Shore Bancshares Reports 2013 Results

EASTON, Md., Jan. 23, 2014 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) today reported net income of $1.2 million or $0.14 per diluted common share for the fourth quarter of 2013, compared to a net loss of $11.4 million or $(1.35) per diluted common share for the third quarter of 2013, and a net loss of $5.1 million or $(0.60) per diluted common share for the fourth quarter of 2012.  The Company reported a net loss of $9.6 million or $(1.14) per diluted common share for both fiscal year 2013 and fiscal year 2012.

When comparing the fourth quarter of 2013 to the third quarter of 2013, the primary reason for the improved results was a decline in the provision for credit losses which was impacted during the third quarter of 2013 by the execution of agreements by the Company's wholly owned subsidiary, The Talbot Bank of Easton (the "Bank"), to sell loans and other real estate owned (the "Asset Sale").  Charge-offs of $19.6 million were taken on the loans subject to the Asset Sale to reflect the value to be realized upon sale.  Subsequently, the provision for credit losses was increased $19.6 million to replenish the allowance for credit losses while other real estate owned subject to the Asset Sale was written down $182 thousand for a total pretax loss of $19.8 million.  When comparing the fourth quarter of 2013 to the fourth quarter of 2012, the primary reasons for the improved results were a decline in the provision for credit losses due to lower charge-offs and nonaccrual loans, and a $1.3 million loss incurred during the fourth quarter of 2012 to terminate a portion of an interest rate cap instrument.  Results were flat when comparing fiscal year 2013 to fiscal year 2012, with higher noninterest income offset by higher noninterest expenses and lower net interest income.

"We were pleased to report fourth quarter net income which was ahead of consensus estimates.  The completion of the Asset Sale in the third quarter resulted in a much lower provision for credit losses in the fourth quarter and was the principal driver of our results.  We are still focused on reducing charge-offs and nonaccrual loans.  However, with a substantial portion of our credit problems behind us we can now turn our attention to revenue generation.  Despite the significant strategic initiatives undertaken during the last year, total stockholders' equity to total assets at December 31, 2013 was 9.80%," said Lloyd L. "Scott" Beatty, Jr., president and chief executive officer.  "The economy across our footprint is showing some signs of improvement in the retail, small business and commercial middle-market sectors.  However, real estate development and construction remains anemic compared to the pre-recession levels."

Balance Sheet Review

Total assets were $1.054 billion at December 31, 2013, a $131.7 million, or 11.1%, decrease when compared to the $1.186 billion at the end of 2012.  The decline in total assets was primarily due to a decrease in loans ($73.2 million) and interest-bearing deposits with other banks ($55.5 million).  The decline in loans was mainly due to the Asset Sale and charge-offs while the decline in interest-bearing deposits reflected a reduction in excess liquidity. 

Total deposits decreased $115.8 million, or 11.0%, to $933.5 million at December 31, 2013, mainly due to a decline in money market deposit accounts ($67.9 million) and time deposits ($56.0 million), partially offset by an increase in noninterest-bearing demand deposits ($18.8 million).  The decrease in money market deposit accounts was associated with the Company's participation in the Promontory Insured Network Deposits Program ("IND Program").  In December 2012, the Company decided to partially exit the IND Program to decrease its excess liquidity and, in June 2013, the Company fully exited the IND Program.  The decrease in time deposits also reduced the Company's excess liquidity.  Total stockholders' equity declined $10.7 million, or 9.4%, to $103.3 million at December 31, 2013.  For fiscal year 2013, the ratio of average equity to average assets was 10.31% and the ratio of average tangible equity to average tangible assets was 8.95%.

Review of Quarterly Financial Results

Net interest income was $8.6 million for the fourth quarter of 2013, compared to $8.8 million for the third quarter of 2013 and $8.4 million for the fourth quarter of 2012.  The decrease in net interest income when compared to the third quarter of 2013 was due to a greater decline in interest income than the decline in interest expense.  The decrease in interest income was primarily due to a decline in average loan balances while the decrease in interest expense was primarily due to lower average balances of and rates paid on time deposits.  The higher net interest income for the fourth quarter of 2013 when compared to the fourth quarter of 2012 was due to a greater decline in interest expense than the decline in interest income.  The decrease in interest expense was mainly due to exiting the IND Program and terminating the interest rate caps associated with the IND Program.  The Company's net interest margin was 3.47% for the fourth quarter of 2013, 3.54% for the third quarter of 2013 and 3.02% for the fourth quarter of 2012.

