Shore Bancshares Reports Third Quarter and Nine-Month Results

        Shore Bancshares Reports Third Quarter and Nine-Month Results

PR Newswire

EASTON, Md., Oct. 23, 2012

EASTON, Md., Oct. 23, 2012 /PRNewswire/ --Shore Bancshares, Inc. (NASDAQ:
SHBI) reported a net loss of $1.8 million or $(0.22) per diluted common share
for the third quarter of 2012, compared to net income of $293 thousand or
$0.03 per diluted common share for the second quarter of 2012, and net income
of $94 thousand or $0.01 per diluted common share for the third quarter of
2011.

The Company reported a net loss of $4.6 million or $(0.54) per diluted common
share for the first nine months of 2012, compared to a net loss of $1.2
million or $(0.14) per diluted common share for the first nine months of 2011.

"As we continue to charge off problem assets, we added $6.2 million to the
provision for credit losses during the third quarter. Net charge-offs for the
third quarter were $6.2 million, of which $4.2 million were attributable to
two sizeable real estate loan relationships," said W. Moorhead Vermilye, chief
executive officer. "Net charge-offs during prior quarters this year were $4.1
million for the second quarter and $9.1 million for the first quarter.
Clearly, there is a very high cost involved in working our way out of
troubled loans and removing them from the balance sheet, but we are moving as
aggressively as possible through this tough cycle. Fortunately, the
underlying strength of the company has enabled us to maintain capital levels
substantially above regulatory minimums to be considered well capitalized, as
evidenced by our ratio of average equity to average assets of 10.26% for the
first nine months of 2012 and the ratio of average tangible equity to average
tangible assets of 8.97% for the nine-month period."

When comparing the third quarter of 2012 to the second quarter of 2012, the
primary reason for the difference in results was an increase in the provision
for credit losses of $2.7 million. When comparing the third quarter of 2012
to the third quarter of 2011, the main reasons for the difference in results
were an increase in the provision for credit losses of $2.6 million and a
decline in net interest income of $1.4 million. When comparing the first nine
months of 2012 to the first nine months of 2011, the principal factors driving
the difference were an increase in the provision for credit losses of $2.7
million and a decline in net interest income of $3.0 million.

Balance Sheet Review
Total assets were $1.179 billion at September 30, 2012, a $20.4 million, or
1.8%, increase when compared to the $1.158 billion at the end of 2011. Total
loans decreased 3.9% to $808.0 million while total earning assets increased
1.6% to $1.1 billion when compared to December 31, 2011. Total deposits
increased 2.8% to $1.039 billion while total stockholders' equity decreased
2.5% from the end of 2011. The ratio of average equity to average assets was
10.26% and 10.74% for the first nine months of 2012 and 2011, respectively,
while the ratio of average tangible equity to average tangible assets was
8.97% and 9.27% for the first nine months of 2012 and 2011, 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 2012 was $8.7 million, a 3.4%
decrease from the second quarter of 2012 and a 13.8% decrease from the same
period last year. The decrease in net interest income when compared to the
second quarter of 2012 was primarily due to lower yields earned on average
earning assets. The decrease in net interest income when compared to the
third quarter of 2011 was primarily due to lower yields earned on average
earning assets and a decline in higher-yielding average loan balances. The
Company's net interest margin was 3.15% for the third quarter of 2012, 3.36%
for the second quarter of 2012 and 3.77% for the third quarter of 2011.

The provision for credit losses was $6.2 million for the three months ended
September 30, 2012. The comparable amounts were $3.5 million and $3.7 million
for the three months ended June 30, 2012 and September 30, 2011,
respectively. The ratio of the allowance for credit losses to period-end
loans was 1.60% at both September 30, 2012 and June 30, 2012 and 1.57% at
September 30, 2011.

The higher level of provision for credit losses for the third quarter of 2012
when compared to the second quarter of 2012 and the third quarter of 2011 was
primarily in response to loan charge-offs. Net charge-offs were $6.2 million
for the third quarter of 2012, $4.1 million for the second quarter of 2012 and
$6.5 million for the third quarter of 2011. A large portion of the loan
charge-offs during the third quarter of 2012, $4.2 million, resulted from two
real estate loan relationships. The ratio of quarter-to-date annualized net
charge-offs to average loans was 3.07% for the third quarter of 2012, 2.01%
for the second quarter of 2012 and 2.95% for the third quarter of 2011. Total
nonperforming assets at September 30, 2012 increased $3.1 million when
compared to June 30, 2012, which included a $13.6 million increase in accruing
troubled debt restructurings net of an $8.5 million decline in nonaccrual
loans and a $3.1 million decline in other real estate owned. The change in
the components of nonperforming assets reflected our continued effort either
to develop concessionary workouts relating to problem loans or remove problem
loans from our portfolio. Nonperforming assets at September 30, 2012
increased $10.4 million when compared to September 30, 2011, primarily due to
an increase in troubled debt restructurings. The ratio of nonperforming
assets to total assets was 8.77% at September 30, 2012, compared to 8.53% at
June 30, 2012 and 8.02% at September 30, 2011.

