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Shore Bancshares Reports Second Quarter and First-Half Results

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Shore Bancshares Reports Second Quarter and First-Half Results

PR Newswire

EASTON, Md., July 26, 2018 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company") reported net income of $4.391 million or $0.34 per diluted common share for the second quarter of 2018, compared to net income of $4.058 million or $0.32 per diluted common share for the first quarter of 2018, and net income of $2.352 million or $0.19 per diluted common share for the second quarter of 2017.  The Company reported net income of $8.449 million or $0.66 per diluted common share for the first half of 2018, compared to net income of $5.151 million or $0.41 per diluted common share for the first half of 2017. 

Shore Bancshares Logo (PRNewsfoto/Shore Bancshares)

When comparing the second quarter of 2018 to the first quarter of 2018, the main reason for the improved results were increases in interest and fees on loans of $587 thousand, a reduction in noninterest expense of $635 thousand, partially offset by an increase in interest expense on short-term borrowings and the reduction of insurance agency contingent commissions which are typically received during the first quarter of the year.  When comparing the second quarter of 2018 to the second quarter of 2017, the primary reasons for the improved results were increases in net interest income of $1.7 million and noninterest income of $361 thousand, coupled with a reduction in the provision for credit losses of $556 thousand.  These positive variances were partially offset by increases in interest expense of $492 thousand and noninterest expense of $628 thousand.

"We are pleased to report a strong quarter of earnings and continued loan growth. Annualized loan growth is 11.7%," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer.  "As we continue to experience strong loan demand, we are focused on strategies for attracting and retaining core deposits which will keep our cost of funding at a lower level.  We are currently experiencing strong opportunities for growth in our markets outside of the Eastern Shore of Maryland, which we plan to capitalize on throughout the remainder of the year."  

Balance Sheet Review
Total assets were $1.452 billion at June 30, 2018, a $57.9 million, or 4.2%, increase when compared to $1.394 billion at the end of 2017.  The primary reason for the increase was the addition of $63.4 million in loans, which was funded by a decrease in investment securities available for sale of $21.4 million and an increase in short-term borrowings of $81.0 million.

Total deposits decreased $27.7 million, or 2.3%, when compared to December 31, 2017.  The decrease was due to decreases in checking accounts of $28.8 million, time deposits of $20.1 million, money market and savings deposits of $4.5 million and noninterest-bearing deposits of $1.7 million, partially offset by an increase in brokered deposits of $27.4 million.  The issuance of brokered deposits as an alternative to FHLB borrowings provided lower interest costs for comparative terms.  Total stockholders' equity increased $4.4 million, or 2.7%, when compared to the end of 2017.  At June 30, 2018, the ratio of total equity to total assets was 11.58% and the ratio of total tangible equity to total tangible assets was 9.59%, lower than the 11.75% and 9.65%, respectively, at December 31, 2017 primarily due to the significant growth in loans for the first six months of 2018.

Total assets at June 30, 2018 increased $88.9 million, or 6.5%, when compared to total assets at June 30, 2017.  The primary reason for the increase was the growth in loans of $122.3 million, or 11.8% which was partially funded by the decrease in investment securities available for sale of $26.0 million.  Total deposits decreased $21.2 million, or 1.8%, when compared to June 30, 2017, which included a reduction in interest-bearing deposits of $63.7 million, partially offset by an increase in noninterest-bearing deposits of $15.2 million and the purchase of brokered deposits of $27.4 million.  Total stockholders' equity increased $8.2 million, or 5.1%, when compared to June 30, 2017. 

Review of Quarterly Financial Results
Net interest income was $12.6 million for the second quarter of 2018, compared to $12.3 million for the first quarter of 2018 and $10.9 million for the second quarter of 2017.  The increase in net interest income when compared to the first quarter of 2018 was primarily due to an increase in average loans of $35.1 million and an extra day of earning interest resulting in $587 thousand of additional interest and fees on loans, partially offset by an increase in interest on short-term borrowings of $235 thousand and higher rates paid on interest-bearing deposits of $32 thousand.  The increase in net interest income for the second quarter of 2018 when compared to the second quarter of 2017 was primarily due to an increase in average loans of $188.2 million resulting in $2.2 million in additional interest and fees on loans, partially offset by an increase in short-term borrowings of $450 thousand and higher rates paid on interest-bearing deposits of $42 thousand.  The Company's net interest margin decreased to 3.79% from 3.83% in the first quarter of 2018 and increased from 3.73% in the second quarter of 2017.  The decline in net interest margin from the first quarter of 2018 is the direct result of increased short-term borrowings which were temporarily utilized to fund loan growth during the period in which the Bank experiences cyclical runoff of municipal deposits.  

