EASTON, Md., Oct. 18 /PRNewswire-FirstCall/ -- Shore Bancshares, Inc. reports third quarter earnings of $3.4 million or $0.40 per diluted share, compared to $3.2 million or $0.38 per diluted share for the third quarter of 2006. Net income for the nine-month period ended September 30, 2007 was $10.1 million or $1.20 per diluted share, compared to $10.5 million or $1.25 per diluted share for the first nine months of 2006.
"During a tough cycle for all community banks, we produced a satisfactory quarter marked by a 4.74% net interest margin that was ahead of both the second quarter of 2007 (4.66%) and the third quarter a year ago (4.62%)," said W. Moorhead Vermilye, President and CEO of Shore Bancshares, Inc. "Our fee- based revenue continued to grow and diversify. Credit quality across the various portfolios remains sound, with no material changes expected as we move through the balance of the year. On balance, we continued to expand and solidify our position as the leading independent banking organization headquartered on the Delmarva peninsula."
The Company's return on average assets for the third quarter of 2007 was 1.42%, compared to 1.40% for the same period last year. The return on average stockholders' equity was 11.51% for the quarter ended September 30, 2007, compared to 11.84% for the same quarter last year.
The Company's return on average assets for the nine months ended September 30, 2007 was 1.43%, compared to 1.60% for the nine months ended September 30, 2006. The return on average stockholders' equity was 11.76% for the nine months ended September 30, 2007, compared to 13.22% for the same period last year.
At September 30, 2007, total assets were $940 million, total deposits were $760 million, and total stockholders' equity was $118 million. Loan growth of approximately $51 million since December 31, 2006 was funded primarily by a reduction in cash balances. Total assets remained stable during the quarter despite a $4.6 million decline in deposits. Since December 31, 2006 total deposits have declined $14.1 million.
Review of Financial Results for the Quarter
Net interest income for the third quarter of 2007 was $10.5 million, an increase of 5.7% over the $9.9 million earned during the same period last year. The Company's net interest margin was 4.74% for the third quarter of 2007, compared to 4.62% for the third quarter of 2006. The market for deposits remained competitive throughout the third quarter of 2007, resulting in higher rates paid for interest-bearing deposits. The cost of funds increased 22 basis points from 2.74% to 2.96% for the quarter ended September 30, 2007 when compared to the same quarter of 2006. The competitive environment for deposits was the primary cause of the increase in the cost of funds.
The provision for credit losses for the three-month periods ended September 30, 2007 and 2006 was $604,000 and $416,000, respectively. Net charge-offs were $268,000 and $134,000 for the three months ended September 30, 2007 and 2006, respectively. The increase in the provision for the third quarter of 2007 when compared to the same period last year reflects the continued growth of the Company's loan portfolio as well as the anticipated losses related to nonperforming loans. Management believes that the provision for credit losses and the resulting allowance are adequate at September 30, 2007.
Noninterest income for the third quarter of 2007 increased $167,000 when compared to the third quarter of 2006. A $289,000 increase in service charges and other fees was the primary reason for the increase.
Noninterest expense for the third quarter of 2007 increased $392,000 when compared to the third quarter of 2006. The increase is primarily attributable to an increase in overall salaries and benefits costs relating to the overall growth of the Company.
Review of Nine-Month Financial Results
Net interest income for the first nine months of 2007 increased 4.7% or $1,385,000 when compared to the first nine months of 2006. The increase is the result of growth in the loan portfolio. The Company experienced an increase in the overall cost of funds from 2.30% at September 30, 2006 to 2.93% at September 30, 2007, resulting in a decline in the net interest margin from 4.80% for the nine months ended September 30, 2006 to 4.62% for the nine months ended September 30, 2007.
The provisions for credit losses for the nine-month periods ended September 30, 2007 and 2006 were $1,259,000 and $967,000, respectively. Net charge-offs were $338,000 and $360,000 for the nine months ended September 30, 2007 and 2006, respectively. The increased provision in 2007 reflects the overall growth of the loan portfolio as well as the identification of anticipated losses related to nonperforming loans. Overall credit quality has improved since December 31, 2006, although the identification of several troubled loans during the third quarter of 2007 increased nonperforming assets by $2,194,000 to $4,451,000 or 0.47% of total assets at September 30, 2007. The ratio of annualized net charge-offs to total loans was 0.06% at September 30, 2007.