Total noninterest income for the third quarter of 2012 decreased $576
thousand, or 12.6%, when compared to the second quarter of 2012 and decreased
$522 thousand, or 11.5%, when compared to the third quarter of 2011. The
lower amount when compared to the second quarter of 2012 was primarily the
result of a decrease in other noninterest income ($845 thousand) partially
offset by an increase in investment securities gains ($278 thousand).
Included in other noninterest income for the third quarter of 2012 was $581
thousand in losses on the sales of other real estate owned, mainly relating to
two properties. Included in other noninterest income for the second quarter
of 2012 was a $217 thousand gain on the sale of a bank branch building. The
decrease in noninterest income during the third quarter of 2012 when compared
to the third quarter of 2011 was primarily due to a decline in other
noninterest income ($513 thousand) mainly from the $581 thousand in losses on
the sales of other real estate owned.

Total noninterest expense for the third quarter of 2012 remained relatively
flat when compared to the second quarter of 2012. When compared to the third
quarter of 2011, total noninterest expense for the third quarter of 2012
decreased $968 thousand, or 9.1%. This decrease was primarily due to a
decline in goodwill impairment ($1.3 million) and other noninterest expenses
($186 thousand). During the third quarter of 2012, goodwill and other
intangible assets were subjected to the annual assessment for impairment. As
a result of the assessment, it was determined that there was no impairment at
the Company's subsidiaries that have these intangible assets on their balance
sheets. Included in other noninterest expenses were lower amounts related to
other real estate owned activities ($250 thousand). Partially offsetting the
decrease in total noninterest expense were increases in salaries and wages
($289 thousand) and FDIC insurance premium expense ($196 thousand).

Review of Nine-Month Financial Results
Net interest income for the first nine months of 2012 was $27.0 million, a
decrease of 9.9% when compared to the first nine months of 2011. This
decrease was primarily due to lower yields earned on average earning assets
and a decline in higher-yielding average loan balances. The net interest
margin was 3.31% for the first nine months of 2012 and 3.79% for the first
nine months of 2011.

The provisions for credit losses for the nine months ended September 30, 2012
and 2011 were $18.1 million and $15.4 million, respectively. Net charge-offs
were $19.4 million and $16.1 million for the nine months ended September 30,
2012 and 2011, respectively. The ratio of year-to-date annualized net
charge-offs to average loans was 3.17% for the first nine months of 2012 and
2.45% for the first nine months of 2011.

Total noninterest income for the nine months ended September 30, 2012
decreased $147 thousand, or 1.1%, when compared to the same period in 2011.
This decrease was primarily due to a decline in service charges on deposit
accounts ($247 thousand) and investment securities gains ($157 thousand) which
was partially offset by an increase in insurance agency commissions ($225
thousand).

Total noninterest expense for the nine months ended September 30, 2012
increased $108 thousand, or less than 1%, when compared to the same period in
2011. The increase was primarily due to higher salaries and wages ($731
thousand) and other noninterest expenses ($739 thousand) which was partially
offset by the $1.3 million decline in goodwill impairment. Salaries and wages
included amounts relating to the hiring of a new executive vice president at
The Talbot Bank of Easton, Maryland during the second quarter of last year as
part of that bank's succession plan, and a new lender at CNB for the Delaware
region during the third quarter of last year. Other noninterest expenses
included higher amounts relating to other real estate owned activities ($393
thousand) and collection expense for loans ($217 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; 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".

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,
               2012        2011      Change        2012        2011      Change
PROFITABILITY
FOR THE PERIOD
 Net       $         $                       $          $ 
interest       8,730       10,123     (13.8)    %  26,958     29,927     (9.9)   %
income
 Provision
for credit     6,200       3,650       69.9         18,095      15,435      17.2
losses

Noninterest    4,001       4,523       (11.5)       13,152      13,299      (1.1)
income

Noninterest    9,709       10,677      (9.1)        29,870      29,762      0.4
expense
 (Loss)
income before  (3,178)     319         (1,096.2)    (7,855)     (1,971)     (298.5)
income taxes
 Income
tax (benefit)  (1,357)     225         (703.1)      (3,291)     (749)       (339.4)
expense
 Net       $          $       (2,037.2)    $          $          (273.5)
(loss) income (1,821)    94                      (4,564)    (1,222)
 Return on
average        (0.61)    % 0.03      % (64)      bp (0.52)    % (0.14)    % (38)    bp
assets
 Return on
average        (6.07)      0.31        (638)        (5.08)      (1.34)      (374)
equity
 Return on
average        (6.82)      4.21        (1,103)      (5.65)      (0.09)      (556)
tangible
equity (1)
 Net
interest       3.15        3.77        (62)         3.31        3.79        (48)
margin

Efficiency     76.03       72.66       337          74.23       68.59       564
ratio - GAAP

Efficiency     76.95       64.18       1,277        74.35       65.25       910
ratio -
Non-GAAP (1)
PER SHARE DATA
 Basic net
(loss) income  $         $        (2,300.0) %  $         $         (285.7) %
per common     (0.22)     0.01                     (0.54)     (0.14)
share
 Diluted
net (loss)     (0.22)      0.01        (2,300.0)    (0.54)      (0.14)      (285.7)
income per
common share
 Dividends
paid per       -           0.01        (100.0)      0.01        0.08        (87.5)
common share
 Book
value per      13.97       14.31       (2.4)
common share
at period end
 Tangible
book value per
common share   12.04       12.32       (2.3)
at period end
(1)
 Market
value at       6.02        4.36        38.1
period end
 Market
range:
 High    6.33        7.06        (10.3)       7.45        11.11       (32.9)
 Low     4.98        3.95        26.1         4.91        3.95        24.3
AVERAGE
BALANCE SHEET
DATA
 Loans     $           $           (7.0)     %  $           $           (6.9)   %
               808,244    869,221                 819,088    879,509
           137,871     113,938     21.0         135,411     110,482     22.6
Securities
 Earning   1,108,256   1,069,636   3.6          1,094,247   1,062,846   3.0
assets
 Assets    1,184,146   1,142,588   3.6          1,169,158   1,132,964   3.2
 Deposits  1,040,693   994,968     4.6          1,024,390   984,733     4.0

