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Shore Bancshares Reports Second Quarter and First-Half Results

        Shore Bancshares Reports Second Quarter and First-Half Results

PR Newswire

EASTON, Md., July 24, 2013

EASTON, Md., July 24, 2013 /PRNewswire/ --Shore Bancshares, Inc. (NASDAQ:
SHBI) reported net income of $361 thousand or $0.04 per diluted common share
for the second quarter of 2013, compared to net income of $222 thousand or
$0.03 per diluted common share for the first quarter of 2013, and net income
of $293 thousand or $0.03 per diluted common share for the second quarter of
2012. The Company reported net income of $583 thousand or $0.07 per diluted
common share for the first half of 2013, compared to a net loss of $2.7
million or $(0.32) per diluted common share for the first half of 2012.

When comparing the second quarter of 2013 to the first quarter of 2013, the
primary reasons for the improved results were an increase in net interest
income of $524 thousand and a decrease in noninterest expense of $732
thousand, which were partially offset by an increase in the provision for
credit losses of $550 thousand and a decrease in noninterest income of $528
thousand. Noninterest income included a $1.3 million loss incurred to
recognize the remaining ineffective portion of a terminated interest rate cap
instrument. When comparing the second quarter of 2013 to the second quarter
of 2012, the main reason for the improved results was a decrease in the
provision for credit losses of $825 thousand, which was partially offset by a
decrease in noninterest income of $615 thousand. When comparing the first
half of 2013 to the first half of 2012, the principal factor driving the
difference was a decline in the provision for credit losses of $7.0 million,
which was partially offset by a decrease in net interest income of $750
thousand and noninterest income of $699 thousand.

"We are pleased to report a sequential quarter and period over period of
improved earnings. We continue to be cautiously optimistic that the real
estate values driving our regional economy are beginning to stabilize," said
Lloyd L. "Scott" Beatty, Jr., president and chief executive officer. "We are
moving as aggressively as possible to resolve problem credits and remove
nonperforming assets from the balance sheet. Our credit administration and
loan workout units have been expanded with the addition of experienced new
staff members, in an effort to accelerate the resolution of our credit issue
and position the organization for future growth. We continue to maintain
solid underlying capital ratios and are confident the company has the
underlying strength and resiliency to outlast and grow from this very
challenging banking environment on the Delmarva peninsula."

Balance Sheet Review
Total assets were $1.054 billion at June 30, 2013, a $131.5 million, or 11.1%,
decrease when compared to the $1.186 billion at the end of 2012. The decline
in total assets was primarily due to a decrease in interest-bearing deposits
with other banks ($65.5 million) and investment securities ($50.2 million).
Total deposits decreased 12.1% to $922.1 million mainly due to a decline in
money market deposit accounts associated with the Company's participation in
the Promontory Insured Network Deposits Program ("IND Program"). In December
2012, the Company decided to partially exit the IND Program as a way to
decrease its excess liquidity and, in June 2013, the Company fully exited the
IND Program. Total stockholders' equity remained relatively unchanged from
the end of 2012. For the first six months of 2013, the ratio of average
equity to average assets was 10.60% and the ratio of average tangible equity
to average tangible assets was 9.23%.

Review of Quarterly Financial Results
Net interest income was $9.0 million for the second quarter of 2013, compared
to $8.5 million for the first quarter of 2013 and $9.0 million for the second
quarter of 2012. The increase in net interest income when compared to the
first quarter of 2013 was due to higher interest income combined with lower
interest expense. The increase in interest income was partially the result of
a $308 thousand nonrecurring adjustment to loan income related to a troubled
debt restructuring. The decrease in interest expense was mainly the result of
lower balances of and rates paid on money market and savings deposits due to
exiting the remainder of the IND Program and terminating the interest rate
caps associated with these deposits. Net interest income for the second
quarter of 2013 was relatively unchanged when compared to the second quarter
of 2012. The Company's net interest margin improved to 3.60% for the second
quarter of 2013, compared to 3.30% for the first quarter of 2013 and 3.36% for
the second quarter of 2012. For the second quarter of 2013, the nonrecurring
adjustment to loan income increased the net interest margin 12 basis points.

The provision for credit losses was $2.7 million for the three months ended
June 30, 2013. The comparable amounts were $2.2 million and $3.5 million for
the three months ended March 31, 2013 and June 30, 2012, respectively. The
higher level of provision for credit losses when comparing the second quarter
of 2013 to the first quarter of 2013 was primarily due to increases in loan
net charge-offs ($306 thousand) and nonaccrual loans ($3.0 million).
Conversely, the lower level of provision for credit losses when comparing the
second quarter of 2013 to the second quarter of 2012 was primarily due to
decreases in loan net charge-offs ($1.4 million) and nonaccrual loans ($13.1
million). Net charge-offs were $2.7 million for the second quarter of 2013,
$2.4 million for the first quarter of 2013 and $4.1 million for the second
quarter of 2012. 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 1.38% for the second quarter of 2013, 1.25% for the first
quarter of 2013 and 2.01% for the second quarter of 2012. The ratio of the
allowance for credit losses to period-end loans was 2.01% at June 30, 2013,
compared to 2.00% at March 31, 2013 and 1.60% at June 30, 2012.