The provision for credit losses was $418 thousand for the three months ended June 30, 2018.  The comparable amounts were $489 thousand and $974 thousand for the three months ended March 31, 2018 and June 30, 2017, respectively.  The decrease in the amount of provision for credit losses from the first quarter of 2018 of $71 thousand was due to improved credit quality in the portfolio.  The decrease in the amount of provision for credit losses from the second quarter of 2017 was due to a significant charge-off of a negotiated restructured commercial loan in the second quarter of 2017. Net charge-offs were $84 thousand for the second quarter of 2018, $352 thousand for the first quarter of 2018 and $769 thousand for the second quarter of 2017.  The ratio of annualized net charge-offs to average loans was 0.03% for the second quarter of 2018, 0.13% for the first quarter of 2018 and 0.32% for the second quarter of 2017.  The ratio of the allowance for credit losses to period-end loans was 0.87% at June 30, 2018, lower than the 0.89% at March 31, 2018 and 0.88% at June 30, 2017.

At June 30, 2018, nonperforming assets were $8.3 million, a decrease of $313 thousand, or 3.6%, when compared to March 31, 2018, primarily in nonaccrual loans which decreased $252 thousand, or 3.6%. Accruing troubled debt restructurings ("TDRs") decreased $106 thousand, or 1.1% over the same time period.  When comparing June 30, 2018 to June 30, 2017, nonperforming assets decreased $1.4 million, or 14.8%, and accruing TDRs decreased $2.5 million, or 20.7%.  The positive trend in nonperforming assets and TDRs when comparing June 30, 2018 to June 30, 2017 resulted mostly from the Company's continued workout efforts.  The ratio of nonperforming assets to total assets was 0.57%, 0.61% and 0.72% at June 30, 2018, March 31, 2018 and June 30, 2017, respectively.  In addition, the ratio of accruing TDRs to total assets at June 30, 2018 was 0.66%, compared to 0.68% at March 31, 2018 and 0.89% at June 30, 2017.

Total noninterest income for the second quarter of 2018 decreased $389 thousand, or 7.9%, when compared to the first quarter of 2018 and increased $361 thousand, or 8.6%, when compared to the second quarter of 2017.  The decrease from the first quarter of 2018 was primarily due to a decline in insurance agency commissions of $543 thousand which was partially offset by increases in service charges on deposit accounts of $42 thousand, trust and investment fee income of $14 thousand and other noninterest income of $98 thousand. Insurance agency commissions for the second quarter of 2018 were lower when compared to the first quarter of 2018 due to the fact that contingency commission payments are typically received in the first quarter of the year.  The increase from the second quarter of 2017 was mainly due to increases in insurance agency commissions of $119 thousand, service charges on deposit accounts of $69 thousand, trust and investment fee income of $42 thousand and other bank fees and service charges of $116 thousand

Total noninterest expense for the second quarter of 2018 decreased $635 thousand, or 5.5%, when compared to the first quarter of 2018 and increased $628 thousand, or 6.2%, when compared to the second quarter of 2017.  The decrease when compared to the first quarter of 2018 was primarily due to a decrease in data processing a result of the Company's renegotiated contract with its core processor and lower employee benefit costs.  The increase in noninterest expense from the second quarter of 2017 was due to the operating costs of four additional branches (three acquired in May 2017 and one opened in September 2017), employee benefits due to the higher insurance premiums paid for group insurance and higher salaries and wages due to pay increases implemented in the first quarter of 2018, offset by decreases in data processing, other real estate owned expenses and legal and professional fees.

Review of Six-Month Financial Results
Net interest income for the first six months of 2018 was $25.0 million, an increase of $4.1 million, or 19.8% when compared to the first six months of 2017.  The increase was primarily due an increase in average loans of approximately $203.4 million.  The increase in volume on loans was primarily funded by core deposits and short-term borrowings, allowing the overall yield on total earning assets to increase 18 basis points.  This, coupled with higher yields earned on investment securities, resulted in a net interest margin of 3.80% for the first six months of 2018 compared to 3.71% for the first six months of 2017.    

The provision for credit losses for the six months ended June 30, 2018 and 2017 was $907 thousand and $1.4 million, respectively, while net charge-offs were $567 thousand and $995 thousand, respectively.  The decrease in provision for credit losses is the result of improved credit quality in the portfolio.  The ratio of annualized net charge-offs to average loans was 0.10% for the first half of 2018 and 0.22% for the first half of 2017.

Total noninterest income for the six months ended June 30, 2018 increased $483 thousand, or 5.4%, when compared to the same period in 2017.  The increase in noninterest income primarily consists of increases in service charges on deposit accounts of $140 thousand, trust and investment income of $81 thousand and other fees on bank services of $225 thousand, which are a direct result of operating four additional branches. 

Total noninterest expense for the six months ended June 30, 2018 increased $2.4 million, or 12.3%, when compared to the same period in 2017.  The increase was primarily due to the cost of operating four additional branches which caused increases in almost all noninterest expense line items, offset by lower data processing fees, other real estate owned expenses and legal and professional fees. 