Noninterest income for the nine months ended September 30, 2007 totaled $9,964,000, an increase of $51,000 when compared to the same period in 2006. The increase is primarily attributable to increased service charges and fees offset by a decrease in contingency income received by the Company's insurance subsidiaries. Contingency income varies from year to year depending on a number of factors outside of the control of the Company. The Company received an unusually large amount of contingency income in 2006. Service charges on deposit accounts increased $98,000 and other noninterest income increased $366,000 when compared to the same nine-month period in 2006. The primary reasons for the growth in other noninterest income were a $209,000 increase in trust and investment management fees due to growth in assets under management and a $296,000 increase in commission income from mortgages originated for sale on the secondary market.
Noninterest expense for the nine months ended September 30, 2007 increased $1,892,000 or 8.9% when compared to the same period in 2006. The increase is primarily attributable to the increased cost of operating two additional bank branches, increased commission expense related to the increased income from the trust and advisory services and secondary market mortgage programs, as well as additional cost associated with segregating the CEO positions at Shore Bancshares and The Talbot Bank of Easton, Maryland, and hiring a new CEO for The Talbot Bank in the third quarter of 2006. The Company also incurred additional operating expense in conjunction with the search to fill the CEO position at The Centreville National Bank or Maryland, following the retirement of the previous CEO on December 31, 2006.
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 three banks, The Talbot Bank of Easton, Maryland, The Centreville National Bank of Maryland, and The Felton Bank; two insurance producer firms, The Avon-Dixon Agency, LLC and Elliott Wilson Insurance, LLC; an insurance premium finance company, Mubell Finance, LLC; and a registered investment adviser firm, Wye Financial Services, LLC.
Forward-Looking Statements
This press release may contain 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 about the future, as well as its assumptions and judgments concerning such beliefs, plans and objections. Forward-looking 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 Risk Factors contained in the periodic reports that Shore Bancshares, Inc. files with the Securities and Exchange Commission.
Financial Highlights (unaudited) (Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 % Change 2007 2006 % Change PROFITABILITY FOR THE PERIOD: Net interest income $10,463 $9,902 5.7% $30,610 $29,225 4.7% Provision for loan and lease losses $604 $416 45.2% $1,259 $967 30.2% Noninterest income $3,055 $2,888 5.8% $9,964 $9,913 0.5% Noninterest expense $7,599 $7,207 5.4% $23,237 $21,345 8.9% Income before income taxes $5,315 $5,167 2.9% $16,078 $16,826 -4.4% Income taxes $1,964 $1,968 -0.2% $5,968 $6,325 -5.6% Net income $3,351 $3,199 4.8% $10,110 $10,501 -3.7% Return on average assets 1.42% 1.40% 1.3% 1.43% 1.60% -10.7% Return on average equity 11.51% 11.84% -2.8% 11.76% 13.22% -11.0% Net interest margin 4.74% 4.62% 2.6% 4.62% 4.80% -3.8% Efficiency ratio - GAAP based 56.21% 56.35% -0.2% 57.27% 54.54% 5.0% PER SHARE DATA: Basic net income $0.40 $0.38 5.3% $1.21 $1.26 -4.00% Diluted net income $0.40 $0.38 5.3% $1.20 $1.25 -4.00% Dividends declared $0.16 $0.15 6.7% $0.48 $0.44 9.1% Book Value $14.05 $13.04 7.8% $14.05 $13.04 7.8% Tangible book value $12.46 $11.41 9.2% $12.46 $11.41 9.2% Average fully diluted shares 8,392,157 8,396,437 -0.1% 8,394,081 8,391,545 0.0% AT PERIOD-END: Assets $939,877 $934,337 0.6% $939,877 $934,337 0.6% Deposits $760,123 $766,940 -0.9% $760,123 $766,940 -0.9% Loans and leases $750,457 $685,659 9.5% $750,457 $685,659 9.5% Securities $122,773 $125,391 -2.1% $122,773 $125,391 -2.1% Stockholders' equity $117,736 $109,207 7.8% $117,736 $109,207 7.8% CAPITAL AND CREDIT QUALITY RATIOS: Average equity to average assets 12.30% 11.81% 12.13% 12.08% Allowance for loan and lease losses to loans and leases 0.96% 0.85% 0.99% 0.85% Nonperforming assets to total assets 0.47% 0.39% 0.47% 0.39% Annualized net (charge-offs) recoveries to average loan and leases 0.06% 0.08% 0.06% 0.07% Consolidated Balance Sheets (unaudited) (Dollars in thousands) September 30, September 30, December 31, 2007 2006 2006 ASSETS Cash and due from banks $19,972 $19,170 $26,511 Federal funds sold 7,039 46,423 19,622 Interest-bearing deposits with banks 3,642 21,482 33,540 Investments available-for-sale (at fair value) 109,873 111,400 116,275 Investments held-to-maturity 12,900 13,991 13,971 Total loans and leases 750,457 685,659 699,719 Less: allowance for loan and lease losses (7,221) (5,843) (6,300) Net loans and leases 743,236 679,816 693,419 Premises and equipment, net 15,651 15,945 15,974 Accrued interest receivable 5,840 5,225 4,892 Goodwill 11,939 11,939 11,939 Other intangible assets, net 1,366 1,653 1,569 Other assets 8,419 7,293 7,937 Total assets $ 939,877 $ 934,337 $ 945,649 LIABILITIES Noninterest-bearing deposits $110,496 $115,785 $109,962 Interest-bearing deposits 649,627 651,155 664,220 Total deposits 760,123 766,940 774,182 Short-term borrowings 39,389 27,314 28,524 Other long-term borrowings 16,000 25,000 25,000 Accrued interest payable and other liabilities 6,629 5,876 6,616 Total liabilities 822,141 825,130 834,322 STOCKHOLDER'S EQUITY Common stock 84 84 84 Additional paid in capital 29,518 29,560 29,688 Retained earnings 88,367 80,483 82,279 Accumulated other comprehensive income (233) (920) (724) Total stockholder's equity 117,736 109,207 111,327 Total liabilities and stockholder's equity $939,877 $934,337 $945,649 Consolidated Statements of Income (unaudited) (Dollars in thousands except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Interest Income: Interest and fees on loans and leases $14,732 $13,375 $42,566 $37,311 Interest on deposits with banks 180 252 847 494 Interest and dividends on securities: Taxable 1,325 1,160 3,900 3,225 Exempt from federal income taxes 128 138 387 416 Interest on federal funds sold 178 443 988 930 Total interest income 16,543 15,368 48,688 42,376 Interest expense: Interest on deposits 5,493 4,858 16,263 11,818 Interest on short-term borrowings 249 267 743 769 Interest on long-term borrowings 338 341 1,072 564 Total interest expense 6,080 5,466 18,078 13,151 Net interest income 10,463 9,902 30,610 29,225 Provision for loan and lease losses 604 416 1,259 967 Net interest income after provision for loan and lease losses 9,859 9,486 29,351 28,258 Noninterest income: Securities gains (losses) - 3 1 3 Service charges on deposit accounts 949 799 2,420 2,322 Insurance agency commissions 1,403 1,423 5,004 5,415 Other income 703 663 2,539 2,173 Total noninterest income 3,055 2,888 9,964 9,913 Noninterest expenses: Salaries and employee benefits 4,823 4,466 14,471 13,329 Occupancy expense of premises 460 435 1,444 1,234 Equipment expenses 318 367 988 1,008 Data processing 454 401 1,353 1,173 Directors' fees 136 108 427 407 Amortization of intangible assets 56 85 203 253 Other expenses 1,352 1,345 4,351 3,941 Total noninterest expense 7,599 7,207 23,237 21,345 Income before income taxes 5,315 5,167 16,078 16,826 Income tax expense 1,964 1,968 5,968 6,325 Net income $3,351 $3,199 $10,110 $10,501 Basic net income per share $0.40 $0.38 $1.21 $1.26 Diluted net income per share $0.40 $0.38 $1.20 $1.25 Dividends declared per share $0.16 $0.15 $0.48 $0.44