The provision for credit losses was $474 thousand for the fourth quarter of 2013, $22.5 million for the third quarter of 2013 and $9.7 million for the fourth quarter of 2012.  The provision for credit losses for the third quarter of 2013 included $19.6 million to replenish the allowance for credit losses for the charge-off of loans associated with the Asset Sale.  The lower provision for credit losses for the fourth quarter of 2013 when compared to the third quarter of 2013 and the fourth quarter of 2012 was due to lower charge-offs and nonaccrual loans.  Net charge-offs were $1.1 million for the fourth quarter of 2013, $26.9 million for the third quarter of 2013 ($19.6 million related to the Asset Sale) and $6.6 million for the fourth quarter of 2012.  The charge offs in all three quarters were mainly real estate related loans.  The ratio of annualized net charge-offs to average loans was 0.58% for the fourth quarter of 2013, 13.81% for the third quarter of 2013 and 3.29% for the fourth quarter of 2012.  The ratio of the allowance for credit losses to period-end loans was 1.51% at December 31, 2013, 1.57% at September 30, 2013 and 2.04% at December 31, 2012. 

At December 31, 2013, nonperforming assets excluding nonaccrual loans held for sale were $18.7 million, a decrease of $4.6 million, or 19.8%, when compared to September 30, 2013 and a decrease of $25.9 million, or 58.1%, when compared to December 31, 2012.  Similarly, accruing troubled debt restructurings ("TDRs") excluding TDRs held for sale were $26.1 million at December 31, 2013, a decrease of $3.4 million, or 11.4%, when compared to September 30, 2013 and $26.3 million, or 50.2%, when compared to December 31, 2012.  At December 31, 2013, the ratio of nonaccrual loans excluding nonaccrual loans held for sale to total assets was 1.39%, lower than the 1.66% and 3.08% at September 30, 2013 and December 31, 2012, respectively.  Likewise, the ratio of accruing TDRs excluding TDRs held for sale to total assets at December 31, 2013 was 2.47%, decreasing from 2.80% at September 30, 2013 and 4.41% at December 31, 2012.  When comparing December 31, 2013 to September 30, 2013, the positive trend in nonperforming assets and TDRs, as well as the corresponding asset quality ratios, was primarily due to the Company's continued focus on the resolution of its nonperforming assets and TDRs.  When comparing December 31, 2013 to December 31, 2012, the positive trend in nonperforming assets and TDRs was mainly accomplished with the Asset Sale.  See pages 4 and 9 of this release for additional detail.

Total noninterest income for the fourth quarter of 2013 decreased $577 thousand, or 12.0%, when compared to the third quarter of 2013.  The decrease was primarily due to $265 thousand less in income from an insurance investment included in other noninterest income and $247 thousand less in insurance agency commissions.  Total noninterest income for the fourth quarter of 2013 increased $1.6 million, or 61.7%, when compared to the fourth quarter of 2012.  Included in other noninterest income for the fourth quarter of 2012 was a $1.3 million loss incurred to terminate a portion of the previously mentioned interest rate caps. 

Total noninterest expense for the fourth quarter of 2013 increased $500 thousand, or 5.0%, when compared to the third quarter of 2013 primarily due to higher write-downs of other real estate owned ($152 thousand) and FDIC insurance premiums ($146 thousand).  When compared to the fourth quarter of 2012, total noninterest expense for the fourth quarter of 2013 increased $783 thousand, or 8.1%, primarily due to higher FDIC insurance premiums ($226 thousand), salaries and benefits ($156 thousand) and write-downs of other real estate owned ($120 thousand).  

Review of 2013 Financial Results

Net interest income for 2013 was $34.9 million, a decrease of $463 thousand, or 1.3%, when compared to 2012 due to a greater decline in interest income than the decline in interest expense.  The decrease in interest income was primarily due to lower average balances of and yields earned on loans while the decrease in interest expense was primarily due to lower balances of and rates paid on money market and time deposits.  However, the net interest margin improved to 3.48% for 2013 when compared to 3.23% for 2012.

The provisions for credit losses for 2013 and 2012 were $27.8 million and $27.7 million, respectively, while net charge-offs were $33.1 million and $26.0 million for 2013 and 2012, respectively.  The ratio of annualized net charge-offs to average loans was 4.32% for 2013 and 3.20% for 2012.

Total noninterest income for 2013increased $1.7 million, or 10.8%, when compared to 2012.  The increase was primarily due to higher insurance agency commissions ($833 thousand) and gains on sales of investment securities ($635 thousand), and fewer losses on sales of other real estate owned ($452 thousand), partially offset by lower service charges on deposit accounts ($180 thousand).

Total noninterest expense for 2013 increased $1.1 million, or 2.9%, when compared to 2012.  The increase was primarily due to higher marketing expenses ($510 thousand) included in other noninterest expenses, FDIC insurance premiums ($433 thousand) and insurance agency commissions expense ($407 thousand).  The increased marketing costs were mainly related to a branding project for the Company and its subsidiaries.

Shore Bancshares Information

Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland's Eastern Shore.  It is the parent company of two banks, The Talbot Bank of Easton, Maryland, and CNB; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin and Associates, Inc; a wholesale insurance company, TSGIA, Inc; and an insurance premium finance company, Mubell Finance, LLC.  Shore Bancshares, Inc. engages in the trust services business through the trust department at CNB under the name "Wye Financial & Trust".  Additional information is available 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 risks 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.

  

SOURCE Shore Bancshares, Inc.