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 Shore United Bank; one retail insurance producer firm, The Avon-Dixon Agency, LLC, with two specialty lines, Elliott Wilson Insurance (Trucking) and Jack Martin Associates (Marine); and an insurance premium finance company, Mubell Finance, LLC.  Shore Bancshares Inc. engages in trust and wealth management services through Wye Financial & Trust, a division of Shore United Bank.  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.

 














Shore Bancshares, Inc.










Financial Highlights










(Dollars in thousands, except per share data)




































   For the Three Months Ended


For the Six Months Ended



June 30, 


June 30, 



2018


2017

 Change


2018


2017

 Change


     Net interest income

$      12,633


$    10,900


15.9

%

$      24,962


$    20,833


19.8

%

     Provision for credit losses

418


974


(57.1)


907


1,401


(35.3)


     Noninterest income

4,540


4,179


8.6


9,469


8,986


5.4


     Noninterest expense

10,828


10,199


6.2


22,290


19,851


12.3


     Income before income taxes

5,927


3,906


51.7


11,234


8,567


31.1


     Income tax expense 

1,536


1,554


(1.2)


2,785


3,416


(18.5)


     Net income 

$         4,391


$      2,352


86.7


$         8,449


$      5,151


64.0




























     Return on average assets 

1.24

%

0.76

%

48

bp

1.21

%

0.87

%

34

bp

     Return on average equity 

10.58


5.93


465


10.28


6.32


396


     Return on average tangible equity (1)

13.65


6.55


710


13.18


6.94


624


     Net interest margin

3.79


3.73


6


3.80


3.71


9


     Efficiency ratio - GAAP 

63.05


67.64


(459)


64.74


66.57


(183)


     Efficiency ratio - Non-GAAP (1)

61.56


67.00


(545)


63.62


66.01


(239)




























PER SHARE DATA













     Basic net income per common share

$           0.34


$        0.19


78.9

%

$           0.66


$        0.41


61.0

%

     Diluted net income per common share

0.34


0.19


78.9


0.66


0.41


61.0


     Dividends paid per common share

0.08


0.05


60.0


0.15


0.10


50.0


     Book value per common share at period end

13.19


12.61


4.6








     Tangible book value per common share at period end (1)

10.68


10.07


6.1








     Market value at period end

19.02


16.45


15.6








     Market range:













       High

20.09


17.53


14.6


20.09


17.92


12.1


       Low

17.92


15.17


18.1


16.28


14.64


11.2




























AVERAGE BALANCE SHEET DATA













     Loans

$ 1,141,296


$  953,049


19.8

%

$ 1,123,852


$  920,434


22.1

%

     Investment securities

186,453


198,302


(6.0)


191,839


188,243


1.9


     Earning assets

1,341,050


1,178,507


13.8


1,327,227


1,139,270


16.5


     Assets

1,425,947


1,242,933


14.7


1,411,058


1,199,419


17.6


     Deposits

1,161,790


1,072,758


8.3


1,165,184


1,024,791


13.7


     Stockholders' equity

166,480


159,165


4.6


165,778


164,357


0.9




























CREDIT QUALITY DATA AT PERIOD END













     Net charge-offs

$              84


$         769


(89.1)

%

$            567


$         995


(43.0)

%














     Nonaccrual loans 

$         6,757


$      7,157


(5.6)








     Loans 90 days past due and still accruing

-


314


(100.0)








     Other real estate owned

1,569


2,302


(31.8)








     Total nonperforming assets 

8,326


9,773


(14.8)








     Accruing troubled debt restructurings (TDRs) 

9,620


12,124


(20.7)








     Total nonperforming assets and accruing TDRs 

$      17,946


$    21,897


(18.0)


































CAPITAL AND CREDIT QUALITY RATIOS













     Period-end equity to assets

11.58

%

11.74

%

(16)

bp







     Period-end tangible equity to tangible assets (1)

9.59


9.60


(1)





















     Annualized net charge-offs to average loans

0.03


0.32


(29)


0.10

%

0.22

%

(12)

bp














     Allowance for credit losses as a percent of:













     Period-end loans

0.87


0.88


(1)








     Nonaccrual loans 

149.79


127.60


2,219








     Nonperforming assets 

121.56


93.44


2,812








     Accruing TDRs 

105.21


75.32


2,989








     Nonperforming assets and accruing TDRs 

56.40


41.70


1,470





















     As a percent of total loans:













     Nonaccrual loans 

0.58


0.69


(11)








     Accruing TDRs  

0.83


1.17


(34)








     Nonaccrual loans and accruing TDRs 

1.42


1.86


(44)





















     As a percent of total loans+other real estate owned:













     Nonperforming assets

0.72


0.94


(22)








     Nonperforming assets and accruing TDRs 

1.55


2.11


(56)





















     As a percent of total assets:













     Nonaccrual loans 

0.47


0.53


(6)








     Nonperforming assets 

0.57


0.72


(15)








     Accruing TDRs 

0.66


0.89


(23)








     Nonperforming assets and accruing TDRs 

1.24


1.61


(37)





















(1)  See the reconciliation table on page 12 of 12.




















































  












Shore Bancshares, Inc.







