Shore Bancshares Reports 2012 Results

                    Shore Bancshares Reports 2012 Results

PR Newswire

EASTON, Md., Jan. 29, 2013

EASTON, Md., Jan. 29, 2013 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ:
SHBI) today reported a net loss of $5.1 million or $(0.60) per diluted common
share for the fourth quarter of 2012, compared to a net loss of $1.8 million
or $(0.22) per diluted common share for the third quarter of 2012, and net
income of $325 thousand or $0.04 per diluted common share for the fourth
quarter of 2011. The Company reported a net loss of $9.6 million or $(1.14)
per diluted common share for fiscal year 2012, compared to a net loss of $897
thousand or $(0.11) per diluted common share for fiscal year 2011.

When comparing the fourth quarter of 2012 to both the third quarter of 2012
and the fourth quarter of 2011, the primary reasons for the difference in
results were an increase in the provision for credit losses and a $1.3 million
loss incurred during the fourth quarter of 2012 to terminate a portion of an
interest rate cap instrument. The decline in net interest income was another
primary reason for the difference in results when comparing the fourth quarter
of 2012 with the fourth quarter of 2011. When comparing fiscal year 2012 to
fiscal year 2011, the principal factors driving the difference were the same
as those for the quarterly results.

"We continued to make very difficult but prudent decisions during the fourth
quarter that should enable us to improve our overall credit quality and
permanently reduce problem loans. In order to continue charging off
nonperforming assets as rapidly as possible, we again incurred a substantial
quarterly provision for credit losses. For the three months ended December
31, 2012, the provision was $9.7 million, compared to $6.2 million and $4.0
million for the three months ended September 30, 2012 and December 31, 2011,
respectively. The fourth quarter provision is consistent with our intention
to be as aggressive as possible in restoring the Company to profitability –
that is our foremost priority," said W. Moorhead Vermilye, chief executive
officer.

"Further, as discussed in the 'Review of Quarterly Financial Results' below,
we made another tough but prudent decision to incur the cost of terminating a
portion of an interest rate cap instrument. This should produce a meaningful
ongoing improvement in the net interest margin beginning in the first quarter
of 2013 and continuing thereafter."

"As we have noted over the past several quarters, in our view the real estate
driven economy on the Delmarva peninsula is one of a handful of the most
persistently slow geographic markets in the entire country to turn around and
show clear, definitive signs of recovery. Fortunately, we have the underlying
capital strength to support our efforts to work our way through many
challenges which have proven insurmountable for some of our local peers and
other community banks in similar suffering markets. At year end, our total
capital amounted to $114 million. For 2012, the ratio of average equity to
average assets was 10.18% while the ratio of average tangible equity to
average tangible assets was 8.90%. As evidenced by these percentages, the
Company's capital levels are well above the regulatory minimums to be
considered well-capitalized," said Vermilye.

Balance Sheet Review

Total assets were $1.186 billion at December 31, 2012, a 2.4% increase when
compared to the $1.158 billion at the end of 2011. Total loans decreased 6.7%
to $785.1 million while total earning assets increased 2.3% to $1.107 billion
when compared to December 31, 2011. Total deposits increased 3.9% to $1.049
billion while total stockholders' equity decreased 6.0% from the end of 2011.

Review of Quarterly Financial Results

Net interest income for the fourth quarter of 2012 was $8.4 million, a 4.0%
decrease from the third quarter of 2012 and a 14.8% decrease from the same
period last year. The decrease in net interest income when compared to the
third quarter of 2012 was primarily due to lower yields earned on average
earning assets. The decrease in net interest income when compared to the
fourth 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 3.02% for the fourth quarter of 2012, 3.15%
for the third quarter of 2012 and 3.60% for the fourth quarter of 2011.

The provision for credit losses was $9.7 million for the three months ended
December 31, 2012. The comparable amounts were $6.2 million and $4.0 million
for the three months ended September 30, 2012 and December 31, 2011,
respectively. The ratio of the allowance for credit losses to period-end
loans increased to 2.04% at December 31, 2012, compared to 1.60% at September
30, 2012 and 1.70% at December 31, 2011.

The level of provision for credit losses for the fourth quarter of 2012 when
compared to the third quarter of 2012 and the fourth quarter of 2011 was
primarily in response to loan charge-offs. Net charge-offs were $6.6 million
for the fourth quarter of 2012, $6.2 million for the third quarter of 2012 and
$3.3 million for the fourth quarter of 2011. The charge offs in all three
quarters were mainly real estate related loans. The ratio of quarter-to-date
annualized net charge-offs to average loans was 3.29% for the fourth quarter
of 2012, 3.07% for the third quarter of 2012 and 1.53% for the fourth quarter
of 2011. Total nonperforming assets at December 31, 2012 decreased $6.4
million when compared to September 30, 2012. This decrease included a $7.2
million decline in nonaccrual and 90 days past due and still accruing loans,
and a $759 thousand decline in other real estate owned, net of a $1.6 million
increase in accruing troubled debt restructurings. 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 December 31, 2012 increased
$8.3 million when compared to December 31, 2011, primarily due to a $27.1
million increase in troubled debt restructurings net of an $18.8 million
decrease in the other components of nonperforming assets. The ratio of
nonperforming assets to total assets was 8.18% at December 31, 2012, compared
to 8.77% at September 30, 2012 and 7.66% at December 31, 2011.

