Shore Bancshares Inc.
Annual Report 2008

Plain-text annual report

S E L E C T E D F I N A N C I A L D A T A (Dollars in thousands, except per share data) 2008 2007 2006 2005 2004 Years Ended December 31, RESULTS OF OPERATIONS: Interest income $61,474 Interest expense 21,555 Net interest income 39,919 3,337 Provision for credit losses Net interest income after provision for credit losses 36,582 20,350 Noninterest income 38,370 Noninterest expense 18,562 Income before income taxes 7,092 Income tax expense $11,470 NET INCOME PER SHARE DATA: Net income – basic Net income – diluted Dividends paid Book value (at year end) Tangible book value (at year end) (1) FINANCIAL CONDITION (at year end): Assets Deposits Total loans, net of unearned income and allowance for credit losses Long-term debt Stockholders’ equity 65,141 24,105 41,036 1,724 39,312 14,679 32,539 21,452 8,002 $13,450 $1.61 1.60 0.64 14.35 11.68 $57,971 19,074 38,897 1,493 37,404 12,839 28,535 21,708 8,154 $13,554 $1.62 1.61 0.59 13.28 11.67 $47,384 11,899 35,485 810 34,675 11,498 25,431 20,742 7,854 $12,888 $1.55 1.54 0.54 12.17 10.51 $38,291 9,010 29,281 931 28,350 10,224 22,535 16,039 5,841 $10,198 $1.24 1.23 0.48 11.24 9.53 $1.37 1.37 0.64 15.16 12.55 $1,044,641 845,371 $956,911 765,895 $945,649 774,182 $851,638 704,958 $790,598 658,672 879,208 7,947 127,385 768,799 12,485 120,235 693,419 25,000 111,327 622,227 4,000 101,448 590,766 5,000 92,976 PERFORMANCE RATIOS (for the year): Return on average assets Return on average stockholders’ equity Net interest margin Efficiency ratio (2) Dividend payout ratio Average stockholders’ equity to average total assets 1.13 9.22 4.23 63.66 46.72 12.30 %% 1.42 11.79 4.64 58.40 39.75 12.04 % % % % 1.52 12.66 4.70 55.15 36.42 11.98 1.51 13.20 4.69 54.13 34.84 11.86 1.32 11.17 4.10 57.04 38.71 11.79 (1) Total stockholders’ equity, net of goodwill and other intangible assets, divided by the number of shares of common stock outstanding at year end. (2) Noninterest expense as a percentage of total revenue (net interest income plus total noninterest income). Lower ratios indicate improved productivity. L E T T E R T O S T O C K H O L D E R S To our shareholders, Company’s nonperform- After a year when our industry experi- enced the most significant challenges we can remember, we are confident that when the final results for commu- nity banks are all reported we will have once again outperformed our peer group in terms of the meaningful measures of financial performance, credit quality, and stability. Performance Net income for 2008 was $11.47 million or diluted net income per share of $1.37 compared to $13.45 million or diluted net income per share of $1.60 for 2007. Our return on average assets was 1.13% for 2008 compared to 1.42% for 2007, and return on stockholders’ equity was 9.22% for 2008 compared to 11.79% for 2007. Our total assets expanded by 9.2% to $1.045 billion at December 31, 2008 compared to $956.9 million at December 31, 2007. The Company pro- duced solid loan growth during 2008, increasing total loans by $112.2 million from December 31, 2007 to December 31, 2008. This growth was funded pri- marily by organic deposit growth of $79.5 million. Deposits at December 31, 2008 and 2007 totaled $845.4 million and $765.9 million, respectively. The Company experienced solid growth in Certificates of Deposit as investors sought FDIC insured deposits and the raised limit for FDIC insurance cover- age from $100,000 to $250,000 came into play. In addition to the inflows of new deposits to the Company, cus- tomers shifted from money market and savings deposits into Certificates of Deposit in order to achieve higher ing assets increased from $3.7 million at December 31, 2007 to $8.3 million at December 31, 2008. This amount is not a large number when com- pared to the value of our loan portfolio, but the 124% increase over last year is nonetheless indicative of the deterio- rating economy and real estate environment. Our nonaccrual loans are W. Moorhead Vermilye Christopher F. Spurry President and CEO Chairman of the Board