Consolidated Balance Sheets








(In thousands, except per share data)





































June 30, 2018


June 30, 2018



June 30, 


December 31, 


June 30, 


compared to


compared to



2018


2017


2017


 December 31, 2017


June 30, 2017


ASSETS











    Cash and due from banks

$      19,420


$          21,534


$      15,748


(9.8)

%

23.3

%

    Interest-bearing deposits with other banks

24,059


10,286


38,331


133.9


(37.2)


  Cash and cash equivalents

43,479


31,820


54,079


36.6


(19.6)













    Investment securities available for sale (at fair value)

175,566


196,955


201,587


(10.9)


(12.9)


    Investment securities held to maturity 

6,168


6,247


6,411


(1.3)


(3.8)


    Equity securities, at fair value

652


-


-


-


-













    Loans

1,156,884


1,093,514


1,034,605


5.8


11.8


    Less: allowance for credit losses

(10,121)


(9,781)


(9,132)


3.5


(10.8)


    Loans, net

1,146,763


1,083,733


1,025,473


5.8


11.8













    Premises and equipment, net

23,307


23,054


23,297


1.1


0.0


    Goodwill

27,618


27,618


27,207


-


1.5


    Other intangible assets, net

4,369


4,719


4,946


(7.4)


(11.7)


    Other real estate owned, net

1,569


1,794


2,302


(12.5)


(31.8)


    Other assets

22,223


17,920


17,496


24.0


27.0













                         Total assets

$ 1,451,714


$    1,393,860


$ 1,362,798


4.2


6.5













LIABILITIES











    Noninterest-bearing deposits

$    326,634


$        328,322


$    311,438


(0.5)


4.9


    Interest-bearing deposits

821,084


874,459


884,820


(6.1)


(7.2)


    Brokered deposits

27,381


-


-






                Total deposits

1,175,099


1,202,781


1,196,258


(2.3)


(1.8)













    Short-term borrowings

102,741


21,734


3,325


372.7


2,990.0


    Accrued expenses and other liabilities

5,759


5,609


3,275


2.7


75.8


                          Total liabilities

1,283,599


1,230,124


1,202,858


4.3


6.7













STOCKHOLDERS' EQUITY











    Common stock, par value $0.01; authorized  











       35,000,000 shares

127


127


127


-


-


    Additional paid in capital

65,562


65,256


64,791


0.5


1.2


    Retained earnings

106,193


99,662


94,848


6.6


12.0


    Accumulated other comprehensive (loss) income

(3,767)


(1,309)


174


(187.8)


(2,264.9)


                          Total stockholders' equity

168,115


163,736


159,940


2.7


5.1













                          Total liabilities and stockholders' equity

$ 1,451,714


$    1,393,860


$ 1,362,798


4.2


6.5













Period-end common shares outstanding

12,747


12,688


12,685


0.5


0.5


Book value per common share

$         13.19


$            12.90


$         12.61


2.2


4.6













  












Shore Bancshares, Inc.







Consolidated Statements of Income








(In thousands, except per share data)































For the Three Months Ended


For the Six Months Ended



June 30, 


June 30, 



2018


2017

% Change


2018


2017

% Change


INTEREST INCOME











    Interest and fees on loans 

$ 12,631


$ 10,441

21.0

%

$ 24,675


$ 19,991

23.4

%

    Interest on investment securities:











        Taxable

982


937

4.8


2,003


1,764

13.5


        Tax-exempt 

-


1

(100.0)


-


3

(100.0)


    Interest on deposits with other banks

61


70

(12.9)


99


138

(28.3)


                   Total interest income

13,674


11,449

19.4


26,777


21,896

22.3













INTEREST EXPENSE











    Interest on deposits

580


538

7.8


1,128


1,049

7.5


    Interest on short-term borrowings

461


11

4,090.9


687


14

4,807.1


                   Total interest expense

1,041


549

89.6


1,815


1,063

70.7













NET INTEREST INCOME

12,633


10,900

15.9


24,962


20,833

19.8


Provision for credit losses

418


974

(57.1)


907


1,401

(35.3)













NET INTEREST INCOME AFTER PROVISION 











  FOR CREDIT LOSSES

12,215


9,926

23.1


24,055


19,432

23.8













NONINTEREST INCOME











    Service charges on deposit accounts

947


878

7.9


1,852


1,712

8.2


    Trust and investment fee income

414


372

11.3


814


733

11.1


    Insurance agency commissions

2,151


2,032

5.9


4,845


4,851

(0.1)