Nonperforming assets at June 30, 2013 decreased $1.2 million when compared to
March 31, 2013, which included declines in accruing troubled debt
restructurings of $2.3 million and other real estate owned of $2.0 million,
partially offset by an increase in nonaccrual loans of $3.0 million. The
decline in troubled debt restructurings was mainly due to two loan
relationships that migrated to nonaccrual loans during the second quarter of
2013. Nonperforming assets at June 30, 2013 decreased $8.7 million when
compared to June 30, 2012, primarily due to an aggregate decline of $21.7
million in nonaccrual and 90 days past due and still accruing loans, and other
real estate owned, partially offset by troubled debt restructurings which
increased $13.0 million. When comparing June 30, 2013 to June 30, 2012, the
changes in the components of nonperforming assets reflected a shift primarily
from nonaccrual loans to troubled debt restructurings. Nonaccrual loans and
troubled debt restructurings were approximately 38% and 55% of nonperforming
assets, respectively, at June 30, 2013, compared to 48% and 37%, respectively,
at June 30, 2012. At June 30, 2013 and 2012, the ratio of nonaccrual loans to
total assets was 3.30% and 4.08%, respectively, while accruing troubled debt
restructurings to total assets was 4.77% and 3.17%, respectively.

Total noninterest income for the second quarter of 2013 decreased $528
thousand, or 11.8%, when compared to the first quarter of 2013 and decreased
$615 thousand, or 13.4%, when compared to the second quarter of 2012.
Included in other noninterest income for the second quarter of 2013 was a $1.3
million loss incurred to recognize the ineffective portion of the previously
mentioned interest rate caps related to the IND Program. This loss was
substantially offset by $913 thousand in gains on sales of investment
securities. Insurance agency commissions for the second quarter of 2013 were
$180 thousand lower when compared to the first quarter of 2013 due to the fact
that contingency payments are typically received in the first quarter of the
year. However, such commissions were $227 thousand higher when compared to
the second quarter of 2012 due to a stronger wholesale market. Included in
other noninterest income for the second quarter of 2012 was a $217 thousand
gain on the sale of a bank branch building.

Total noninterest expense for the second quarter of 2013 decreased $732
thousand, or 7.0%, when compared to the first quarter of 2013, primarily due
to lower write-downs of other real estate owned included in other noninterest
expenses. When compared to the second quarter of 2012, total noninterest
expense for the second quarter of 2013 increased $96 thousand, or 1.0%.

Review of Six-Month Financial Results

Net interest income for the first six months of 2013 was $17.5 million, a
decrease of 4.1% when compared to the first six months of 2012. The 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
3.45% for the first half of 2013 and 3.39% for the first half of 2012.

The provisions for credit losses for the six months ended June 30, 2013 and
2012 were $4.9 million and $11.9 million, respectively, while net charge-offs
were $5.1 million and $13.2 million, respectively. The ratio of year-to-date
annualized net charge-offs to average loans was 1.32% for the first half of
2013 and 3.22% for the first half of 2012.

Total noninterest income for the six months ended June 30, 2013 decreased $699
thousand, or 7.6%, when compared to the same period in 2012. Included in
total noninterest income for the first half of 2013 were the $1.3 million loss
incurred to terminate the interest rate caps associated with the IND Program
and the $913 thousand in gains on sales of investment securities discussed
above. Insurance agency commissions grew $351 thousand in the first half of
2013 when compared to the first half of 2012. Other noninterest income for
the first six months of 2012 included the $217 thousand gain on the sale of a
bank branch building.

Total noninterest expense for the six months ended June 30, 2013 increased $89
thousand, or less than 1.0%, when compared to the same period in 2012. The
increase was primarily due to higher insurance agency commissions expense
($190 thousand), FDIC insurance premiums ($116 thousand) and other noninterest
expenses ($142 thousand) which were partially offset by lower salaries and
wages ($202 thousand) and occupancy expense ($116 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; an insurance
premium finance company, Mubell Finance, LLC, and a registered investment
adviser firm, Wye Financial Services, LLC. Additional information is
available at www.shbi.com.

Forward-Looking Statements
The statements contained herein that are not historical facts are
forward-looking statements (as defined by the Private Securities Litigation
Reform Act of 1995) based on management's current expectations and beliefs
concerning future developments and their potential effects on the Company.
Such statements involve inherent risks and uncertainties, many of which are
difficult to predict and are generally beyond the control of the Company.
There can be no assurance that future developments affecting the Company will
be the same as those anticipated by management. These statements are
evidenced by terms such as "anticipate," "estimate," "should," "expect,"
"believe," "intend," and similar expressions. Although these statements
reflect management's good faith beliefs and projections, they are not
guarantees of future performance and they may not prove true. These
projections involve risk and uncertainties that could cause actual results to
differ materially from those addressed in the forward-looking statements. For
a discussion of these risks and uncertainties, see the section of the periodic
reports filed by Shore Bancshares, Inc. with the Securities and Exchange
Commission entitled "Risk Factors".

The Company specifically disclaims any obligation to update any factors or to
publicly announce the result of revisions to any of the forward-looking
statements included herein to reflect future events or developments.



Shore                                                                    Page 4
Bancshares,                                                              of 11
Inc.
Financial
Highlights
(Dollars in
thousands,
except per
share data)
                For the Three Months Ended     For the Six Months Ended
               June 30,                          June 30,
               2013        2012      Change     2013        2012      Change
PROFITABILITY
FOR THE PERIOD
 Net       $        $                 $          $ 
interest       9,001       9,033       (0.4)  %  17,478      18,228      (4.1)   %
income
 Provision
for credit     2,700       3,525       (23.4)    4,850       11,895      (59.2)
losses

Noninterest    3,962       4,577       (13.4)    8,452       9,151       (7.6)
income

Noninterest    9,759       9,663       1.0       20,250      20,161      0.4
expense
 Income
(loss) before  504         422         19.4      830         (4,677)     117.7
income taxes
 Income
tax expense    143         129         10.9      247         (1,934)     112.8
(benefit)
 Net       $       $       23.2      $        $          121.3
income (loss)  361         293                583        (2,743)
 Return on 0.13      % 0.10      % 3      bp 0.11      % (0.47)    % 58      bp
average assets
 Return on 1.27        0.99        28        1.03        (4.59)      562
average equity
 Return on
average        1.66        1.38        28        1.38        (5.06)      644
tangible
equity (1)
 Net
interest       3.60        3.36        24        3.45        3.39        6
margin