Total noninterest income for the fourth quarter of 2012 decreased $1.4
million, or 34.9%, when compared to the third quarter of 2012. The decrease
was primarily due to a decline in both gains on sales of investment securities
($278 thousand) and other noninterest income ($962 thousand). Included in
other noninterest income for the fourth quarter of 2012 was the previously
mentioned $1.3 million loss to terminate a portion of an interest rate cap
instrument. During the second quarter of 2009, the Company purchased interest
rate caps for $7.1 million to effectively fix the interest rate at 2.97% for
five years on $70 million of the Company's money market deposit accounts
related to our participation in the Promontory Insured Network Deposits
Program ("IND Program"). Deposits under the IND Program had increased to $90
million as of December 31, 2012. In December 2012, the Company decided to
partially exit the IND Program and expects that during the first quarter of
2013, the Company will reduce its deposits by approximately $50 million as a
way to decrease its excess liquidity. As such, a portion of the interest rate
cap instrument used to hedge the position was terminated. Because the
interest rate caps qualified for hedge accounting, this ineffective portion of
the hedge was recognized as a loss at the end of 2012. By partially exiting
the IND Program and terminating a portion of the cap instrument, the hedged
money market deposit account balances associated with the interest rate caps
and related interest expense are expected to decline. The lower money market
deposit account balances will reduce our excess liquidity and the lower
related interest expense will benefit the net interest margin going forward.
The effects of these transactions are expected to impact the Company's
financial results beginning in the first quarter of 2013.

Total noninterest income for the fourth quarter of 2012 decreased $1.4
million, or 35.2%, when compared to the fourth quarter of 2011. The decrease
was primarily due to declines in gains on sales of investment securities ($128
thousand) and other noninterest income ($1.5 million), partially offset by an
increase in insurance agency commissions ($231 thousand). The decrease in
other noninterest income was mainly from the loss on the interest rate cap
instrument.

Total noninterest expense for the fourth quarter of 2012 remained relatively
flat when compared to the third quarter of 2012. When compared to the fourth
quarter of 2011, total noninterest expense for the fourth quarter of 2012
increased $280 thousand, or 3.0%, primarily due to higher expenses related to
recruiting and provision for off balance sheet credit losses included in other
noninterest expenses, and FDIC insurance. 

Review of 2012 Financial Results

Net interest income for 2012 was $35.3 million, a decrease of 11.1% when
compared to 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 3.23% for 2012 and 3.74% for 2011.

The provisions for credit losses for 2012 and 2011 were $27.7 million and
$19.5 million, respectively, while net charge-offs were $26.0 million and
$19.4 million for 2012 and 2011, respectively. The ratio of year-to-date
annualized net charge-offs to average loans was 3.20% for 2012 and 2.22% for
2011.

Total noninterest income for 2012 decreased $1.6 million, or 9.0%, when
compared to 2011. The decrease was primarily due to declines in gains on
sales of investment securities ($285 thousand), service charges on deposit
accounts ($294 thousand) and other noninterest income ($1.5 million),
partially offset by an increase in insurance agency commissions ($456
thousand). The decrease in other noninterest income was mainly from the loss
on the interest rate cap instrument discussed above.

Total noninterest expense for 2012 increased $388 thousand, or 1.0%, when
compared to 2011. The increase was primarily due to higher salaries and wages
($593 thousand) and other noninterest expenses ($909 thousand) which was
largely offset by a $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 ($154 thousand), collection expense for loans ($286 thousand) and
provision for off balance sheet credit losses ($216 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. 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                                                                       Page 4 of
Bancshares,                                                                 11
Inc.
Financial
Highlights
(Dollars in
thousands,
except per
share data)
               For the Three Months Ended           For the Twelve Months Ended
               December 31,                         December 31,
               2012        2011      Change        2012        2011      Change
PROFITABILITY
FOR THE PERIOD
 Net       $         $                      $          $ 
interest       8,381       9,837       (14.8)    %  35,339     39,764     (11.1)  %
income
 Provision
for credit     9,650       4,035       139.2        27,745      19,470      42.5
losses

Noninterest    2,606       4,019       (35.2)       15,758      17,318      (9.0)
income

Noninterest    9,685       9,405       3.0          39,555      39,167      1.0
expense
 (Loss)
income before  (8,348)     416         (2,106.7)    (16,203)    (1,555)     (942.0)
income taxes
 Income
tax (benefit)  (3,274)     91          (3,697.8)    (6,565)     (658)       (897.7)
expense
 Net       $          $        (1,661.2)    $          $        (974.5)
(loss) income (5,074)    325                     (9,638)    (897)
 Return on
average        (1.71)    % 0.11      % (182)     bp (0.82)    % (0.08)    % (74)    bp
assets
 Return on
average        (17.15)     1.07        (1,822)      (8.07)      (0.74)      (733)
equity
 Return on
average        (19.73)     1.53        (2,126)      (9.14)      0.32        (946)
tangible
equity (1)
 Net
interest       3.02        3.60        (58)         3.23        3.74        (51)
margin

Efficiency     87.89       67.62       2,027        77.17       68.35       882
ratio - GAAP