    Other noninterest income

1,028


897

14.6


1,958


1,690

15.9


                      Total noninterest income

4,540


4,179

8.6


9,469


8,986

5.4













NONINTEREST EXPENSE











    Salaries and wages

5,383


4,803

12.1


10,856


9,305

16.7


    Employee benefits

1,369


1,127

21.5


2,886


2,367

21.9


    Occupancy expense 

755


629

20.0


1,536


1,254

22.5


    Furniture and equipment expense

275


284

(3.2)


562


517

8.7


    Data processing

720


1,015

(29.1)


1,617


1,887

(14.3)


    Directors' fees

152


102

49.0


266


182

46.2


    Amortization of intangible assets

239


55

334.5


350


88

297.7


    FDIC insurance premium expense

214


45

375.6


419


209

100.5


    Other real estate owned expenses, net

5


108

(95.4)


(41)


187

(121.9)


    Legal and professional fees

505


702

(28.1)


969


1,362

(28.9)


    Other noninterest expenses

1,211


1,329

(8.9)


2,870


2,493

15.1


                      Total noninterest expense

10,828


10,199

6.2


22,290


19,851

12.3













Income before income taxes

5,927


3,906

51.7


11,234


8,567

31.1


Income tax expense 

1,536


1,554

(1.2)


2,785


3,416

(18.5)













NET INCOME 

$   4,391


$   2,352

86.7


$   8,449


$   5,151

64.0













Weighted average shares outstanding - basic

12,744


12,681

0.5


12,730


12,676

0.4


Weighted average shares outstanding - diluted

12,757


12,732

0.2


12,743


12,727

0.1













Basic net income per common share

$     0.34


$     0.19

78.9


$     0.66


$     0.41

61.0


Diluted net income per common share

0.34


0.19

78.9


0.66


0.41

61.0


Dividends paid per common share

0.08


0.05

60.0


0.15


0.10

50.0













  



















Shore Bancshares, Inc.















Consolidated Average Balance Sheets















(Dollars in thousands)




















































For the Three Months Ended


For the Six Months Ended




June 30, 


June 30, 




2018


2017


2018


2017




Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/




balance


rate 


balance


rate 


balance


rate 


balance


rate 



Earning assets


















  Loans (1), (2), (3)

$ 1,141,296


4.45

%

$    953,049


4.42

%

$ 1,123,852


4.44

%

$    920,434


4.41

%


  Investment securities (1)


















   Taxable

186,453


1.05


198,161


1.89


191,839


2.09


188,068


1.88



   Tax-exempt

-


-


141


5.36


-


-


175


5.38



  Interest-bearing deposits

13,301


1.82


27,156


1.05


11,536


1.72


30,593


0.91



    Total earning assets

1,341,050


4.10

%

1,178,507


3.92

%

1,327,227


4.08

%

1,139,270


3.90

%


Cash and due from banks

16,905




14,798




16,646




14,355





Other assets

78,185




58,692




77,266




54,750





Allowance for credit losses

(10,193)




(9,064)




(10,081)




(8,956)





Total assets

$ 1,425,947




$ 1,242,933




$ 1,411,058




$ 1,199,419









































Interest-bearing liabilities


















  Demand deposits

$    204,068


0.21

%

$    198,593


0.16

%

$    210,403


0.22

%

$    196,809


0.15

%


  Money market and savings deposits 

381,047


0.13


320,967


0.12


380,969


0.13


298,695


0.13



  Brokered deposits

10,684


1.96


-


-


5,372


1.96


-


-



  Certificates of deposit $100,000 or more

96,873


0.54


121,967


0.51


99,387


0.52


120,477


0.52



  Other time deposits

146,946


0.45


150,953


0.55


149,619


0.46


144,429


0.56



    Interest-bearing deposits

839,618


0.27


792,480


0.27


845,750


0.27


760,410


0.28



  Short-term borrowings

91,980


2.01


5,589


0.82


74,381


1.86


4,873


0.59



    Total interest-bearing liabilities

931,598


0.44

%

798,069


0.28

%

920,131


0.40

%

765,283


0.28

%


Noninterest-bearing deposits

322,172




280,278




319,434




264,381





Accrued expenses and other liabilities

5,697




5,421




5,715




5,398





Stockholders' equity

166,480




159,165




165,778




164,357





Total liabilities and stockholders' equity

$ 1,425,947




$ 1,242,933




$ 1,411,058




$ 1,199,419























Net interest spread



3.66

%



3.64

%



3.68

%



3.62

%


Net interest margin



3.79

%



3.73

%



3.80

%



3.71

%






































(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate 









      of 21.0%, for the second quarter of 2018 and the year to date period in 2018 and 35% for all quarters










     during 2017, exclusive of the alternative minimum tax rate and nondeductible interest expense.










(2) Average loan balances include nonaccrual loans.















(3) Interest income on loans includes amortized loan fees, net of costs and accretion of discounts on 











     acquired loans, which are included in the yield calculations.