Efficiency     75.13       70.77       436       77.93       73.39       454
ratio - GAAP

Efficiency     74.45       71.20       325       77.30       73.16       414
ratio -
Non-GAAP (1)
PER SHARE DATA
 Basic net
income (loss)  $       $       33.3   %  $        $         121.9   %
per common     0.04         0.03                0.07        (0.32)
share
 Diluted
net income     0.04        0.03        33.3      0.07        (0.32)      121.9
(loss) per
common share
 Dividends
paid per       -           -           -         -           0.01        (100.0)
common share
 Book
value per      13.43       14.13       (5.0)
common share
at period end
 Tangible
book value per
common share   11.52       12.18       (5.4)
at period end
(1)
 Market
value at       7.36        5.98        23.1
period end
 Market
range:
 High    7.75        7.45        4.0       7.75        7.45        4.0
 Low     5.97        5.51        8.3       5.20        4.91        5.9
AVERAGE
BALANCE SHEET
DATA
 Loans     $          $         (3.8)  %  $ 784,604   $ 824,569   (4.8)   %
               785,442     816,553
           141,193     134,299     5.1       143,960     134,168     7.3
Securities
 Earning   1,005,474   1,086,223   (7.4)     1,025,006   1,087,165   (5.7)
assets
 Assets    1,077,852   1,163,598   (7.4)     1,099,958   1,161,582   (5.3)
 Deposits  943,577     1,021,130   (7.6)     965,330     1,016,149   (5.0)

Stockholders'  114,208     118,774     (3.8)     114,229     120,216     (5.0)
equity
CREDIT QUALITY
DATA AT PERIOD
END
 Net       $        $       (33.5) %  $         $          (61.2)  %
charge-offs    2,712       4,079                 5,118       13,193
           $         $   
Nonaccrual     34,818      47,958     (27.4)
loans
 Loans 90
days past due  3           3,519       (99.9)
and still
accruing
 Total
nonperforming
loans          34,821      51,477      (32.4)
excluding
troubled debt
restructurings
 Accruing
troubled debt  50,278      37,231      35.0
restructurings
 Total
nonperforming  85,099      88,708      (4.1)
loans
 Other
real estate
and other      6,408       11,499      (44.3)
assets owned,
net
 Total     $         $  
nonperforming  91,507      100,207    (8.7)
assets
CAPITAL AND
CREDIT QUALITY
RATIOS
 Average
equity to      10.60     % 10.21     % 39     bp 10.38     % 10.35     % 3       bp
average assets
 Average
tangible
equity to      9.23        8.92        31        9.04        9.05        (1)
average
tangible
assets (1)

Annualized net 1.38        2.01        (63)      1.32        3.22        (190)
charge-offs to
average loans
 Allowance
for credit
losses to      2.01        1.60        41
period-end
loans
 Allowance
for credit
losses to      45.16       27.09       1,807
nonaccrual
loans
 Allowance
for credit
losses to      18.48       14.64       384
nonperforming
loans

Nonaccrual     4.45        5.92        (147)
loans to total
loans
 Loans 90
days past due
and still      -           0.43        (43)
accruing to
total loans
 Accruing
troubled debt  6.43        4.60        183
restructurings
to total loans

Nonperforming
assets to
total
loans+other
real estate
and
 other 11.60       12.20       (60)
assets owned

Nonaccrual     3.30        4.08        (78)
loans to total
assets
 Loans 90
days past due
and still      -           0.30        (30)
accruing to
total assets
 Accruing
troubled debt
restructurings 4.77        3.17        160
to total
assets

Nonperforming  8.68        8.53        15
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)
                                                              June 30,   June 30,
                                                              2013       2013
                          June 30,    December    June 30,    compared   compared
                                      31,                     to         to
                          2013        2012        2012        December   June 30,
                                                              31, 2012   2012
ASSETS
 Cash and due from     $       $       $       (14.9)   % (1.9)    %
banks                      22,607   26,579      23,037
 Interest-bearing      99,332      164,864     137,267     (39.7)     (27.6)
deposits with other banks
 Federal funds sold    2,567       8,750       9,269       (70.7)     (72.3)
 Investments available 95,336      145,508     133,244     (34.5)     (28.5)
for sale (at fair value)
 Investments held to   2,591       2,657       5,168       (2.5)      (49.9)
maturity
 Loans                 782,188     785,082     809,958     (0.4)      (3.4)
 Less: allowance for   (15,723)    (15,991)    (12,990)    (1.7)      21.0
credit losses
 Loans, net            766,465     769,091     796,968     (0.3)      (3.8)
 Premises and          15,315      15,593      15,398      (1.8)      (0.5)
equipment, net
 Goodwill              12,454      12,454      12,454      -          -
 Other intangible      3,668       3,816       3,986       (3.9)      (8.0)
assets, net
 Other real estate and 6,408       7,659       11,499      (16.3)     (44.3)
other assets owned, net
 Other assets          27,534      28,836      27,043      (4.5)      1.8
  $         $          $         (11.1)     (10.3)
Total assets              1,054,277  1,185,807  1,175,333
LIABILITIES
 Noninterest-bearing   $       $        $       3.0        6.1
deposits                  158,562    153,992    149,472
 Interest-bearing      763,545     895,281     883,231     (14.7)     (13.6)
deposits
 Total     922,107     1,049,273   1,032,703   (12.1)     (10.7)
deposits
 Short-term borrowings 10,095      13,761      13,826      (26.6)     (27.0)
 Accrued expenses and  8,481       8,747       8,882       (3.0)      (4.5)
other liabilities
 Long-term debt        -           -           455         -          (100.0)
 940,683     1,071,781   1,055,866   (12.2)     (10.9)
Total liabilities
STOCKHOLDERS' EQUITY
 Common stock, par
value $0.01; authorized
 35,000,000 shares  85          85          85          -          -
 Additional paid in    32,169      32,155      32,087      -          0.3
capital
 Retained earnings     81,661      81,078      87,973      0.7        (7.2)
 Accumulated other
comprehensive (loss)      (321)       708         (678)       (145.3)    52.7
income