Efficiency     77.77       67.61       1,016        75.16       65.83       933
ratio -
Non-GAAP (1)
PER SHARE DATA
 Basic net
(loss) income  $         $        (1,600.0) %  $         $         (936.4) %
per common     (0.60)     0.04                     (1.14)     (0.11)
share
 Diluted
net (loss)     (0.60)      0.04        (1,600.0)    (1.14)      (0.11)      (936.4)
income per
common share
 Dividends
paid per       -           0.01        (100.0)      0.01        0.09        (88.9)
common share
 Book
value per      13.48       14.34       (6.0)
common share
at period end
 Tangible
book value per
common share   11.56       12.37       (6.5)
at period end
(1)
 Market
value at       5.39        5.15        4.7
period end
 Market
range:
 High    6.98        6.13        13.9         7.45        11.11       (32.9)
 Low     4.65        4.20        10.7         4.65        3.95        17.7
AVERAGE
BALANCE SHEET
DATA
 Loans     $           $           (6.4)     %  $           $           (6.8)   %
               799,512    854,302                 814,167    873,155
           144,459     122,725     17.7         137,686     113,568     21.2
Securities
 Earning   1,108,585   1,089,078   1.8          1,097,851   1,069,458   2.7
assets
 Assets    1,183,135   1,160,652   1.9          1,172,452   1,139,943   2.9
 Deposits  1,042,842   1,013,848   2.9          1,028,809   992,071     3.7

Stockholders'  117,700     121,020     (2.7)        119,359     121,496     (1.8)
equity
CREDIT QUALITY
DATA AT PERIOD
END
 Net       $         $         101.2     %  $          $          34.2    %
charge-offs    6,614       3,287                    26,042     19,409
           $          $ 
Nonaccrual     36,474     51,370     (29.0)
loans
 Loans 90
days past due  460         2,723       (83.1)
and still
accruing
 Accruing
troubled debt  52,353      25,208      107.7
restructurings
 Total
nonperforming  89,287      79,301      12.6
loans
 Other
real estate
and other      7,659       9,385       (18.4)
assets owned,
net
 Total     $          $ 
nonperforming  96,946     88,686     9.3
assets
CAPITAL AND
CREDIT QUALITY
RATIOS
 Average
equity to      9.95      % 10.43     % (48)      bp 10.18     % 10.66     % (48)    bp
average assets
 Average
tangible
equity to      8.69        9.12        (43)         8.90        9.23        (33)
average
tangible
assets (1)

Annualized net 3.29        1.53        176          3.20        2.22        98
charge-offs to
average loans
 Allowance
for credit
losses to      2.04        1.70        34
period-end
loans
 Allowance
for credit
losses to      43.84       27.81       1,603
nonaccrual
loans
 Allowance
for credit
losses to      17.91       18.02       (11)
nonperforming
loans

Nonaccrual     4.65        6.11        (146)
loans to total
loans

Nonaccrual     3.08        4.44        (136)
loans to total
assets

Nonperforming
assets to
total
loans+other
real estate
and
 other 12.23       10.43       180
assets owned

Nonperforming  8.18        7.66        52
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)
                                                                 December
                                                                 31, 2012
                                   December 31,    December 31,  compared to
                                   2012            2011          December
                                                                 31, 2011
ASSETS
 Cash and due from banks        $           $         15.6        %
                                   26,579         22,986
 Interest-bearing deposits with 164,864         99,776        65.2
other banks
 Federal funds sold             8,750           4,980         75.7
 Investments available for sale 145,508         129,780       12.1
(at fair value)
 Investments held to maturity  2,657           6,480         (59.0)
 Loans                          785,082         841,050       (6.7)
 Less: allowance for credit     (15,991)        (14,288)      11.9
losses
 Loans, net                     769,091         826,762       (7.0)
 Premises and equipment, net    15,593          14,662        6.3
 Goodwill                       12,454          12,454        -
 Other intangible assets, net   3,816           4,208         (9.3)
 Other real estate and other    7,659           9,385         (18.4)
assets owned, net
 Other assets                   28,836          26,720        7.9
 Total     $  1,185,807  $            2.4
assets                                             1,158,193
LIABILITIES
 Noninterest-bearing deposits   $            $          15.1
                                   153,992        133,801
 Interest-bearing deposits      895,281         876,118       2.2
 Total deposits     1,049,273       1,009,919     3.9
 Short-term borrowings          13,761          17,817        (22.8)
 Accrued expenses and other     8,747           8,753         (0.1)
liabilities
 Long-term debt                 -               455           (100.0)
 Total    1,071,781       1,036,944     3.4
liabilities
STOCKHOLDERS' EQUITY
 Common stock, par value $0.01; 85              85            -
authorized35,000,000 shares
 Additional paid in capital     32,155          32,052        0.3
 Retained earnings              81,078          90,801        (10.7)
 Accumulated other              708             (1,689)       141.9
comprehensive income (loss)
 Total    114,026         121,249       (6.0)
stockholders' equity
 Total                    $ 
liabilities and stockholders'      $  1,185,807  1,158,193    2.4
equity
Period-end common shares           8,457           8,457         -
outstanding
Book value per common share        $          $        (6.0)
                                   13.48          14.34