Stockholders'  119,321     121,327     (1.7)        119,916     121,656     (1.4)
equity
CREDIT QUALITY
DATA AT PERIOD
END
 Net       $         $         (3.6)     %  $          $          20.5    %
charge-offs    6,235       6,468                    19,428     16,122
           $          $ 
Nonaccrual     39,442     49,581     (20.4)
loans
 Loans 90
days past due  4,675       10,516      (55.5)
and still
accruing
 Accruing
troubled debt  50,785      22,929      121.5
restructurings
 Total
nonperforming  94,902      83,026      14.3
loans
 Other
real estate
and other      8,418       9,865       (14.7)
assets owned,
net
 Total     $           $ 
nonperforming  103,320    92,891     11.2
assets
CAPITAL AND
CREDIT QUALITY
RATIOS
 Average
equity to      10.08     % 10.62     % (54)      bp 10.26     % 10.74     % (48)    bp
average assets
 Average
tangible
equity to      8.81        9.17        (36)         8.97        9.27        (30)
average
tangible
assets (1)

Annualized net 3.07        2.95        12           3.17        2.45        72
charge-offs to
average loans
 Allowance
for credit
losses to      1.60        1.57        3
period-end
loans
 Allowance
for credit
losses to      32.85       27.31       554
nonaccrual
loans
 Allowance
for credit
losses to      13.65       16.31       (266)
nonperforming
loans

Nonaccrual     4.88        5.75        (87)
loans to total
loans

Nonaccrual     3.35        4.28        (93)
loans to total
assets

Nonperforming
assets to
total
loans+other
real estate
and
 other 12.65       10.65       200
assets owned

Nonperforming  8.77        8.02        75
assets to
total assets
(1) See the
reconciliation
table on page
11 of 11.



Shore Bancshares, Inc.                                                   Page 5 of
                                                                         11
Consolidated Balance
Sheets
(In thousands, except per
share data)
                                                             September   September
                                                             30, 2012    30, 2012
                          September   December    September  compared    compared
                          30,         31,         30,        to          to
                          2012        2011        2011       December    September
                                                             31, 2011    30, 2011
ASSETS
 Cash and due from     $       $       $      (4.3)     % (17.0)    %
banks                      22,005   22,986      26,519
 Interest-bearing      138,422     99,776      92,293     38.7        50.0
deposits with other banks
 Federal funds sold    23,021      4,980       9,966      362.3       131.0
 Investments available 126,372     129,780     105,804    (2.6)       19.4
for sale (at fair value)
 Investments held to   4,075       6,480       6,524      (37.1)      (37.5)
maturity
 Loans                 808,030     841,050     862,566    (3.9)       (6.3)
 Less: allowance for   (12,955)    (14,288)    (13,540)   (9.3)       (4.3)
credit losses
 Loans, net            795,075     826,762     849,026    (3.8)       (6.4)
 Premises and          15,537      14,662      14,236     6.0         9.1
equipment, net
 Goodwill              12,454      12,454      12,454     -           -
 Other intangible      3,890       4,208       4,334      (7.6)       (10.2)
assets, net
 Other real estate and 8,418       9,385       9,865      (10.3)      (14.7)
other assets owned, net
 Other assets          29,364      26,720      26,515     9.9         10.7
  $         $          $        1.8         1.8
Total assets              1,178,633  1,158,193  1,157,536
LIABILITIES
 Noninterest-bearing   $       $        $      17.0        15.3
deposits                  156,579     133,801    135,822
 Interest-bearing      881,935     876,118     876,097    0.7         0.7
deposits
 Total     1,038,514   1,009,919   1,011,919  2.8         2.6
deposits
 Short-term borrowings 13,079      17,817      15,292     (26.6)      (14.5)
 Accrued expenses and  8,422       8,753       8,407      (3.8)       0.2
other liabilities
 Long-term debt        455         455         932        -           (51.2)
 1,060,470   1,036,944   1,036,550  2.3         2.3
Total liabilities
STOCKHOLDERS' EQUITY
 Common stock, par
value $0.01; authorized
 35,000,000 shares  85          85          85         -           -
 Warrant               -           -           1,543      -           (100.0)
 Additional paid in    32,120      32,052      30,438     0.2         5.5
capital
 Retained earnings     86,152      90,801      90,560     (5.1)       (4.9)
 Accumulated other     (194)       (1,689)     (1,640)    88.5        88.2
comprehensive loss

Total stockholders'       118,163     121,249     120,986    (2.5)       (2.3)
equity
 $         $          $  
Total liabilities and     1,178,633  1,158,193  1,157,536  1.8         1.8
stockholders' equity
Period-end common shares  8,457       8,457       8,457      -           -
outstanding
Book value per common     $       $       $      (2.6)       (2.4)
share                       13.97   14.34      14.31