Total stockholders'       113,594     114,026     119,467     (0.4)      (4.9)
equity
 $         $          $  
Total liabilities and     1,054,277  1,185,807  1,175,333  (11.1)     (10.3)
stockholders' equity
Period-end common shares  8,461       8,457       8,457       -          -
outstanding
Book value per common     $       $       $       (0.4)      (5.0)
share                       13.43   13.48      14.13





Shore Bancshares, Inc.                                               Page 6
                                                                     of 11
Consolidated Statements
of Operations
(In thousands, except
per share data)
                        For the Three Months       For the Six Months Ended
                        Ended
                        June 30,                   June 30,
                        2013     2012    %         2013     2012     %
                                         Change                      Change
INTEREST INCOME
 Interest and fees   $       $      (6.9)   % $       $       (8.5)   %
on loans                10,142  10,890           20,049  21,901
 Interest and
dividends on investment
securities:
 Taxable         568      707     (19.7)    1,211    1,464    (17.3)
 Tax-exempt      4        32      (87.5)    9        70       (87.1)
 Interest on federal 1        2       (50.0)    3        4        (25.0)
funds sold
 Interest on
deposits with other     40       61      (34.4)    90       109      (17.4)
banks
      10,755   11,692  (8.0)     21,362   23,548   (9.3)
Total interest income
INTEREST EXPENSE
 Interest on         1,748    2,643   (33.9)    3,870    5,284    (26.8)
deposits
 Interest on         6        11      (45.5)    14       26       (46.2)
short-term borrowings
 Interest on         -        5       (100.0)   -        10       (100.0)
long-term debt
      1,754    2,659   (34.0)    3,884    5,320    (27.0)
Total interest expense
NET INTEREST INCOME     9,001    9,033   (0.4)     17,478   18,228   (4.1)
Provision for credit    2,700    3,525   (23.4)    4,850    11,895   (59.2)
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES     6,301    5,508   14.4      12,628   6,333    99.4
NONINTEREST INCOME
 Service charges on  600      622     (3.5)     1,172    1,270    (7.7)
deposit accounts
 Trust and           393      446     (11.9)    783      869      (9.9)
investment fee income
 Investment          913      -       -         913      -        -
securities gains
 Insurance agency    2,633    2,406   9.4       5,446    5,095    6.9
commissions
 Other noninterest   (577)    1,103   (152.3)   138      1,917    (92.8)
income

Total noninterest       3,962    4,577   (13.4)    8,452    9,151    (7.6)
income
NONINTEREST EXPENSE
 Salaries and wages  4,307    4,376   (1.6)     8,590    8,792    (2.3)
 Employee benefits   1,006    956     5.2       2,140    2,126    0.7
 Occupancy expense   612      638     (4.1)     1,209    1,325    (8.8)
 Furniture and       243      212     14.6      493      463      6.5
equipment expense
 Data processing     706      694     1.7       1,409    1,360    3.6
 Directors' fees     55       127     (56.7)    176      236      (25.4)
 Amortization of     74       96      (22.9)    148      222      (33.3)
intangible assets
 Insurance agency    458      344     33.1      919      729      26.1
commissions expense
 FDIC insurance      367      344     6.7       733      617      18.8
premium expense
 Other noninterest   1,931    1,876   2.9       4,433    4,291    3.3
expenses

Total noninterest       9,759    9,663   1.0       20,250   20,161   0.4
expense
Income (loss) before    504      422     19.4      830      (4,677)  117.7
income taxes
Income tax expense      143      129     10.9      247      (1,934)  112.8
(benefit)
NET INCOME (LOSS)      $     $    23.2      $     $       121.3
                         361     293              583    (2,743)
Weighted average shares 8,461    8,457   -         8,460    8,457    -
outstanding - basic
Weighted average shares 8,465    8,457   0.1       8,460    8,457    -
outstanding - diluted
Basic net income (loss) $     $    33.3      $     $     121.9
per common share        0.04    0.03             0.07    (0.32)
Diluted net income      0.04     0.03    33.3      0.07     (0.32)   121.9
(loss) per common share
Dividends paid per      -        -       -         -        0.01     (100.0)
common share





Shore Bancshares,                                                                          Page 7
Inc.                                                                                       of 11
Consolidated
Average Balance
Sheets
(Dollars in
thousands)
                    For the Three Months Ended              For the Six Months Ended
                    June 30,                                June 30,
                    2013                2012                2013                2012
                    Average    Yield/   Average    Yield/   Average    Yield/   Average    Yield/
                    balance    rate     balance    rate     balance    rate     balance    rate
Earning assets
 Loans             $        5.19   % $        5.38   % $        5.17   % $        5.35   %
                    785,442             816,553             784,604             824,569
 Investment
securities
 Taxable          140,614    1.62     130,528    2.18     143,380    1.70     130,148    2.26
 Tax-exempt       579        4.81     3,771      5.32     580        4.83     4,020      5.34
 Federal funds     2,992      0.10     11,200     0.10     5,573      0.11     10,497     0.08
sold
 Interest-bearing  75,847     0.21     124,171    0.20     90,869     0.20     117,931    0.19
deposits
 Total earning   1,005,474  4.30   % 1,086,223  4.35   % 1,025,006  4.21   % 1,087,165  4.37   %
assets
Cash and due from   22,510              21,424              23,731              19,799
banks
Other assets        66,967              70,458              68,070              69,310
Allowance for       (17,099)            (14,507)            (16,849)            (14,692)
credit losses
Total assets        $                   $                   $                   $
                    1,077,852           1,163,598           1,099,958           1,161,582
Interest-bearing
liabilities
 Demand deposits   $        0.15   % $        0.18   % $        0.16   % $        0.19   %
                    162,589             152,685             168,120             152,988
 Money market and
savings deposits    225,117    0.67     276,527    1.18     234,597    0.82     277,941    1.15
(1)
 Certificates of
deposit $100,000 or 203,641    1.32     242,662    1.46     209,929    1.35     241,591    1.46
more
 Other time        197,644    1.30     205,046    1.73     199,399    1.38     203,394    1.78
deposits