Shore Bancshares,                                                    Page 6 of
Inc.                                                                 11
Consolidated
Statements of Income
(In thousands, except
per share data)
                      For the Three Months Ended   For the Twelve Months
                                                   Ended
                      December 31,                 December 31,
                      2012      2011   % Change    2012      2011    %
                                                                     Change
INTEREST INCOME
 Interest and fees $ 10,193  $      (12.5)    % $ 42,698  $       (10.2)  %
on loans                       11,649                       47,549
 Interest and
dividends on
investment
securities:
 Taxable       666       797    (16.4)      2,815     3,031   (7.1)
 Tax-exempt   12        38     (68.4)      104       154     (32.5)
 Interest on       3         1      200.0       10        25      (60.0)
federal funds sold
 Interest on
deposits with other   86        46     87.0        274       93      194.6
banks
    10,960    12,531 (12.5)      45,901    50,852  (9.7)
Total interest income
INTEREST EXPENSE
 Interest on       2,570     2,673  (3.9)       10,501    10,995  (4.5)
deposits
 Interest on       9         15     (40.0)      45        56      (19.6)
short-term borrowings
 Interest on       -         6      (100.0)     16        37      (56.8)
long-term debt

Total interest        2,579     2,694  (4.3)       10,562    11,088  (4.7)
expense
NET INTEREST INCOME   8,381     9,837  (14.8)      35,339    39,764  (11.1)
Provision for credit  9,650     4,035  139.2       27,745    19,470  42.5
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES   (1,269)   5,802  (121.9)     7,594     20,294  (62.6)
NONINTEREST INCOME
 Service charges   653       700    (6.7)       2,551     2,845   (10.3)
on deposit accounts
 Trust and         365       380    (3.9)       1,644     1,563   5.2
investment fee income
 Investment        -         128    (100.0)     278       563     (50.6)
securities gains
 Insurance agency  2,292     2,061  11.2        9,814     9,358   4.9
commissions
 Other noninterest (704)     750    (193.9)     1,471     2,989   (50.8)
income

Total noninterest     2,606     4,019  (35.2)      15,758    17,318  (9.0)
income
NONINTEREST EXPENSE
 Salaries and      4,240     4,378  (3.2)       17,418    16,825  3.5
wages
 Employee benefits 923       923    -           3,994     3,840   4.0
 Occupancy         609       563    8.2         2,559     2,312   10.7
expense
 Furniture and     235       234    0.4         963       1,059   (9.1)
equipment expense
 Data processing   654       660    (0.9)       2,717     2,852   (4.7)
 Directors' fees   107       83     28.9        474       500     (5.2)
 Goodwill and
other intangible      -         -      -           -         1,344   (100.0)
assets impairment
 Amortization of   74        126    (41.3)      392       512     (23.4)
intangible assets
 Insurance agency  387       285    35.8        1,391     1,267   9.8
commissions expense
 FDIC insurance    387       254    52.4        1,380     1,298   6.3
premium expense
 Other noninterest 2,069     1,899  9.0         8,267     7,358   12.4
expenses

Total noninterest     9,685     9,405  3.0         39,555    39,167  1.0
expense
(Loss) income before  (8,348)   416    (2,106.7)   (16,203)  (1,555) (942.0)
income taxes
Income tax (benefit)  (3,274)   91     (3,697.8)   (6,565)   (658)   (897.7)
expense
NET (LOSS) INCOME   $         $    (1,661.2)   $         $     (974.5)
                      (5,074)   325              (9,638)  (897)
Weighted average
shares outstanding -  8,457     8,457  -           8,457     8,451   0.1
basic
Weighted average
shares outstanding -  8,457     8,457  -           8,457     8,451   0.1
diluted
Basic net (loss)      $        $                $        $ 
income per common     (0.60)   0.04  (1,600.0)   (1.14)   (0.11) (936.4)
share
Diluted net (loss)
income per common     (0.60)    0.04   (1,600.0)   (1.14)    (0.11)  (936.4)
share
Dividends paid per    -         0.01   (100.0)     0.01      0.09    (88.9)
common share



Shore Bancshares,                                                                           Page 7
Inc.                                                                                        of 11
Consolidated
Average Balance
Sheets
(Dollars in
thousands)
                    For the Three Months Ended               For the Twelve Months Ended
                    December 31,                             December 31,
                    2012                2011                 2012                2011
                    Average   Yield/   Average    Yield/   Average   Yield/   Average   Yield/
                    balance    rate    balance     rate    balance    rate     balance    rate
Earning assets
 Loans            $         5.09   % $          5.42   % $         5.26   % $         5.46   %
                    799,512            854,302              814,167            873,155
 Investment
securities
 Taxable          143,137    1.85     118,315     2.67     134,697    2.09     109,059    2.78
 Tax-exempt       1,322      5.05     4,410       5.27     2,989      5.25     4,509      5.19
 Federal funds     7,782      0.12     8,709       0.05     10,185     0.10     23,808     0.10
sold
 Interest-bearing  156,832    0.22     103,342     0.18     135,813    0.20     58,927     0.16
deposits
 Total earning   1,108,585  3.94   % 1,089,078   4.58   % 1,097,851  4.20   % 1,069,458  4.78   %
assets
Cash and due from   21,258              18,728               20,256              19,198
banks
Other assets        67,596              68,014               68,813              67,695
Allowance for       (14,304)            (15,168)             (14,468)            (16,408)
credit losses
Total assets        $                   $                    $                   $
                    1,183,135           1,160,652           1,172,452           1,139,943
Interest-bearing
liabilities
 Demand deposits   $         0.18   % $          0.19   % $         0.18   % $         0.21   %
                    169,398            157,657              160,741            145,533
 Money market and
savings deposits    281,593    1.21     273,906     1.07     279,126    1.17     265,910    1.00
(1)
 Certificates of
deposit $100,000 or 231,232    1.40     241,810     1.46     238,241    1.44     245,214    1.62
more
 Other time        204,213    1.59     201,249     1.91     204,644    1.70     205,154    1.99
deposits