Shore Bancshares,                                                     Page 6
Inc.                                                                  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,
                      2012      2011   % Change    2012      2011     %
                                                                      Change
INTEREST INCOME
 Interest and fees $ 10,604  $      (11.7)    % $ 32,505  $ 35,900 (9.5)   %
on loans                       12,003
 Interest and
dividends on
investment
securities:
 Taxable       685       795    (13.8)      2,149     2,234    (3.8)
 Tax-exempt   22        38     (42.1)      92        116      (20.7)
 Interest on       3         3      -           7         24       (70.8)
federal funds sold
 Interest on
deposits with other   79        29     172.4       188       47       300.0
banks
    11,393    12,868 (11.5)      34,941    38,321   (8.8)
Total interest income
INTEREST EXPENSE
 Interest on       2,647     2,720  (2.7)       7,931     8,322    (4.7)
deposits
 Interest on       10        15     (33.3)      36        41       (12.2)
short-term borrowings
 Interest on       6         10     (40.0)      16        31       (48.4)
long-term debt

Total interest        2,663     2,745  (3.0)       7,983     8,394    (4.9)
expense
NET INTEREST INCOME   8,730     10,123 (13.8)      26,958    29,927   (9.9)
Provision for credit  6,200     3,650  69.9        18,095    15,435   17.2
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES   2,530     6,473  (60.9)      8,863     14,492   (38.8)
NONINTEREST INCOME
 Service charges   628       697    (9.9)       1,898     2,145    (11.5)
on deposit accounts
 Trust and         410       389    5.4         1,279     1,183    8.1
investment fee income
 Investment        278       354    (21.5)      278       435      (36.1)
securities gains
 Insurance agency  2,427     2,312  5.0         7,522     7,297    3.1
commissions
 Other noninterest 258       771    (66.5)      2,175     2,239    (2.9)
income

Total noninterest     4,001     4,523  (11.5)      13,152    13,299   (1.1)
income
NONINTEREST EXPENSE
 Salaries and      4,386     4,097  7.1         13,178    12,447   5.9
wages
 Employee benefits 945       878    7.6         3,071     2,917    5.3
 Occupancy         625       585    6.8         1,950     1,749    11.5
expense
 Furniture and     265       262    1.1         728       825      (11.8)
equipment expense
 Data processing   703       661    6.4         2,063     2,192    (5.9)
 Directors' fees   131       198    (33.8)      367       417      (12.0)
 Goodwill and
other intangible      -         1,344  (100.0)     -         1,344    (100.0)
assets impairment
 Amortization of   96        129    (25.6)      318       386      (17.6)
intangible assets
 Insurance agency  275       250    10.0        1,004     982      2.2
commissions expense
 FDIC insurance    376       180    108.9       993       1,044    (4.9)
premium expense
 Other noninterest 1,907     2,093  (8.9)       6,198     5,459    13.5
expenses

Total noninterest     9,709     10,677 (9.1)       29,870    29,762   0.4
expense
(Loss) income before  (3,178)   319    (1,096.2)   (7,855)   (1,971)  (298.5)
income taxes
Income tax (benefit)  (1,357)   225    (703.1)     (3,291)   (749)    (339.4)
expense
NET (LOSS) INCOME   $         $    (2,037.2)   $         $        (273.5)
                      (1,821)    94             (4,564)  (1,222)
Weighted average
shares outstanding -  8,457     8,457  -           8,457     8,449    0.1
basic
Weighted average
shares outstanding -  8,457     8,457  -           8,457     8,449    0.1
diluted
Basic net (loss)      $        $                $        $ 
income per common     (0.22)   0.01  (2,300.0)   (0.54)   (0.14)  (285.7)
share
Diluted net (loss)
income per common     (0.22)    0.01   (2,300.0)   (0.54)    (0.14)   (285.7)
share
Dividends paid per    -         0.01   (100.0)     0.01      0.08     (87.5)
common share



Shore Bancshares,                                                                           Page 7
Inc.                                                                                        of 11
Consolidated
Average Balance
Sheets
(Dollars in
thousands)
                    For the Three Months Ended               For the Nine Months Ended
                    September 30,                            September 30,
                    2012                2011                 2012                2011
                    Average   Yield/   Average    Yield/   Average   Yield/   Average   Yield/
                    balance    rate    balance     rate    balance    rate     balance    rate
Earning assets
 Loans            $         5.23   % $          5.49   % $         5.31   % $         5.47   %
                    808,244            869,221              819,088            879,509
 Investment
securities
 Taxable          135,257    2.01     109,498     2.88     131,863    2.18     105,939    2.82
 Tax-exempt       2,614      5.07     4,440       5.12     3,548      5.27     4,543      5.16
 Federal funds     11,971     0.11     15,905      0.07     10,992     0.09     28,896     0.11
sold
 Interest-bearing  150,170    0.21     70,572      0.16     128,756    0.19     43,959     0.14
deposits
 Total earning   1,108,256  4.10   % 1,069,636   4.79   % 1,094,247  4.28   % 1,062,846  4.84   %
assets
Cash and due from   20,158              20,414               19,920              19,356
banks
Other assets        69,921              69,394               69,514              67,588
Allowance for       (14,189)            (16,856)             (14,523)            (16,826)
credit losses
Total assets        $                   $                    $                   $
                    1,184,146           1,142,588           1,169,158           1,132,964
Interest-bearing
liabilities
 Demand deposits   $         0.18   % $          0.20   % $         0.18   % $         0.21   %
                    167,423            154,685              157,835            141,447
 Money market and
savings deposits    279,003    1.19     266,871     1.03     278,297    1.16     263,216    0.97
(1)
 Certificates of
deposit $100,000 or 238,624    1.46     235,362     1.63     240,595    1.46     246,362    1.67
more
 Other time        207,547    1.66     204,836     1.91     204,789    1.74     206,470    2.01
deposits