Interest-bearing    788,991    0.89     876,920    1.21     812,045    0.96     875,914    1.21
deposits
 Short-term        10,752     0.24     13,818     0.31     11,366     0.25     15,720     0.33
borrowings
 Long-term debt    -          -        455        4.63     -          -        455        4.63
 Total
interest-bearing    799,743    0.88   % 891,193    1.20   % 823,411    0.95   % 892,089    1.20   %
liabilities
Noninterest-bearing 154,586             144,210             153,285             140,235
deposits
Accrued expenses
and other           9,315               9,421               9,033               9,042
liabilities
Stockholders'       114,208             118,774             114,229             120,216
equity
Total liabilities   $                   $                   $                   $
and stockholders'   1,077,852           1,163,598           1,099,958           1,161,582
equity
Net interest spread            3.42   %            3.15   %            3.26   %            3.17   %
Net interest margin            3.60   %            3.36   %            3.45   %            3.39   %
(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 $279 thousand and $502 thousand for the second
 quarter of 2013 and 2012, respectively, and $695 thousand and $962
thousand for the first six months of 2013 and 2012, respectively.
 The interest rate caps
were terminated in June of
2013.





Shore Bancshares,                                                                          Page 8
Inc.                                                                                       of 11
Financial
Highlights By
Quarter
(Dollars in
thousands, except
per share data)
                   2nd         1st         4th         3rd         2nd         2Q 13       2Q 13
                   quarter     quarter     quarter     quarter     quarter
                   2013        2013        2012        2012        2012        compared    compared
                                                                               to          to
                   (2Q 13)     (1Q 13)     (4Q 12)     (3Q 12)     (2Q 12)     1Q 13       2Q 12
PROFITABILITY FOR
THE PERIOD

Taxable-equivalent $       $       $       $       $       6.2      %  (0.5)    %
net interest         9,028   8,504       8,413       8,769       9,077
income
 Less:
Taxable-equivalent 27          27          32          39          44          -           (38.6)
adjustment
 Net interest  9,001       8,477       8,381       8,730       9,033       6.2         (0.4)
income
 Provision for 2,700       2,150       9,650       6,200       3,525       25.6        (23.4)
credit losses
 Noninterest   3,962       4,490       2,606       4,001       4,577       (11.8)      (13.4)
income
 Noninterest   9,759       10,491      9,685       9,709       9,663       (7.0)       1.0
expense
 Income (loss)
before income      504         326         (8,348)     (3,178)     422         54.6        19.4
taxes
 Income tax     143         104         (3,274)     (1,357)     129         37.5        10.9
expense (benefit)
 Net income     $       $       $        $        $    
(loss)                       222      (5,074)     (1,821)      293      62.6        23.2
                   361
 Return on     0.13      % 0.08      % (1.71)    % (0.61)    % 0.10      % 5        bp 3        bp
average assets
 Return on     1.27        0.79        (17.15)     (6.07)      0.99        48          28
average equity
 Return on
average tangible   1.66        1.11        (19.73)     (6.82)      1.38        55          28
equity (1)
 Net interest  3.60        3.30        3.02        3.15        3.36        30          24
margin
 Efficiency    75.13       80.74       87.89       76.03       70.77       (561)       436
ratio - GAAP
 Efficiency
ratio - Non-GAAP   74.45       80.17       77.77       76.95       71.20       (572)       325
(1)
PER SHARE DATA
 Basic net      $       $       $       $       $    
income (loss) per            0.03      (0.60)     (0.22)      0.03      33.3     %  33.3     %
common share       0.04
 Diluted net
income (loss) per  0.04        0.03        (0.60)      (0.22)      0.03        33.3        33.3
common share
 Dividends
paid per common    -           -           -           -           -           -           -
share
 Book value
per common share   13.43       13.51       13.48       13.97       14.13       (0.6)       (5.0)
at period end
 Tangible book
value per common   11.52       11.60       11.56       12.04       12.18       (0.7)       (5.4)
share at period
end (1)
 Market value  7.36        6.79        5.39        6.02        5.98        8.4         23.1
at period end
 Market range:
 High       7.75        6.91        6.98        6.33        7.45        12.2        4.0
 Low        5.97        5.20        4.65        4.98        5.51        14.8        8.3
AVERAGE BALANCE
SHEET DATA
 Loans         $        $          $          $          $          0.2      %  (3.8)    %
                   785,442    783,757    799,512    808,244    816,553
 Securities    141,193     146,756     144,459     137,871     134,299     (3.8)       5.1
 Earning       1,005,474   1,044,755   1,108,585   1,108,256   1,086,223   (3.8)       (7.4)
assets
 Assets        1,077,852   1,122,310   1,183,135   1,184,146   1,163,598   (4.0)       (7.4)
 Deposits      943,577     987,325     1,042,842   1,040,693   1,021,130   (4.4)       (7.6)
 Stockholders' 114,208     114,250     117,700     119,321     118,774     -           (3.8)
equity
CREDIT QUALITY
DATA AT PERIOD END
 Net           $       $       $       $       $       12.7     %  (33.5)   %
charge-offs          2,712   2,406       6,614       6,235       4,079
 Nonaccrual    $       $        $        $        $        9.4         (27.4)
loans              34,818     31,813      36,474      39,442      47,958
 Loans 90 days
past due and still 3           22          460         4,675       3,519       (86.4)      (99.9)
accruing
 Total
nonperforming
loans excluding    34,821      31,835      36,934      44,117      51,477      9.4         (32.4)
troubled debt
restructurings
 Accruing
troubled debt      50,278      52,545      52,353      50,785      37,231      (4.3)       35.0
restructurings
 Total
nonperforming      85,099      84,380      89,287      94,902      88,708      0.9         (4.1)
loans
 Other real
estate and other   6,408       8,366       7,659       8,418       11,499      (23.4)      (44.3)
assets owned, net
 Total         $       $        $        $          $ 
nonperforming      91,507     92,746      96,946      103,320    100,207    (1.3)       (8.7)
assets
CAPITAL AND CREDIT
QUALITY RATIOS
 Average
equity to average  10.60     % 10.18     % 9.95      % 10.08     % 10.21     % 42       bp 39       bp
assets
 Average
tangible equity to 9.23        8.86        8.69        8.81        8.92        37          31
average tangible
assets (1)
 Annualized
net charge-offs to 1.38        1.25        3.29        3.07        2.01        13          (63)
average loans
 Allowance for
credit losses to   2.01        2.00        2.04        1.60        1.60        1           41
period-end
loans
 Allowance for
credit losses to   45.16       49.46       43.84       32.85       27.09       (430)       1,807
nonaccrual
loans
 Allowance for
credit losses to   18.48       18.65       17.91       13.65       14.64       (17)        384
nonperforming
loans
 Nonaccrual
loans to total     4.45        4.05        4.65        4.88        5.92        40          (147)
loans
 Loans 90 days
past due and still -           -           0.06        0.58        0.43        -           (43)
accruing to total
loans
 Accruing
troubled debt      6.43        6.69        6.67        6.29        4.60        (26)        183
restructurings to
total loans
 Nonperforming
assets to total
loans+other real
estate and
 other     11.60       11.68       12.23       12.65       12.20       (8)         (60)
assets owned
 Nonaccrual
loans to total     3.30        2.88        3.08        3.35        4.08        42          (78)
assets
 Loans 90 days
past due and still -           -           0.04        0.40        0.30        -           (30)
accruing to total
assets
 Accruing
troubled debt      4.77        4.76        4.41        4.31        3.17        1           160
restructurings to
total assets
 Nonperforming
assets to total    8.68        8.40        8.18        8.77        8.53        28          15
assets
(1) See the
reconciliation
table on page 11
of 11.