Interest-bearing    886,436    1.15     874,622     1.21     882,752    1.19     861,811    1.28
deposits
 Short-term        13,573     0.27     16,421      0.37     14,976     0.30     15,319     0.37
borrowings
 Long-term debt    -          -        466         4.46     341        4.61     814        4.50
 Total
interest-bearing    900,009    1.14   % 891,509     1.20   % 898,069    1.18   % 877,944    1.26   %
liabilities
Noninterest-bearing 156,406             139,226              146,057             130,260
deposits
Accrued expenses
and other           9,020               8,897                8,967               10,243
liabilities
Stockholders'       117,700             121,020              119,359             121,496
equity
Total liabilities   $                   $                    $                   $
and stockholders'   1,183,135           1,160,652            1,172,452           1,139,943
equity
Net interest spread            2.80   %             3.38   %            3.02   %            3.52   %
Net interest margin            3.02   %             3.60   %            3.23   %            3.74   %
(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 $552 thousand and
$405 thousand for the fourth
 quarter of 2012 and 2011, respectively, and $2.0 million and $1.3 million for 2012 and 2011,
respectively.



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

Taxable-equivalent $        $        $        $        $        (4.1)    %  (14.9)    %
net interest       8,413       8,769       9,077       9,243       9,889
income
 Less:
Taxable-equivalent 32          39          44          48          52          (17.9)      (38.5)
adjustment
 Net interest  8,381       8,730       9,033       9,195       9,837       (4.0)       (14.8)
income
 Provision for 9,650       6,200       3,525       8,370       4,035       55.6        139.2
credit losses
 Noninterest   2,606       4,001       4,577       4,574       4,019       (34.9)      (35.2)
income
 Noninterest   9,685       9,709       9,663       10,498      9,405       (0.2)       3.0
expense
 (Loss) income
before income      (8,348)     (3,178)     422         (5,099)     416         (162.7)     (2,106.7)
taxes
 Income tax    (3,274)     (1,357)     129         (2,063)     91          (141.3)     (3,697.8)
(benefit) expense
 Net (loss)    $         $         $       $         $       (178.6)     (1,661.2)
income            (5,074)     (1,821)     293        (3,036)     325
 Return on     (1.71)    % (0.61)    % 0.10      % (1.05)    % 0.11      % (110)    bp (182)     bp
average assets
 Return on     (17.15)     (6.07)      0.99        (10.04)     1.07        (1,108)     (1,822)
average equity
 Return on
average tangible   (19.73)     (6.82)      1.38        (11.33)     1.53        (1,291)     (2,126)
equity (1)
 Net interest  3.02        3.15        3.36        3.42        3.60        (13)        (58)
margin
 Efficiency    87.89       76.03       70.77       75.98       67.62       1,186       2,027
ratio - GAAP
 Efficiency
ratio - Non-GAAP   77.77       76.95       71.20       75.07       67.61       82          1,016
(1)
PER SHARE DATA
 Basic net     $        $        $       $        $    
(loss) income per  (0.60)     (0.22)     0.03        (0.36)     0.04        (172.7)  %  (1,600.0) %
common share
 Diluted net
(loss) income per  (0.60)      (0.22)      0.03        (0.36)      0.04        (172.7)     (1,600.0)
common share
 Dividends
paid per common    -           -           -           0.01        0.01        -           (100.0)
share
 Book value
per common share   13.48       13.97       14.13       14.02       14.34       (3.5)       (6.0)
at period end
 Tangible book
value per common   11.56       12.04       12.18       12.07       12.37       (4.0)       (6.5)
share at period
end (1)
 Market value  5.39        6.02        5.98        7.09        5.15        (10.5)      4.7
at period end
 Market range:
 High       6.98        6.33        7.45        7.40        6.13        10.3        13.9
 Low        4.65        4.98        5.51        4.91        4.20        (6.6)       10.7
AVERAGE BALANCE
SHEET DATA
 Loans         $           $           $           $           $           (1.1)    %  (6.4)     %
                   799,512    808,244    816,553    832,585    854,302
 Securities    144,459     137,871     134,299     134,037     122,725     4.8         17.7
 Earning       1,108,585   1,108,256   1,086,223   1,088,106   1,089,078   -           1.8
assets
 Assets        1,183,135   1,184,146   1,163,598   1,159,566   1,160,652   (0.1)       1.9
 Deposits      1,042,842   1,040,693   1,021,130   1,011,170   1,013,848   0.2         2.9
 Stockholders' 117,700     119,321     118,774     121,658     121,020     (1.4)       (2.7)
equity
CREDIT QUALITY
DATA AT PERIOD END
 Net           $        $        $        $        $        6.1      %  101.2     %
charge-offs        6,614       6,235       4,079       9,114       3,287
 Nonaccrual    $         $         $         $         $         (7.5)       (29.0)
loans              36,474      39,442      47,958      49,405      51,370
 Loans 90 days
past due and still 460         4,675       3,519       3,796       2,723       (90.2)      (83.1)
accruing
 Accruing
troubled debt      52,353      50,785      37,231      30,010      25,208      3.1         107.7
restructurings
 Total
nonperforming      89,287      94,902      88,708      83,211      79,301      (5.9)       12.6
loans
 Other real
estate and other   7,659       8,418       11,499      11,418      9,385       (9.0)       (18.4)
assets owned, net
 Total         $         $           $           $         $  
nonperforming      96,946      103,320    100,207    94,629      88,686      (6.2)       9.3
assets
CAPITAL AND CREDIT
QUALITY RATIOS
 Average
equity to average  9.95      % 10.08     % 10.21     % 10.49     % 10.43     % (13)     bp (48)      bp
assets
 Average
tangible equity to 8.69        8.81        8.92        9.19        9.12        (12)        (43)
average tangible
assets (1)
 Annualized
net charge-offs to 3.29        3.07        2.01        4.40        1.53        22          176
average loans
 Allowance for
credit losses to   2.04        1.60        1.60        1.65        1.70        44          34
period-end
loans
 Allowance for
credit losses to   43.84       32.85       27.09       27.41       27.81       1,099       1,603
nonaccrual
loans
 Allowance for
credit losses to   17.91       13.65       14.64       16.28       18.02       426         (11)
nonperforming
loans
 Nonaccrual
loans to total     4.65        4.88        5.92        6.03        6.11        (23)        (146)
loans
 Nonaccrual
loans to total     3.08        3.35        4.08        4.22        4.44        (27)        (136)
assets
 Nonperforming
assets to total
loans+other real   12.23       12.65       12.20       11.40       10.43       (42)        180
estate andother
assets owned
 Nonperforming
assets to total    8.18        8.77        8.53        8.09        7.66        (59)        52
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)
                                                                    4Q 12      4Q 12
                                                                    compared   compared
                                                                    to         to
                      4Q 12     3Q 12     2Q 12   1Q 12     4Q 11   3Q 12      4Q 11
INTEREST INCOME
 Interest and fees $ 10,193  $ 10,604  $       $ 11,011  $       (3.9)    % (12.5)    %
on loans                                 10,890            11,649
 Interest and
dividends on
investment
securities:
 Taxable       666       685       707     757       797     (2.8)      (16.4)
 Tax-exempt    12        22        32      38        38      (45.5)     (68.4)
 Interest on       3         3         2       2         1       -          200.0
federal funds sold
 Interest on
deposits with other   86        79        61      48        46      8.9        87.0
banks
    10,960    11,393    11,692  11,856    12,531  (3.8)      (12.5)
Total interest income
INTEREST EXPENSE
 Interest on       2,570     2,647     2,643   2,641     2,673   (2.9)      (3.9)
deposits
 Interest on       9         10        11      15        15      (10.0)     (40.0)
short-term borrowings
 Interest on       -         6         5       5         6       (100.0)    (100.0)
long-term debt