Interest-bearing    892,597    1.18     861,754     1.25     881,516    1.20     857,495    1.30
deposits
 Short-term        14,909     0.27     15,640      0.37     15,448     0.31     14,947     0.36
borrowings
 Long-term debt    455        4.58     932         4.46     455        4.61     932        4.51
 Total
interest-bearing    907,961    1.17   % 878,326     1.24   % 897,419    1.19   % 873,374    1.29   %
liabilities
Noninterest-bearing 148,096             133,214              142,874             127,238
deposits
Accrued expenses
and other           8,768               9,721                8,949               10,696
liabilities
Stockholders'       119,321             121,327              119,916             121,656
equity
Total liabilities   $                   $                    $                   $
and stockholders'   1,184,146           1,142,588            1,169,158           1,132,964
equity
Net interest spread            2.93   %             3.55   %            3.09   %            3.55   %
Net interest margin            3.15   %             3.77   %            3.31   %            3.79   %
(1) Interest on money market and savings deposits includes an adjustment to
expense related to interest rate caps and the hedged
 deposits associated with them. This adjustment increased interest
expense $524 thousand and $348 thousand for the third
 quarter of 2012 and 2011, respectively, and $1.5 million and $907 thousand for the
first nine months of 2012 and 2011, respectively.



Shore Bancshares,                                                                           Page 8 of
Inc.                                                                                        11
Financial
Highlights By
Quarter
(Dollars in
thousands, except
per share data)
                   3rd         2nd         1st         4th         3rd         3Q 12        3Q 12
                   quarter     quarter     quarter     quarter     quarter
                   2012        2012        2012        2011        2011        compared     compared
                                                                               to           to
                   (3Q 12)     (2Q 12)     (1Q 12)     (4Q 11)     (3Q 11)     2Q 12        3Q 11
PROFITABILITY FOR
THE PERIOD

Taxable-equivalent $        $        $        $        $         (3.4)     %  (13.8)    %
net interest       8,769       9,077       9,243       9,889       10,172
income
 Less:
Taxable-equivalent 39          44          48          52          49          (11.4)       (20.4)
adjustment
 Net interest  8,730       9,033       9,195       9,837       10,123      (3.4)        (13.8)
income
 Provision for 6,200       3,525       8,370       4,035       3,650       75.9         69.9
credit losses
 Noninterest   4,001       4,577       4,574       4,019       4,523       (12.6)       (11.5)
income
 Noninterest   9,709       9,663       10,498      9,405       10,677      0.5          (9.1)
expense
 (Loss) income
before income      (3,178)     422         (5,099)     416         319         (853.1)      (1,096.2)
taxes
 Income tax    (1,357)     129         (2,063)     91          225         (1,151.9)    (703.1)
(benefit) expense
 Net (loss)    $         $       $         $       $       (721.5)      (2,037.2)
income            (1,821)    293        (3,036)     325         94
 Return on     (0.61)    % 0.10      % (1.05)    % 0.11      % 0.03      % (71)      bp (64)      bp
average assets
 Return on     (6.07)      0.99        (10.04)     1.07        0.31        (706)        (638)
average equity
 Return on
average tangible   (6.82)      1.38        (11.33)     1.53        4.21        (820)        (1,103)
equity (1)
 Net interest  3.15        3.36        3.42        3.60        3.77        (21)         (62)
margin
 Efficiency    76.03       70.77       75.98       67.62       72.66       526          337
ratio - GAAP
 Efficiency
ratio - Non-GAAP   76.95       71.20       75.07       67.61       64.18       575          1,277
(1)
PER SHARE DATA
 Basic net     $        $       $        $       $    
(loss) income per  (0.22)     0.03        (0.36)     0.04        0.01        (833.3)   %  (2,300.0) %
common share
 Diluted net
(loss) income per  (0.22)      0.03        (0.36)      0.04        0.01        (833.3)      (2,300.0)
common share
 Dividends
paid per common    -           -           0.01        0.01        0.01        -            (100.0)
share
 Book value
per common share   13.97       14.13       14.02       14.34       14.31       (1.1)        (2.4)
at period end
 Tangible book
value per common   12.04       12.18       12.07       12.37       12.32       (1.1)        (2.3)
share at period
end (1)
 Market value  6.02        5.98        7.09        5.15        4.36        0.7          38.1
at period end
 Market range:
 High       6.33        7.45        7.40        6.13        7.06        (15.0)       (10.3)
 Low        4.98        5.51        4.91        4.20        3.95        (9.6)        26.1
AVERAGE BALANCE
SHEET DATA
 Loans         $          $           $           $           $           (1.0)     %  (7.0)     %
                   808,244     816,553    832,585    854,302    869,221
 Securities    137,871     134,299     134,037     122,725     113,938     2.7          21.0
 Earning       1,108,256   1,086,223   1,088,106   1,089,078   1,069,636   2.0          3.6
assets
 Assets        1,184,146   1,163,598   1,159,566   1,160,652   1,142,588   1.8          3.6
 Deposits      1,040,693   1,021,130   1,011,170   1,013,848   994,968     1.9          4.6
 Stockholders' 119,321     118,774     121,658     121,020     121,327     0.5          (1.7)
equity
CREDIT QUALITY
DATA AT PERIOD END
 Net           $        $        $        $        $        52.9      %  (3.6)     %
charge-offs        6,235       4,079       9,114       3,287       6,468
 Nonaccrual    $         $         $         $         $         (17.8)       (20.4)
loans              39,442      47,958      49,405      51,370      49,581
 Loans 90 days
past due and still 4,675       3,519       3,796       2,723       10,516      32.9         (55.5)
accruing
 Accruing
troubled debt      50,785      37,231      30,010      25,208      22,929      36.4         121.5
restructurings
 Total
nonperforming      94,902      88,708      83,211      79,301      83,026      7.0          14.3
loans
 Other real
estate and other   8,418       11,499      11,418      9,385       9,865       (26.8)       (14.7)
assets owned, net
 Total         $          $           $         $         $  
nonperforming      103,320     100,207    94,629      88,686      92,891      3.1          11.2
assets
CAPITAL AND CREDIT
QUALITY RATIOS
 Average
equity to average  10.08     % 10.21     % 10.49     % 10.43     % 10.62     % (13)      bp (54)      bp
assets
 Average
tangible equity to 8.81        8.92        9.19        9.12        9.17        (11)         (36)
average tangible
assets (1)
 Annualized
net charge-offs to 3.07        2.01        4.40        1.53        2.95        106          12
average loans
 Allowance for
credit losses to   1.60        1.60        1.65        1.70        1.57        -            3
period-end
loans
 Allowance for
credit losses to   32.85       27.09       27.41       27.81       27.31       576          554
nonaccrual
loans
 Allowance for
credit losses to   13.65       14.64       16.28       18.02       16.31       (99)         (266)
nonperforming
loans
 Nonaccrual
loans to total     4.88        5.92        6.03        6.11        5.75        (104)        (87)
loans
 Nonaccrual
loans to total     3.35        4.08        4.22        4.44        4.28        (73)         (93)
assets
 Nonperforming
assets to total
loans+other real
estate and
 other     12.65       12.20       11.40       10.43       10.65       45           200
assets owned
 Nonperforming
assets to total    8.77        8.53        8.09        7.66        8.02        24           75
assets
(1) See the
reconciliation
table on page 11
of 11.