Shore Bancshares,                                                            Page 9
Inc.                                                                         of 11
Consolidated
Statements of
Operations By Quarter
(In thousands, except
per share data)
                                                                  2Q 13      2Q 13
                                                                  compared   compared
                                                                  to         to
                      2Q 13   1Q 13   4Q 12     3Q 12     2Q 12   1Q 13      2Q 12
INTEREST INCOME
 Interest and fees $     $     $      $      $  
on loans                           10,193    10,604           2.4      % (6.9)    %
                      10,142  9,907                       10,890
 Interest and
dividends on
investment
securities:
 Taxable       568     643     666       685       707     (11.7)     (19.7)
 Tax-exempt    4       5       12        22        32      (20.0)     (87.5)
 Interest on       1       2       3         3         2       (50.0)     (50.0)
federal funds sold
 Interest on
deposits with other   40      50      86        79        61      (20.0)     (34.4)
banks
    10,755  10,607  10,960    11,393    11,692  1.4        (8.0)
Total interest income
INTEREST EXPENSE
 Interest on       1,748   2,122   2,570     2,647     2,643   (17.6)     (33.9)
deposits
 Interest on       6       8       9         10        11      (25.0)     (45.5)
short-term borrowings
 Interest on       -       -       -         6         5       -          (100.0)
long-term debt

Total interest        1,754   2,130   2,579     2,663     2,659   (17.7)     (34.0)
expense
NET INTEREST INCOME   9,001   8,477   8,381     8,730     9,033   6.2        (0.4)
Provision for credit  2,700   2,150   9,650     6,200     3,525   25.6       (23.4)
losses
NET INTEREST INCOME
AFTER PROVISION
 FOR CREDIT LOSSES   6,301   6,327   (1,269)   2,530     5,508   (0.4)      14.4
NONINTEREST INCOME
 Service charges   600     572     653       628       622     4.9        (3.5)
on deposit accounts
 Trust and         393     390     365       410       446     0.8        (11.9)
investment fee income
 Investment        913     -       -         278       -       -          -
securities gains
 Insurance agency  2,633   2,813   2,292     2,427     2,406   (6.4)      9.4
commissions
 Other noninterest (577)   715     (704)     258       1,103   (180.7)    (152.3)
income

Total noninterest     3,962   4,490   2,606     4,001     4,577   (11.8)     (13.4)
income
NONINTEREST EXPENSE
 Salaries and      4,307   4,283   4,240     4,386     4,376   0.6        (1.6)
wages
 Employee benefits 1,006   1,134   923       945       956     (11.3)     5.2
 Occupancy expense 612     597     609       625       638     2.5        (4.1)
 Furniture and     243     250     235       265       212     (2.8)      14.6
equipment expense
 Data processing   706     703     654       703       694     0.4        1.7
 Directors' fees   55      121     107       131       127     (54.5)     (56.7)
 Amortization of   74      74      74        96        96      -          (22.9)
intangible assets
 Insurance agency  458     461     387       275       344     (0.7)      33.1
commissions expense
 FDIC insurance    367     366     387       376       344     0.3        6.7
premium expense
 Other noninterest 1,931   2,502   2,069     1,907     1,876   (22.8)     2.9
expenses