Total interest        2,579     2,663     2,659   2,661     2,694   (3.2)      (4.3)
expense
NET INTEREST INCOME   8,381     8,730     9,033   9,195     9,837   (4.0)      (14.8)
Provision for credit  9,650     6,200     3,525   8,370     4,035   55.6       139.2
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES   (1,269)   2,530     5,508   825       5,802   (150.2)    (121.9)
NONINTEREST INCOME
 Service charges   653       628       622     648       700     4.0        (6.7)
on deposit accounts
 Trust and         365       410       446     423       380     (11.0)     (3.9)
investment fee income
 Investment        -         278       -       -         128     (100.0)    (100.0)
securities gains
 Insurance agency  2,292     2,427     2,406   2,689     2,061   (5.6)      11.2
commissions
 Other noninterest (704)     258       1,103   814       750     (372.9)    (193.9)
income

Total noninterest     2,606     4,001     4,577   4,574     4,019   (34.9)     (35.2)
income
NONINTEREST EXPENSE
 Salaries and      4,240     4,386     4,376   4,416     4,378   (3.3)      (3.2)
wages
 Employee benefits 923       945       956     1,170     923     (2.3)      -
 Occupancy         609       625       638     687       563     (2.6)      8.2
expense
 Furniture and     235       265       212     251       234     (11.3)     0.4
equipment expense
 Data processing   654       703       694     666       660     (7.0)      (0.9)
 Directors' fees   107       131       127     109       83      (18.3)     28.9
 Amortization of   74        96        96      126       126     (22.9)     (41.3)
intangible assets
 Insurance agency  387       275       344     385       285     40.7       35.8
commissions expense
 FDIC insurance    387       376       344     273       254     2.9        52.4
premium expense
 Other noninterest 2,069     1,907     1,876   2,415     1,899   8.5        9.0
expenses