Shore Bancshares,                                                             Page 9 of
Inc.                                                                          11
Consolidated
Statements of Income
By Quarter
(In thousands, except
per share data)
                                                                  3Q 12       3Q 12
                                                                  compared    compared
                                                                  to          to
                      3Q 12     2Q 12   1Q 12     4Q 11   3Q 11   2Q 12       3Q 11
INTEREST INCOME
 Interest and fees $ 10,604  $       $ 11,011  $       $       (2.6)     % (11.7)    %
on loans                       10,890            11,649  12,003
 Interest and
dividends on
investment
securities:
 Taxable       685       707     757       797     795     (3.1)       (13.8)
 Tax-exempt    22        32      38        38      38      (31.3)      (42.1)
 Interest on       3         2       2         1       3       50.0        -
federal funds sold
 Interest on
deposits with other   79        61      48        46      29      29.5        172.4
banks
    11,393    11,692  11,856    12,531  12,868  (2.6)       (11.5)
Total interest income
INTEREST EXPENSE
 Interest on       2,647     2,643   2,641     2,673   2,720   0.2         (2.7)
deposits
 Interest on       10        11      15        15      15      (9.1)       (33.3)
short-term borrowings
 Interest on       6         5       5         6       10      20.0        (40.0)
long-term debt

Total interest        2,663     2,659   2,661     2,694   2,745   0.2         (3.0)
expense
NET INTEREST INCOME   8,730     9,033   9,195     9,837   10,123  (3.4)       (13.8)
Provision for credit  6,200     3,525   8,370     4,035   3,650   75.9        69.9
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES   2,530     5,508   825       5,802   6,473   (54.1)      (60.9)
NONINTEREST INCOME
 Service charges   628       622     648       700     697     1.0         (9.9)
on deposit accounts
 Trust and         410       446     423       380     389     (8.1)       5.4
investment fee income
 Investment        278       -       -         128     354     -           (21.5)
securities gains
 Insurance agency  2,427     2,406   2,689     2,061   2,312   0.9         5.0
commissions
 Other noninterest 258       1,103   814       750     771     (76.6)      (66.5)
income

Total noninterest     4,001     4,577   4,574     4,019   4,523   (12.6)      (11.5)
income
NONINTEREST EXPENSE
 Salaries and      4,386     4,376   4,416     4,378   4,097   0.2         7.1
wages
 Employee benefits 945       956     1,170     923     878     (1.2)       7.6
 Occupancy         625       638     687       563     585     (2.0)       6.8
expense
 Furniture and     265       212     251       234     262     25.0        1.1
equipment expense
 Data processing   703       694     666       660     661     1.3         6.4
 Directors' fees   131       127     109       83      198     3.1         (33.8)
 Goodwill and
other intangible      -         -       -         -       1,344   -           (100.0)
assets impairment
 Amortization of   96        96      126       126     129     -           (25.6)
intangible assets
 Insurance agency  275       344     385       285     250     (20.1)      10.0
commissions expense
 FDIC insurance    376       344     273       254     180     9.3         108.9
premium expense
 Other noninterest 1,907     1,876   2,415     1,899   2,093   1.7         (8.9)
expenses