Total noninterest     9,759   10,491  9,685     9,709     9,663   (7.0)      1.0
expense
Income (loss) before  504     326     (8,348)   (3,178)   422     54.6       19.4
income taxes
Income tax expense    143     104     (3,274)   (1,357)   129     37.5       10.9
(benefit)
                      $     $     $      $      $  
NET INCOME (LOSS)              (5,074)  (1,821)       62.6       23.2
                       361    222                        293
Weighted average
shares outstanding -  8,461   8,458   8,457     8,457     8,457   -          -
basic
Weighted average
shares outstanding -  8,465   8,458   8,457     8,457     8,457   0.1        0.1
diluted
Basic net income      $     $     $      $      $  
(loss) per common                                      33.3       33.3
share                 0.04   0.03   (0.60)   (0.22)   0.03
Diluted net income
(loss) per common     0.04    0.03    (0.60)    (0.22)    0.03    33.3       33.3
share
Dividends paid per    -       -       -         -         -       -          -
common share





Shore Bancshares,                                                                                                                       Page 10
Inc.                                                                                                                                    of 11
Consolidated Average Balance
Sheets By Quarter
(Dollars in
thousands)
                                                                                                                             Average balance
                                                                                                                             2Q 13      2Q 13
                                                                                                                             compared   compared
                                                                                                                             to         to
                    2Q 13                1Q 13                4Q 12                3Q 12                2Q 12                1Q 13      2Q 12
                    Average     Yield/   Average     Yield/   Average     Yield/   Average     Yield/   Average     Yield/
                    balance     rate     balance     rate     balance     rate     balance     rate     balance     rate
Earning assets
 Loans             $         5.19   % $         5.14   % $         5.09   % $         5.23   % $         5.38   % 0.2      % (3.8)    %
                    785,442              783,757              799,512              808,244              816,553
 Investment
securities
 Taxable          140,614     1.62     146,176     1.78     143,137     1.85     135,257     2.01     130,528     2.18     (3.8)      7.7
 Tax-exempt       579         4.81     580         4.85     1,322       5.05     2,614       5.07     3,771       5.32     (0.2)      (84.6)
 Federal funds     2,992       0.10     8,184       0.11     7,782       0.12     11,971      0.11     11,200      0.10     (63.4)     (73.3)
sold
 Interest-bearing  75,847      0.21     106,058     0.19     156,832     0.22     150,170     0.21     124,171     0.20     (28.5)     (38.9)
deposits
 Total earning   1,005,474   4.30   % 1,044,755   4.13   % 1,108,585   3.94   % 1,108,256   4.10   % 1,086,223   4.35   % (3.8)      (7.4)
assets
Cash and due from   22,510               24,966               21,258               20,158               21,424               (9.8)      5.1
banks
Other assets        66,967               69,185               67,596               69,921               70,458               (3.2)      (5.0)
Allowance for       (17,099)             (16,596)             (14,304)             (14,189)             (14,507)             3.0        17.9
credit losses
Total assets        $                    $                    $                    $                    $                    (4.0)      (7.4)
                    1,077,852           1,122,310           1,183,135           1,184,146           1,163,598
Interest-bearing
liabilities
 Demand deposits   $         0.15   % $         0.17   % $         0.18   % $         0.18   % $         0.18   % (6.4)      6.5
                    162,589              173,714              169,398              167,423              152,685
 Money market and
savings deposits    225,117     0.67     244,182     0.97     281,593     1.21     279,003     1.19     276,527     1.18     (7.8)      (18.6)
(1)
 Certificates of
deposit $100,000 or 203,641     1.32     216,288     1.39     231,232     1.40     238,624     1.46     242,662     1.46     (5.8)      (16.1)
more
 Other time        197,644     1.30     201,171     1.47     204,213     1.59     207,547     1.66     205,046     1.73     (1.8)      (3.6)
deposits

Interest-bearing    788,991     0.89     835,355     1.03     886,436     1.15     892,597     1.18     876,920     1.21     (5.6)      (10.0)
deposits
 Short-term        10,752      0.24     11,987      0.27     13,573      0.27     14,909      0.27     13,818      0.31     (10.3)     (22.2)
borrowings
 Long-term debt    -           -        -           -        -           -        455         4.58     455         4.63     -          (100.0)
 Total
interest-bearing    799,743     0.88   % 847,342     1.02   % 900,009     1.14   % 907,961     1.17   % 891,193     1.20   % (5.6)      (10.3)
liabilities
Noninterest-bearing 154,586              151,970              156,406              148,096              144,210              1.7        7.2
deposits
Accrued expenses
and other           9,315                8,748                9,020                8,768                9,421                6.5        (1.1)
liabilities
Stockholders'       114,208              114,250              117,700              119,321              118,774              -          (3.8)
equity
Total liabilities   $                    $                    $                    $                    $
and stockholders'   1,077,852           1,122,310           1,183,135           1,184,146           1,163,598           (4.0)      (7.4)
equity
Net interest spread             3.42   %             3.11   %             2.80   %             2.93   %             3.15   %
Net interest margin             3.60   %             3.30   %             3.02   %             3.15   %             3.36   %
(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 $279 thousand for the second quarter of 2013, $416 thousand for the first quarter of 2013, $552 thousand for the
fourth quarter of 2012, $524 thousand for the third
 quarter of 2012 and $502 thousand for the second quarter of 2012. The interest rate
caps were terminated in June of 2013.