primarily secured by real estate; the loss- only our banks have the local talent, local es anticipated for those loans were con- decision-making capability, and local sidered in determining the 2008 provi- scale to meet the current needs – and sion for credit losses. During the fourth grow over time, in step with both the quarter, the Company recorded a provi- Delmarva business community and its sion for credit losses of $1.4 million, bring- individual residents. We have assembled ing the total provision for the year to $3.3 the full spectrum of banking services and million. The overall level of the specialty financial products needed to allowance for credit losses increased support these relationships. $1.8 million to $9.3 million or 1.11% of average loans outstanding during 2008. Of note, The Talbot Bank recently opened a branch operation in Tilghman, Community Banking Maryland in a location that was closed by In the Company’s banking division dur- PNC Bank earlier in 2008. This was a logi- ing 2008, our focus remained on overall cal and well-received service oriented credit quality, strong underwriting of decision that should benefit our large cus- new loans, and an intense focus on core tomer base in the area. deposit growth. We believe these core banking values contributed to the over- all success of the Company in 2008. We have a solid reputation as the con- sumer and small business bank of choice for local customers across Delmarva. Despite the ongoing reces- sion, we have never diminished our lending or the provision of basic bank- ing services that are intrinsic to the growth and economic vitality of our com- Wye Financial & Trust continued to experience steady growth in 2008. We expect this important fee-generating por- tion of our business to continue to expand in 2009 and well into the future, as we refine our efforts to cross-sell new products to existing customers and to promote to all customers the value of consolidating their business under one roof. yields. This shifting of deposits coupled munities. with declining rates throughout the year had a negative impact on the Company’s net interest margin which was 4.23% for 2008, compared to 4.64% for 2007; still a very strong margin in comparison to the overall industry. The Many of the larger banks now operating in our markets have either reduced resources allocated to this area, or are merely maintaining legacy networks from old acquisitions. We believe that should be com- for unsecured debt, secured liabilities, and pleted and fully imple- brokered deposits. The impact of the mented during the second increase, plus possible further special assess- quarter of 2009, and the ments from the FDIC, will be a significant Company expects to see over- drag on Company earnings and the earn- all cost savings following the ings of the banking industry in 2009. conversion. Closing thoughts On January 9, 2009, in considera- In a time when the media is full of negative tion of $25 million, the Company issued news about our industry, the economy, and 25,000 shares of fixed rate cumulative the uncertain future, we are pleased to have preferred stock and a warrant to pur- delivered a profitable year, robust loan chase 172,970 shares of common stock growth, stable credit quality, improved mar- of the Company pursuant to the U.S. ket share, a strong balance sheet, and the Department of Treasury’s TARP Capital addition of selected new and experienced Purchase Program. Our decision to talent to our organization. As a full-service participate in the program was based financial institution with superior branch cov- on liquidity needs in fulfilling the erage and market share in those Delmarva steady loan demand in our local mar- counties with the best demographics and kets that was not being met by the growth characteristics, we believe we are larger regional and national banks. uniquely positioned to consistently outper- Recent legislative changes have signif- form our local peers and many of the best icantly altered this program , and we community banks across the country. are