Total noninterest     9,685     9,709     9,663   10,498    9,405   (0.2)      3.0
expense
(Loss) income before  (8,348)   (3,178)   422     (5,099)   416     (162.7)    (2,106.7)
income taxes
Income tax (benefit)  (3,274)   (1,357)   129     (2,063)   91      (141.3)    (3,697.8)
expense
NET (LOSS) INCOME   $         $         $     $         $     (178.6)    (1,661.2)
                      (5,074)  (1,821)   293   (3,036)   325
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     (0.60)   (0.22)   0.03   (0.36)   0.04   (172.7)    (1,600.0)
share
Diluted net (loss)
income per common     (0.60)    (0.22)    0.03    (0.36)    0.04    (172.7)    (1,600.0)
share
Dividends paid per    -         -         -       0.01      0.01    -          (100.0)
common share



Shore Bancshares,                                                                                                                       Page 10 of
Inc.                                                                                                                                    11
Consolidated
Average Balance
Sheets By Quarter
(Dollars in
thousands)
                                                                                                                             Average balance
                                                                                                                             4Q 12      4Q 12
                                                                                                                             compared   compared
                                                                                                                             to         to
                    4Q 12                3Q 12                2Q 12                1Q 12                4Q 11                3Q 12      4Q 11
                    Average    Yield/   Average    Yield/   Average    Yield/   Average    Yield/   Average    Yield/
                    balance     rate     balance     rate     balance     rate     balance     rate     balance     rate
Earning assets
 Loans            $         5.09   % $         5.23   % $         5.38   % $         5.33   % $         5.42   % (1.1)    % (6.4)    %
                    799,512              808,244              816,553              832,585              854,302
 Investment
securities
 Taxable          143,137     1.85     135,257     2.01     130,528     2.18     129,767     2.35     118,315     2.67     5.8        21.0
 Tax-exempt       1,322       5.05     2,614       5.07     3,771       5.32     4,270       5.36     4,410       5.27     (49.4)     (70.0)
 Federal funds     7,782       0.12     11,971      0.11     11,200      0.10     9,794       0.06     8,709       0.05     (35.0)     (10.6)
sold
 Interest-bearing  156,832     0.22     150,170     0.21     124,171     0.20     111,690     0.17     103,342     0.18     4.4        51.8
deposits
 Total earning   1,108,585   3.94   % 1,108,256   4.10   % 1,086,223   4.35   % 1,088,106   4.40   % 1,089,078   4.58   % -          1.8
assets
Cash and due from   21,258               20,158               21,424               18,174               18,728               5.5        13.5
banks
Other assets        67,596               69,921               70,458               68,163               68,014               (3.3)      (0.6)
Allowance for       (14,304)             (14,189)             (14,507)             (14,877)             (15,168)             0.8        (5.7)
credit losses
Total assets        $                    $                    $                    $                    $                    (0.1)      1.9
                    1,183,135           1,184,146           1,163,598           1,159,566           1,160,652
Interest-bearing
liabilities
 Demand deposits   $         0.18   % $         0.18   % $         0.18   % $         0.19   % $         0.19   % 1.2        7.4
                    169,398              167,423              152,685              153,291              157,657
 Money market and
savings deposits    281,593     1.21     279,003     1.19     276,527     1.18     279,355     1.12     273,906     1.07     0.9        2.8
(1)
 Certificates of
deposit $100,000 or 231,232     1.40     238,624     1.46     242,662     1.46     240,521     1.46     241,810     1.46     (3.1)      (4.4)
more
 Other time        204,213     1.59     207,547     1.66     205,046     1.73     201,743     1.83     201,249     1.91     (1.6)      1.5
deposits

