2013.

Total noninterest expense for the nine months ended September 30, 2014 decreased $367 thousand, or 1.2%, when compared to the same period in 2013. The decrease was primarily due to lower write-downs of other real estate owned of $481 thousand, or 50.8%, and insurance agency commission's expense of $422 thousand, or 31.8%, which was partially offset by severance cost of $400 thousand.

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.; 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 at www.shorebancshares.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 by Shore 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.