studying these changes to deter- mine whether they have reduced the program’s value to strong banks such as ours. However, a favorable change to the program will enable us to repay the government’s investment without any restriction other than obtaining regulatory approvals. We are currently evaluating our continued participation in the program. One of our key challenges in 2009 will be offsetting the increased cost of our FDIC Insurance. During the first quar- ter of 2009 all financial institutions will experience a uniform 7-basis-point increase to the basic insurance assess- ment rates that we must pay. Effective April 1, our 2009 FDIC insurance premi- ums will be set on risk-based criteria, which include additional assessments The Board of Directors, management team, and employees of Shore Bancshares, Inc, remain dedicated to the success of the Company. We are as well-equipped to tackle the future and as enthusiastic as we have ever been, albeit with a bit more caution and the expectation that economic uncer- tainty will persist for the foreseeable time horizon. Thank you for your continued support. Sincerely, W. Moorhead Vermilye, President and CEO Christopher F. Spurry, Chairman of the Board Insurance In our Insurance division, the challenges of a “soft” insur- ance market continued in 2008, whereby the very strong new business premium growth has been largely offset by lower premium levels, a reduction in profit sharing from companies, and ongoing competition from other agencies. The acquisitions of Jack Martin & Associates and Tri-State General Insurance Agency in 2007 contributed this past year to an overall commission income growth of $4.4 million or 57.1% when compared to 2007. Total insurance agency commis- sion income reached $12.1 million in 2008. Customer retention and new busi- ness growth were the focus in 2008, and we believe we have been successful in those initiatives, such that the insurance division will be positioned to produce at higher levels of profitability for the Company when the market returns to a more normal condition. Strategic Growth Initiatives …and Challenges During 2008, the Company began the process of selecting a new core process- ing vendor. This national vendor selec- tion revolved around a comprehensive overarching goal to replace and upgrade the majority of our banking sys- tems and many of the ancillary systems relating to financial reporting, record archives and retrieval, and automation of compliance monitoring systems. Throughout the process, we evaluated technology needs and focused acutely on automation efficiencies. The project 2008 SHORE BANCSHARES, INC. BOARD OF DIRECTORS Seated, left to right: Blenda W. Armistead, Mark M. Freestate Standing, left to right: Christopher F. Spurry; Paul M. Bowman; W. Moorhead Vermilye; F. Winfield Trice, Jr.; Lloyd L. “Scott” Beatty, Jr. On the stage, left to right: Thomas H. Evans; Jerry F. Pierson; William W. “Buck” Duncan; W. Edwin Kee, Jr.; Richard C. Granville; Herbert L. Andrew, III; Neil R. LeCompte B O A R D O F D I R E C T O R S SHORE BANCSHARES, INC. BANKING INSURANCE HERBERT L. ANDREW, III Farmer BLENDA W. ARMISTEAD Investor LLOYD L. “SCOTT” BEATTY, JR. Executive Vice President & COO, Shore Bancshares, Inc. PAUL M. BOWMAN Attorney, Law Office of Paul M. Bowman WILLIAM W. “BUCK” DUNCAN President and CEO, The Talbot Bank of Easton, Maryland THOMAS H. EVANS President and CEO, The Felton Bank MARK M. FREESTATE Vice President, The Avon-Dixon Agency, LLC RICHARD C. GRANVILLE Investor W. EDWIN KEE, JR. Professor, University of Delaware and President of Kee's Creek Farm NEIL R. LeCOMPTE Certified Public Accountant, Office of Neil R. LeCompte JERRY F. PIERSON President, Jerry F. Pierson, Inc. THE TALBOT BANK OF EASTON, MARYLAND THE AVON-DIXON AGENCY, LLC HERBERT L. ANDREW, III BLENDA W. ARMISTEAD LLOYD L. “SCOTT” BEATTY, JR. DONALD D. CASSON, CHAIRMAN JOHN W. DILLON WILLIAM W. “BUCK” DUNCAN GARY L. FAIRBANK DUANE F. MARSHALL JEROME M. McCONNELL DAVID L. PYLES STEPHEN M. SHEARER CHRISTOPHER F. SPURRY DAVID P. VALLIANT W. MOORHEAD VERMILYE