  



















Shore Bancshares, Inc.














Financial Highlights By Quarter















(Dollars in thousands, except per share data)




















































2nd Quarter


1st Quarter


4th Quarter


3rd Quarter


2nd Quarter


Q2 2018


Q2 2018






2018


2018


2017


2017


2017


compared to


compared to






Q2 2018


Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2018


Q2 2017





PROFITABILITY FOR THE PERIOD


















     Taxable-equivalent net interest income

$      12,661


$      12,357


$      12,430


$      12,384


$    10,961


2.5

%

15.5

%




     Less:  Taxable-equivalent adjustment

28


28


61


58


61


-


(54.1)





     Net interest income

12,633


12,329


12,369


12,326


10,900


2.5


15.9





     Provision for credit losses

418


489


545


345


974


(14.5)


(57.1)





     Noninterest income

4,540


4,929


4,339


4,425


4,179


(7.9)


8.6





     Noninterest expense

10,828


11,462


10,632


10,720


10,199


(5.5)


6.2





     Income before income taxes

5,927


5,307


5,531


5,686


3,906


11.7


51.7





     Income tax expense 

1,536


1,249


2,833


2,274


1,554


23.0


(1.2)





     Net income

$         4,391


$         4,058


$         2,698


$         3,412


$      2,352


8.2


86.7









































     Return on average assets 

1.24

%

1.18

%

0.78

%

0.98

%

0.76

%

6

bp

48

bp




     Return on average equity 

10.58


9.97


6.53


8.48


5.93


61


465





     Return on average tangible equity (1)

13.65


12.70


8.36


10.84


6.55


95


710





     Net interest margin

3.79


3.83


3.81


3.79


3.73


(4)


6





     Efficiency ratio - GAAP 

63.05


66.42


63.63


64.00


67.64


(337)


(459)





     Efficiency ratio - Non-GAAP (1)

61.56


65.67


62.73


63.11


67.00


(411)


(544)









































PER SHARE DATA


















     Basic net income per common share

$           0.34


$           0.32


$           0.21


$           0.27


$         0.19


6.3

%

78.9

%




     Diluted net income per common share

0.34


0.32


0.21


0.27


0.19


6.3


78.9





     Dividends paid per common share

0.08


0.07


0.07


0.05


0.05


14.3


60.0





     Book value per common share at period end

13.19


12.95


12.90


12.82


12.61


1.9


4.6





     Tangible book value per common share at period end (1)

10.68


10.42


10.36


10.24


10.07


2.5


6.1





     Market value at period end

19.02


18.86


16.70


16.65


16.45


0.8


15.6





     Market range:


















        High

20.09


19.80


18.49


17.34


17.53


1.5


14.6





        Low

17.92


16.28


15.74


15.97


15.17


10.1


18.1









































AVERAGE BALANCE SHEET DATA


















     Loans

$ 1,141,296


$ 1,106,213


$ 1,062,980


$ 1,034,553


$  953,049


3.2

%

19.8

%




     Investment securities

186,453


197,285


211,910


218,675


198,302


(5.5)


(6.0)





     Earning assets

1,341,050


1,313,249


1,294,768


1,295,432


1,178,507


2.1


13.8





     Assets

1,425,947


1,396,001


1,378,553


1,377,975


1,242,933


2.1


14.7





     Deposits

1,161,790


1,168,613


1,202,260


1,210,894


1,072,758


(0.6)


8.3





     Stockholders' equity

166,480


165,070


163,893


159,551


159,165


0.9


4.6









































CREDIT QUALITY DATA 


















     Net charge-offs

$              84


$            352


$              59


$            182


$          769


(76.1)

%

(89.1)

%






















     Nonaccrual loans 

$         6,757


$         7,009


$         4,971


$         6,289


$      7,157


(3.6)


(5.6)





     Loans 90 days past due and still accruing

-


61


639


5


314


(100.0)


(100.0)





     Other real estate owned

1,569


1,569


1,794


1,809


2,302


-


(31.8)





     Total nonperforming assets 

$         8,326


$         8,639


$         7,404


$         8,103


$      9,773


(3.6)


(14.8)























     Accruing troubled debt restructurings (TDRs) 

$         9,620


$         9,726


$      13,326


$      13,493


$    12,124


(1.1)


(20.7)























     Total nonperforming assets and accruing TDRs 

$      17,946


$      18,365


$      20,730


$      21,596


$    21,897


(2.3)


(18.0)









































CAPITAL AND CREDIT QUALITY RATIOS


















     Period-end equity to assets

11.58

%

11.60

%

11.75

%

11.82

%

11.74

%

(2)

bp

(16)

bp




     Period-end tangible equity to tangible assets (1)

9.59


9.55


9.65


9.67


9.60


4


(1)























     Annualized net charge-offs to average loans

0.03


0.13


0.02


0.07


0.32


(10)