Total noninterest     9,709     9,663   10,498    9,405   10,677  0.5         (9.1)
expense
(Loss) income before  (3,178)   422     (5,099)   416     319     (853.1)     (1,096.2)
income taxes
Income tax (benefit)  (1,357)   129     (2,063)   91      225     (1,151.9)   (703.1)
expense
NET (LOSS) INCOME   $         $     $         $     $     (721.5)     (2,037.2)
                      (1,821)   293   (3,036)   325     94
Weighted average
shares outstanding -  8,457     8,457   8,457     8,457   8,457   -           -
basic
Weighted average
shares outstanding -  8,457     8,457   8,457     8,457   8,457   -           -
diluted
Basic net (loss)      $        $     $        $     $  
income per common     (0.22)   0.03   (0.36)   0.04   0.01   (833.3)     (2,300.0)
share
Diluted net (loss)
income per common     (0.22)    0.03    (0.36)    0.04    0.01    (833.3)     (2,300.0)
share
Dividends paid per    -         -       0.01      0.01    0.01    -           (100.0)
common share



Shore Bancshares,                                                                                                                       Page 10
Inc.                                                                                                                                    of 11
Consolidated Average Balance
Sheets By Quarter
(Dollars in
thousands)
                                                                                                                             Average balance
                                                                                                                             3Q 12      3Q 12
                                                                                                                             compared   compared
                                                                                                                             to         to
                    3Q 12                2Q 12                1Q 12                4Q 11                3Q 11                2Q 12      3Q 11
                    Average    Yield/   Average    Yield/   Average    Yield/   Average    Yield/   Average    Yield/
                    balance     rate     balance     rate     balance     rate     balance     rate     balance     rate
Earning assets
 Loans            $         5.23   % $         5.38   % $         5.33   % $         5.42   % $         5.49   % (1.0)    % (7.0)    %
                    808,244              816,553              832,585              854,302              869,221
 Investment
securities
 Taxable          135,257     2.01     130,528     2.18     129,767     2.35     118,315     2.67     109,498     2.88     3.6        23.5
 Tax-exempt       2,614       5.07     3,771       5.32     4,270       5.36     4,410       5.27     4,440       5.12     (30.7)     (41.1)
 Federal funds     11,971      0.11     11,200      0.10     9,794       0.06     8,709       0.05     15,905      0.07     6.9        (24.7)
sold
 Interest-bearing  150,170     0.21     124,171     0.20     111,690     0.17     103,342     0.18     70,572      0.16     20.9       112.8
deposits
 Total earning   1,108,256   4.10   % 1,086,223   4.35   % 1,088,106   4.40   % 1,089,078   4.58   % 1,069,636   4.79   % 2.0        3.6
assets
Cash and due from   20,158               21,424               18,174               18,728               20,414               (5.9)      (1.3)
banks
Other assets        69,921               70,458               68,163               68,014               69,394               (0.8)      0.8
Allowance for       (14,189)             (14,507)             (14,877)             (15,168)             (16,856)             (2.2)      (15.8)
credit losses
Total assets        $                    $                    $                    $                    $                    1.8        3.6
                    1,184,146           1,163,598           1,159,566           1,160,652           1,142,588
Interest-bearing
liabilities
 Demand deposits   $         0.18   % $         0.18   % $         0.19   % $         0.19   % $         0.20   % 9.7        8.2
                    167,423              152,685              153,291              157,657              154,685
 Money market and
savings deposits    279,003     1.19     276,527     1.18     279,355     1.12     273,906     1.07     266,871     1.03     0.9        4.5
(1)
 Certificates of
deposit $100,000 or 238,624     1.46     242,662     1.46     240,521     1.46     241,810     1.46     235,362     1.63     (1.7)      1.4
more
 Other time        207,547     1.66     205,046     1.73     201,743     1.83     201,249     1.91     204,836     1.91     1.2        1.3
deposits

Interest-bearing    892,597     1.18     876,920     1.21     874,910     1.21     874,622     1.21     861,754     1.25     1.8        3.6
deposits
 Short-term        14,909      0.27     13,818      0.31     17,621      0.35     16,421      0.37     15,640      0.37     7.9        (4.7)
borrowings
 Long-term debt    455         4.58     455         4.63     455         4.63     466         4.46     932         4.46     -          (51.2)
 Total
interest-bearing    907,961     1.17   % 891,193     1.20   % 892,986     1.20   % 891,509     1.20   % 878,326     1.24   % 1.9        3.4
liabilities
Noninterest-bearing 148,096              144,210              136,260              139,226              133,214              2.7        11.2
deposits
Accrued expenses
and other           8,768                9,421                8,662                8,897                9,721                (6.9)      (9.8)
liabilities
Stockholders'       119,321              118,774              121,658              121,020              121,327              0.5        (1.7)
equity
Total liabilities   $                    $                    $                    $                    $
and stockholders'   1,184,146           1,163,598           1,159,566           1,160,652           1,142,588           1.8        3.6
equity
Net interest spread             2.93   %             3.15   %             3.20   %             3.38   %             3.55   %
Net interest margin             3.15   %             3.36   %             3.42   %             3.60   %             3.77   %
(1) Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits
associated with them. This adjustment increased
 interest expense $524 thousand for the third quarter of 2012, $502 thousand for the second quarter of 2012, $460 thousand for the
first quarter of 2012, $405 thousand for the fourth
 quarter of 2011 and $348 thousand for the
third quarter of 2011.