Interest-bearing    886,436     1.15     892,597     1.18     876,920     1.21     874,910     1.21     874,622     1.21     (0.7)      1.4
deposits
 Short-term        13,573      0.27     14,909      0.27     13,818      0.31     17,621      0.35     16,421      0.37     (9.0)      (17.3)
borrowings
 Long-term debt    -           -        455         4.58     455         4.63     455         4.63     466         4.46     (100.0)    (100.0)
 Total
interest-bearing    900,009     1.14   % 907,961     1.17   % 891,193     1.20   % 892,986     1.20   % 891,509     1.20   % (0.9)      1.0
liabilities
Noninterest-bearing 156,406              148,096              144,210              136,260              139,226              5.6        12.3
deposits
Accrued expenses
and other           9,020                8,768                9,421                8,662                8,897                2.9        1.4
liabilities
Stockholders'       117,700              119,321              118,774              121,658              121,020              (1.4)      (2.7)
equity
Total liabilities   $                    $                    $                    $                    $
and stockholders'   1,183,135           1,184,146           1,163,598           1,159,566           1,160,652           (0.1)      1.9
equity
Net interest spread             2.80   %             2.93   %             3.15   %             3.20   %             3.38   %
Net interest margin             3.02   %             3.15   %             3.36   %             3.42   %             3.60   %
(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 $552 thousand for the fourth quarter of 2012, $524 thousand for the third quarter of 2012, $502 thousand for the second
quarter of 2012, $460 thousand for the first
 quarter of 2012 and $405 thousand for the fourth 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
                   4Q 12       3Q 12       2Q 12       1Q 12       4Q 11       12/31/2012   12/31/2011
The following
reconciles return
on average equity
and return on
 average tangible
equity (Note 1):
Net (loss)         $         $         $       $         $       $          $    
income           (5,074)    (1,821)    293        (3,036)    325        (9,638)     (897)
Net (loss) income  $          $         $        $          $        $          $    
- annualized (A)   (20,186)   (7,244)    1,178       (12,211)   1,289       (9,638)     (897)
Net (loss) income,
excluding net
amortization and
 impairment       $         $         $       $         $       $          $    
charges of         (5,029)    (1,763)    351        (2,960)    401        (9,401)      335
intangible assets
Net (loss) income,
excluding net
amortization and
 impairment
charges of         $          $         $        $          $        $          $    
intangible assets  (20,007)   (7,014)    1,412       (11,905)   1,591       (9,401)      335
- annualized (B)
Average            $          $          $          $          $          $           $ 
stockholders'      117,700     119,321     118,774     121,658     121,020     119,359      121,496
equity (C)
Less: Average
goodwill and other (16,313)    (16,401)    (16,497)    (16,606)    (16,732)    (16,454)     (17,926)
intangible assets
Average tangible   $          $          $          $          $          $           $ 
equity (D)         101,387     102,920     102,277     105,052     104,288     102,905      103,570
Return on average
equity (GAAP)     (17.15)   % (6.07)    % 0.99      % (10.04)   % 1.07      % (8.07)     % (0.74)     %
(A)/(C)
Return on average
tangible equity    (19.73)   % (6.82)    % 1.38      % (11.33)   % 1.53      % (9.14)     % 0.32       %
(Non-GAAP)
(B)/(D)
The following
reconciles GAAP
efficiency ratio
and non-GAAP
 efficiency ratio
(Note 2):
Noninterest        $        $        $        $         $        $          $  
expense (E)        9,685       9,709       9,663       10,498      9,405       39,555       39,167
Less:
Amortization of    (74)        (96)        (96)        (126)       (126)       (392)        (512)
intangible assets
          -           -           -           -           -           -            (1,344)
Impairment charges
Adjusted           $        $        $        $         $        $          $  
noninterest        9,611       9,613       9,567       10,372      9,279       39,163       37,311
expense (F)
Taxable-equivalent $        $        $        $        $        $          $  
net interest       8,413       8,769       9,077       9,243       9,889       35,502       39,983
income (G)
Noninterest income $        $        $        $        $        $          $  
(H)                2,606       4,001       4,577       4,574       4,019       15,758       17,318
Less: Investment
securities         -           (278)       -           -           (128)       (278)        (563)
(gains)/losses
 Other
nonrecurring       1,339       -           (217)       -           (56)        1,122        (56)
(gains)/losses
Adjusted           $        $        $        $        $        $          $  
noninterest income 3,945       3,723       4,360       4,574       3,835       16,602       16,699
(I)
Efficiency ratio
(GAAP)            87.89     % 76.03     % 70.77     % 75.98     % 67.62     % 77.17      % 68.35      %
(E)/(G)+(H)
Efficiency ratio
(Non-GAAP)        77.77     % 76.95     % 71.20     % 75.07     % 67.61     % 75.16      % 65.83      %
(F)/(G)+(I)
The following
reconciles book
value per common
share and
tangible
 book value per
common share (Note
1):
Stockholders'      $          $          $          $          $ 
equity (J)         114,026     118,163     119,467     118,584     121,249
Less: Goodwill
and other          (16,270)    (16,344)    (16,440)    (16,536)    (16,662)
intangible assets
Tangible equity    $         $          $          $          $ 
(K)                97,756      101,819     103,027     102,048     104,587
Shares outstanding 8,457       8,457       8,457       8,457       8,457
(L)
Book value per     $        $        $        $        $   
common share       13.48       13.97       14.13       14.02       14.34
(GAAP) (J)/(L)
Tangible book
value per common   $        $        $        $        $   
share (Non-GAAP)  11.56       12.04       12.18       12.07       12.37
(K)/(L)
The following
reconciles average
equity to average
assets and
 average tangible
equity to average
tangible assets
(Note 1):
Average            $          $          $          $          $          $           $ 
stockholders'      117,700     119,321     118,774     121,658     121,020     119,359      121,496
equity (M)
Less: Average
goodwill and other (16,313)    (16,401)    (16,497)    (16,606)    (16,732)    (16,454)     (17,926)
intangible assets
Average tangible   $          $          $          $          $          $           $ 
equity (N)         101,387     102,920     102,277     105,052     104,288     102,905      103,570
Average assets (O) $           $           $           $           $           $            $
                   1,183,135   1,184,146   1,163,598   1,159,566   1,160,652   1,172,452    1,139,943
Less: Average
goodwill and other (16,313)    (16,401)    (16,497)    (16,606)    (16,732)    (16,454)     (17,926)
intangible assets
Average tangible   $           $           $           $           $           $            $
assets (P)         1,166,822   1,167,745   1,147,101   1,142,960   1,143,920   1,155,998    1,122,017
Average
equity/average     9.95      % 10.08     % 10.21     % 10.49     % 10.43     % 10.18      % 10.66      %
assets (GAAP)
(M)/(O)
Average tangible
equity/average
tangible assets    8.69      % 8.81      % 8.92      % 9.19      % 9.12      % 8.90       % 9.23       %
(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