(29)























     Allowance for credit losses as a percent of:


















     Period-end loans      

0.87


0.89


0.89


0.89


0.88


(2)


(1)





     Nonaccrual loans 

149.79


141.50


196.76


147.80


127.60


829


2,219





     Nonperforming assets 

121.56


114.80


132.10


114.71


93.44


676


2,812





     Accruing TDRs 

105.21


101.97


73.40


68.89


75.32


324


2,989





     Nonperforming assets and accruing TDRs 

56.40


54.00


47.18


43.04


41.70


240


1,470























    As a percent of total loans:


















    Nonaccrual loans 

0.58


0.63


0.45


0.60


0.69


(5)


(11)





    Accruing TDRs 

0.83


0.87


1.22


1.29


1.17


(4)


(34)





    Nonaccrual loans and accruing TDRs 

1.42


1.50


1.67


1.89


1.86


(8)


(44)























    As a percent of total loans+other real estate owned:


















    Nonperforming assets 

0.72


0.77


0.68


0.77


0.94


(5)


(22)





    Nonperforming assets and accruing TDRs 

1.55


1.64


1.89


2.06


2.11


(9)


(56)









































    As a percent of total assets:


















    Nonaccrual loans 

0.47


0.49


0.36


0.46


0.53


(2)


(6)





    Nonperforming assets 

0.57


0.61


0.53


0.59


0.72


(4)


(15)





    Accruing TDRs 

0.66


0.68


0.96


0.98


0.89


(2)


(23)





    Nonperforming assets and accruing TDRs 

1.24


1.29


1.49


1.57


1.61


(5)


(37)























(1)  See the reconciliation table on page 12 of 12.

















  

















Shore Bancshares, Inc.













Consolidated Statements of Income By Quarter











(In thousands, except per share data)























































Q2 2018


Q2 2018














compared to


compared to




Q2 2018


Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2018


Q2 2017



INTEREST INCOME
















    Interest and fees on loans 

$ 12,631


$ 12,044


$ 11,855


$ 11,771


$ 10,441


4.9

%

21.0

%


    Interest on investment securities:
















        Taxable

982


1,021


1,048


1,035


937


(3.8)


4.8



        Tax-exempt

-


-


-


-


1


-


(100.0)



    Interest on deposits with other banks

61


38


65


131


70


60.5


(12.9)



                   Total interest income

13,674


13,103


12,968


12,937


11,449


4.4


19.4



















INTEREST EXPENSE
















    Interest on deposits

580


548


586


607


538


5.8


7.8



    Interest on short-term borrowings

461


226


13


4


11


104.0


4,090.9



                   Total interest expense

1,041


774


599


611


549


34.5


89.6



















NET INTEREST INCOME

12,633


12,329


12,369


12,326


10,900


2.5


15.9



Provision for credit losses

418


489


545


345


974


(14.5)


(57.1)



















NET INTEREST INCOME AFTER PROVISION
















  FOR CREDIT LOSSES

12,215


11,840


11,824


11,981


9,926


3.2


23.1



















NONINTEREST INCOME
















    Service charges on deposit accounts

947


905


971


945


878


4.6


7.9



    Trust and investment fee income

414


400


410


389


372


3.5


11.3



    Gains on sales and calls of investment securities

-


-


-


5


-


-


-



    Insurance agency commissions 

2,151


2,694


1,898


2,088


2,032


(20.2)


5.9



    Other noninterest income

1,028


930


1,060


998


897


10.5


14.6



                      Total noninterest income

4,540


4,929


4,339


4,425


4,179


(7.9)


8.6



















NONINTEREST EXPENSE
















    Salaries and wages

5,383


5,473


5,503


5,203


4,803


(1.6)


12.1



    Employee benefits

1,369


1,517


1,081


1,197


1,127


(9.8)


21.5



    Occupancy expense 

755


781


746


696


629


(3.3)


20.0



    Furniture and equipment expense

275


287


232


286


284


(4.2)


(3.2)



    Data processing

720


897


871


922


1,015


(19.7)


(29.1)



    Directors' fees

152


114


99


99


102


33.3


49.0



    Amortization of intangible assets

239


111


112


115


55


115.3


334.5



    FDIC insurance premium expense

214


205


201


189


45


4.4


375.6



    Other real estate owned expenses, net

5


(46)


(86)


185


108


110.9


(95.4)



    Legal and professional fees

505


464


453


493


702


8.8


(28.1)



    Other noninterest expenses

1,211


1,659


1,420


1,335


1,329


(27.0)


(8.9)



                      Total noninterest expense

10,828


11,462


10,632


10,720


10,199


(5.5)


6.2



















Income before income taxes

5,927


5,307


5,531


5,686


3,906


11.7


51.7



Income tax expense 

1,536


1,249


2,833


2,274


1,554


23.0


(1.2)



















NET INCOME 

$   4,391


$   4,058


$   2,698


$   3,412


$   2,352


8.2


86.7



















Weighted average shares outstanding - basic

12,744


12,715


12,688


12,687


12,681


0.2


0.5



Weighted average shares outstanding - diluted

12,757


12,731


12,750


12,718


12,732


0.2


0.2



















Basic net income per common share

$     0.34


$     0.32


$     0.21


$     0.27


$     0.19


6.3


78.9



Diluted net income per common share

0.34


0.32


0.21


0.27


0.19


6.3


78.9



Dividends paid per common share

0.08


0.07


0.07


0.05


0.05


14.3


60.0



















  


























Shore Bancshares, Inc.