Shore Bancshares,                                                                            Page 11 of
Inc.                                                                                         11
Reconciliation of
Generally Accepted
Accounting
Principles (GAAP)
 and Non-GAAP
Measures
(In thousands,
except per share
data)
                                                                                 YTD         YTD
                   3Q 12        2Q 12       1Q 12       4Q 11       3Q 11        9/30/2012   9/30/2011
The following
reconciles return
on average equity
and return on
 average tangible
equity (Note 1):
Net (loss)         $        $       $         $       $        $         $   
income           (1,821)       293       (3,036)     325         94      (4,564)    (1,222)
Net (loss) income  $        $        $          $        $        $         $   
- annualized (A)   (7,244)      1,178      (12,211)   1,289       373       (6,096)    (1,634)
Net (loss) income,
excluding net
amortization and
 impairment       $        $       $         $       $        $         $    
charges of         (1,763)       351       (2,960)    401        1,094        (4,371)     (66)
intangible assets
Net (loss) income,
excluding net
amortization and
 impairment
charges of         $        $        $          $        $        $         $    
intangible assets  (7,014)      1,412      (11,905)   1,591      4,340        (5,839)     (88)
- annualized (B)
Average            $         $          $          $          $          $          $ 
stockholders'      119,321      118,774    121,658    121,020    121,327      119,916     121,656
equity (C)
Less: Average
goodwill and other (16,401)     (16,497)    (16,606)    (16,732)    (18,190)     (16,501)    (18,329)
intangible assets
Average tangible   $         $          $          $          $          $          $ 
equity (D)         102,920      102,277    105,052    104,288    103,137      103,415     103,327
Return on average
equity (GAAP)     (6.07)     % 0.99      % (10.04)   % 1.07      % 0.31       % (5.08)    % (1.34)     %
(A)/(C)
Return on average
tangible equity    (6.82)     % 1.38      % (11.33)   % 1.53      % 4.21       % (5.65)    % (0.09)     %
(Non-GAAP)
(B)/(D)
The following
reconciles GAAP
efficiency ratio
and non-GAAP
 efficiency ratio
(Note 2):
Noninterest        $        $        $         $        $         $         $  
expense (E)        9,709       9,663      10,498     9,405      10,677       29,870      29,762
Less:
Amortization of    (96)         (96)        (126)       (126)       (129)        (318)       (386)
intangible assets
          -            -           -           -           (1,344)      -           (1,344)
Impairment charges
Adjusted           $        $        $         $        $        $         $  
noninterest        9,613       9,567      10,372     9,279      9,204        29,552      28,032
expense (F)
Taxable-equivalent $        $        $        $        $         $         $  
net interest       8,769       9,077      9,243      9,889      10,172       27,089      30,094
income (G)
Noninterest income $        $        $        $        $        $         $  
(H)                4,001       4,577      4,574      4,019      4,523        13,152      13,299
Less: Investment
securities         (278)        -           -           (128)       (354)        (278)       (435)
(gains)/losses
 Other
nonrecurring       -            (217)       -           (56)        -            (217)       -
(gains)/losses
Adjusted           $        $        $        $        $        $         $  
noninterest income 3,723       4,360      4,574      3,835      4,169        12,657      12,864
(I)
Efficiency ratio
(GAAP)            76.03      % 70.77     % 75.98     % 67.62     % 72.66      % 74.23     % 68.59      %
(E)/(G)+(H)
Efficiency ratio
(Non-GAAP)        76.95      % 71.20     % 75.07     % 67.61     % 64.18      % 74.35     % 65.25      %
(F)/(G)+(I)
The following
reconciles book
value per common
share and
tangible
 book value per
common share (Note
1):
Stockholders'      $         $          $          $          $  
equity (J)         118,163      119,467    118,584    121,249    120,986
Less: Goodwill
and other          (16,344)     (16,440)    (16,536)    (16,662)    (16,788)
intangible assets
Tangible equity    $         $          $          $          $  
(K)                101,819      103,027    102,048    104,587    104,198
Shares outstanding 8,457        8,457       8,457       8,457       8,457
(L)
Book value per     $        $        $        $        $    
common share       13.97       14.13      14.02      14.34      14.31
(GAAP) (J)/(L)
Tangible book
value per common   $        $        $        $        $    
share (Non-GAAP)  12.04       12.18      12.07      12.37      12.32
(K)/(L)
The following
reconciles average
equity to average
assets and
 average tangible
equity to average
tangible assets
(Note 1):
Average            $         $          $          $          $          $          $ 
stockholders'      119,321      118,774    121,658    121,020    121,327      119,916     121,656
equity (M)
Less: Average
goodwill and other (16,401)     (16,497)    (16,606)    (16,732)    (18,190)     (16,501)    (18,329)
intangible assets
Average tangible   $         $          $          $          $          $          $ 
equity (N)         102,920      102,277    105,052    104,288    103,137      103,415     103,327
Average assets (O) $           $           $           $           $            $           $
                   1,184,146   1,163,598   1,159,566   1,160,652   1,142,588   1,169,158   1,132,964
Less: Average
goodwill and other (16,401)     (16,497)    (16,606)    (16,732)    (18,190)     (16,501)    (18,329)
intangible assets
Average tangible   $           $           $           $           $            $           $
assets (P)         1,167,745   1,147,101   1,142,960   1,143,920   1,124,398   1,152,657   1,114,635
Average
equity/average     10.08      % 10.21     % 10.49     % 10.43     % 10.62      % 10.26     % 10.74      %
assets (GAAP)
(M)/(O)
Average tangible
equity/average
tangible assets    8.81       % 8.92      % 9.19      % 9.12      % 9.17       % 8.97      % 9.27       %
(Non-GAAP)
(N)/(P)
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.



SOURCE Shore Bancshares, Inc.

Website: http://www.shbi.com
Contact: W. Moorhead Vermilye, Chief Executive Officer, +1-410-763-7800; Shore
Bancshares, Inc., 18 E. Dover Street, Easton, Maryland 21601, +1-410-763-7800
 
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