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
                   2Q 13        1Q 13       4Q 12       3Q 12       2Q 12        06/30/2013   06/30/2012
The following
reconciles return
on average equity
and return on
 average tangible
equity (Note 1):
Net income (loss) $        $       $         $         $        $        $   
                     361      222        (5,074)    (1,821)     293       583         (2,743)
Net income (loss)  $        $       $          $         $        $         $   
- annualized (A)   1,448       900        (20,186)   (7,244)    1,178        1,176        (5,516)
Net income (loss),
excluding net      $        $       $         $         $        $        $   
amortization of      406      267        (5,029)    (1,763)     351       673         (2,609)
intangible assets
Net income (loss),
excluding net
amortization of
intangible
 assets -         $        $        $          $         $        $         $   
annualized (B)     1,628       1,083      (20,007)   (7,014)    1,412        1,357        (5,247)
Average            $         $          $          $          $          $           $ 
stockholders'      114,208      114,250    117,700    119,321    118,774      114,229      120,216
equity (C)
Less: Average
goodwill and other (16,166)     (16,242)    (16,313)    (16,401)    (16,497)     (16,204)     (16,551)
intangible assets
Average tangible   $        $         $          $          $          $          $ 
equity (D)         98,042       98,008     101,387    102,920    102,277      98,025       103,665
Return on average
equity (GAAP)     1.27       % 0.79      % (17.15)   % (6.07)    % 0.99       % 1.03       % (4.59)     %
(A)/(C)
Return on average
tangible equity    1.66       % 1.11      % (19.73)   % (6.82)    % 1.38       % 1.38       % (5.06)     %
(Non-GAAP)
(B)/(D)
The following
reconciles GAAP
efficiency ratio
and non-GAAP
 efficiency ratio
(Note 2):
Noninterest        $        $         $        $        $        $          $  
expense (E)        9,759       10,491     9,685      9,709      9,663        20,250       20,161
Less:
Amortization of    (74)         (74)        (74)        (96)        (96)         (148)        (222)
intangible assets
 Other
nonrecurring       49           -           -           -           -            49           -
adjustments
Adjusted           $        $         $        $        $        $          $  
noninterest        9,734       10,417     9,611      9,613      9,567        20,151       19,939
expense (F)
Taxable-equivalent $        $        $        $        $        $          $  
net interest       9,028       8,504      8,413      8,769      9,077        17,532       18,320
income (G)
Nonrecurring       (308)        -           -           -           -            (308)        -
adjustment
Taxable-equivalent
net interest       $        $        $        $        $        $          $  
income excluding   8,720       8,504      8,413      8,769      9,077        17,224       18,320
nonrecurring
adjustment (H)
Noninterest income $        $        $        $        $        $         $   
(I)                3,962       4,490      2,606      4,001      4,577        8,452        9,151
Less: Investment
securities         (913)        -           -           (278)       -            (913)        -
(gains)/losses
 Other
nonrecurring       1,306        -           1,339       -           (217)        1,306        (217)
(gains)/losses
Adjusted           $        $        $        $        $        $         $   
noninterest income 4,355       4,490      3,945      3,723      4,360        8,845        8,934
(J)
Efficiency ratio
(GAAP)            75.13      % 80.74     % 87.89     % 76.03     % 70.77      % 77.93      % 73.39      %
(E)/(G)+(I)
Efficiency ratio
(Non-GAAP)        74.45      % 80.17     % 77.77     % 76.95     % 71.20      % 77.30      % 73.16      %
(F)/(H)+(J)
The following
reconciles book
value per common
share and tangible
 book value per
common share (Note
1):
Stockholders'      $         $          $          $          $  
equity (K)         113,594      114,348    114,026    118,163    119,467
Less: Goodwill
and other          (16,122)     (16,196)    (16,270)    (16,344)    (16,440)
intangible assets
Tangible equity    $        $         $         $          $  
(L)                97,472       98,152     97,756     101,819    103,027
Shares outstanding 8,461        8,461       8,457       8,457       8,457
(M)
Book value per     $        $        $        $        $    
common share       13.43       13.51      13.48      13.97      14.13
(GAAP) (K)/(M)
Tangible book
value per common   $        $        $        $        $    
share (Non-GAAP)  11.52       11.60      11.56      12.04      12.18
(L)/(M)
The following
reconciles average
equity to average
assets and
 average tangible
equity to average
tangible assets
(Note 1):
Average            $         $          $          $          $          $           $ 
stockholders'      114,208      114,250    117,700    119,321    118,774      114,229      120,216
equity (N)
Less: Average
goodwill and other (16,166)     (16,242)    (16,313)    (16,401)    (16,497)     (16,204)     (16,551)
intangible assets
Average tangible   $        $         $          $          $          $          $ 
equity (O)         98,042       98,008     101,387    102,920    102,277      98,025       103,665
Average assets (P) $           $           $           $           $            $            $
                   1,077,852   1,122,310   1,183,135   1,184,146   1,163,598   1,099,958    1,161,582
Less: Average
goodwill and other (16,166)     (16,242)    (16,313)    (16,401)    (16,497)     (16,204)     (16,551)
intangible assets
Average tangible   $           $           $           $           $            $            $
assets (Q)         1,061,686   1,106,068   1,166,822   1,167,745   1,147,101   1,083,754    1,145,031
Average
equity/average     10.60      % 10.18     % 9.95      % 10.08     % 10.21      % 10.38      % 10.35      %
assets (GAAP)
(N)/(P)
Average tangible
equity/average
tangible assets    9.23       % 8.86      % 8.69      % 8.81      % 8.92       % 9.04       % 9.05       %
(Non-GAAP)
(O)/(Q)
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: For further information contact: George Rapp, Chief Financial
Officer, 410-763-7800
 
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