Consolidated Average Balance Sheets By Quarter




















(Dollars in thousands)





























































































Average balance























Q2 2018


Q2 2018























compared to


compared to



Q2 2018


Q1 2018


Q4 2017


Q3 2017


Q2 2017


Q1 2018


Q2 2017



Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/


Average 


Yield/







balance


rate


balance


rate


balance


rate


balance


rate


balance


rate






Earning assets

























  Loans (1), (2), (3)

1,141,296


4.45

%

$ 1,106,213


4.44

%

$ 1,062,980


4.45

%

$ 1,034,553


4.54

%

$    953,049


4.42

%

3.2

%

19.8

%

  Investment securities (1)

























   Taxable

186,453


1.05


197,285


2.07


211,910


1.98


218,675


1.89


198,161


1.89


(5.5)


(5.9)


   Tax-exempt

-


-


-


-


-


-


-


-


141


5.36


-


(100.0)


  Interest-bearing deposits

13,301


1.82


9,751


1.60


19,878


1.30


42,204


1.23


27,156


1.05


36.4


(51.0)


    Total earning assets

1,341,050


4.10

%

1,313,249


4.06

%

1,294,768


3.99

%

1,295,432


3.98

%

1,178,507


3.92

%

2.1


13.8


Cash and due from banks

16,905




16,384




18,589




16,232




14,798




3.2


14.2


Other assets

78,185




76,336




74,700




75,611




58,692




2.4


33.2


Allowance for credit losses

(10,193)




(9,968)




(9,504)




(9,300)




(9,064)




2.3


12.5


Total assets

$ 1,425,947




$ 1,396,001




$ 1,378,553




$ 1,377,975




$ 1,242,933




2.1


14.7




















































Interest-bearing liabilities

























  Demand deposits

$    204,068


0.21

%

$    216,808


0.23

%

$    222,321


0.24

%

$    224,180


0.23

%

$    198,593


0.16

%

(5.9)


2.8


  Money market and savings deposits 

381,047


0.13


380,890


0.13


382,438


0.12


378,711


0.12


320,967


0.12


-


18.7


  Brokered deposits

10,684


1.96


-


-


-


-


-


-


-


-


-


-


  Certificates of deposit $100,000 or more

96,873


0.54


101,929


0.50


110,458


0.49


123,538


0.50


121,967


0.51


(5.0)


(20.6)


  Other time deposits

146,946


0.45


152,321


0.48


158,241


0.49


164,459


0.50


150,953


0.55


(3.5)


(2.7)


    Interest-bearing deposits

839,618


0.27


851,948


0.26


873,458


0.27


890,888


0.27


792,480


0.27


(1.4)


5.9


  Short-term borrowings

91,980


2.01


56,586


1.62


6,087


0.86


2,274


0.62


5,589


0.82


62.5


1,545.7


    Total interest-bearing liabilities

931,598


0.44

%

908,534


0.35

%

879,545


0.27

%

893,162


0.27

%

798,069


0.28

%

2.5


16.7


Noninterest-bearing deposits

322,172




316,665




328,802




320,006




280,278




1.7


14.9


Accrued expenses and other liabilities

5,697




5,732




6,313




5,256




5,421




(0.6)


5.1


Stockholders' equity

166,480




165,070




163,893




159,551




159,165




0.9


4.6


Total liabilities and stockholders' equity

$ 1,425,947




$ 1,396,001




$ 1,378,553




$ 1,377,975




$ 1,242,933




2.1


14.7



























Net interest spread



3.66

%



3.71

%



3.72

%



3.71

%



3.64

%





Net interest margin



3.79

%



3.83

%



3.81

%



3.79

%



3.73

%






























(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0% for the first and second quarter of 2018 and 35.0% for all quarters during 2017, 

        exclusive of the alternative minimum tax rate and and nondeductible interest expense.


















(2) Average loan balances include nonaccrual loans.























(3) Interest income on loans includes amortized loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.









  
















Shore Bancshares, Inc.












Reconciliation of Generally Accepted Accounting Principles (GAAP) 










  and Non-GAAP Measures












(In thousands, except per share data)























YTD


YTD



Q2 2018


Q1 2018


Q4 2017


Q3 2017


Q2 2017


6/30/2018