Officers William W. “Buck” Duncan President & CEO Jerome M. McConnell Susan E. Leaverton Laura P. Heikes Executive Vice President & SLO Vice President & CFO Vice President & Sr. Operations & Compliance Officer THE CENTREVILLE NATIONAL BANK OF MARYLAND PAUL M. BOWMAN ANN B. COLLIER MARK M. FREESTATE THOMAS K. HELFENBEIN, CHAIRMAN JAMES A. JUDGE CLYDE V. KELLY, III NEIL R. LeCOMPTE JERRY F. PIERSON WM. MAURICE SANGER WM. E. SYLVESTOR, JR. JEFFREY E. THOMPSON F. WINFIELD TRICE, JR. MARY ELLEN VALLIANT LLOYD L. “SCOTT” BEATTY, JR. JACK BROOKS LEONARD “JAY” DAYTON, JR. JOHN DETWILER MARK M. FREESTATE DIANA H. JOHNSON WILLIAM L. LANE, JR., CHAIRMAN DAVID C. LEE EDWARD “NED” MCDONALD TERRY M. MEAD JOHN H. WILSON Officers Terry M. Mead CEO ELLIOTT WILSON INSURANCE, LLC EDWARD “NED” MCDONALD TERRY M. MEAD ERIKA S. WILSON Officers Terry M. Mead CEO JACK MARTIN & ASSOCIATES, INC. Officers Terry M. Mead CEO TRI-STATEE GGEENNEERRAALL IINNSSUURRAANNCCEE AAGGEENNCCYY,, LLTTDD.. Officers Edward A. Dickerson, III Lloyd L. “Scott” Beatty, Jr. Vice President Brenda Dickerson President Secretary/Treasurer INVESTMENTS WYE FINANCIAL & TRUST A DIVISION OF THE CENTREVILLE NATIONAL BANK OF MARYLAND Officers Elizabeth Spurry James M. Vermilye Richard B. Grieves Senior Vice President, Business Development Senior Vice President, Trust Officer Vice President CHRISTOPHER F. SPURRY, CHAIRMAN President, Spurry and Associates, Inc. F. WINFIELD TRICE, JR. President and CEO, The Centreville National Bank of Maryland Officers F. Winfield Trice, Jr. Carol I. Brownawell Thomas E. Beery Rita B. Mielke Vice President & Sr. Operations President & CEO Executive Vice President & CFO Senior Vice President & SLO Charles E. Ruch, Jr. Officer Senior Vice President & Senior Credit Officer W. MOORHEAD VERMILYE President and CEO, Shore Bancshares, Inc. THE FELTON BANK Officers W. Moorhead Vermilye Lloyd L. “Scott” Beatty, Jr. Executive Vice President & CEO Susan E. Leaverton W. David Morse Carol I. Brownawell Timothy J. Berrigan Pamela J. Hunt Laurie H. Yorkilous Andrea G. Bayline President & COO Treasurer & CFO Secretary Asst. Secretary Vice President & CIO Vice President & CHRO Director of Marketing Director of Internal Audit FREDERICK A. DUFFY THOMAS H. EVANS HARVEY R. KENTON, JR., VICE CHAIRMAN THOMAS E. MELVIN DAVID W. MOORE, CHAIRMAN JAMES W. TORBERT W. MOORHEAD VERMILYE Officers Thomas H. Evans Susan E. Leaverton Robin M. Deputy Dianne L. Webb President & CEO Vice President & CFO Vice President & Sr. Operations Officer Vice President WYE MORTGAGE GROUP, LLC Officers Rick Rider President L O C A T I O N S SHORE BANCSHARES, INC. Executive Office 18 East Dover Street Easton, MD 21601 Phone (410) 763-7800 Fax (410) 820-4238 Headquarters 28969 Information Lane Easton, MD 21601 Phone (410) 763-7800 Fax (410) 822-8893 www.shbi.com BANKING THE TALBOT BANK OF EASTON, MARYLAND Main Office 18 East Dover Street Easton, MD 21601 (410) 822-1400 (800) 673-8258 Tred Avon Square Branch 212 Marlboro Avenue Easton, MD 21601 (410) 819-3015 St. Michaels Branch 1013 S. Talbot Street St. Michaels, MD 21663 (410) 745-9166 Elliott Road Branch 8275 Elliott Road Easton, MD 21601 (410) 819-0181 Sunburst Branch 424 Dorchester Avenue Cambridge, MD 21613 (410) 476-4407 (410) 228-8402 Tilghman Branch 5804 Tilghman Island Road Tilghman, MD 21671 (410) 886-9802 THE CENTREVILLE NATIONAL BANK OF MARYLAND Main Office 109 N. Commerce Street Centreville, MD 21617 (410) 758-1600 (877) 758-1600 Route 213 Branch 2609 Centreville Road Centreville, MD 21617 (410) 758-2414 Chester Branch 300 Castle Marina Road Chester, MD 21619 (410) 604-6270 Chestertown Branch 305 High Street Chestertown, MD 21620 (410) 778-1299 Denton Branch 850 South 5th Avenue Denton, MD 21629 (410) 820-4007 Grasonville Branch 202 Pullman Crossing Grasonville, MD 21638 (410) 827-4636 Hillsboro Branch 21913 Shore Highway Hillsboro, MD 21641 (410) 820-2121 Stevensville Branch 408 Thompson Creek Road Stevensville, MD 21666 (410) 643-2233 Washington Square Branch 899 Washington Avenue Chestertown, MD 21620 (410) 810-0591 THE FELTON BANK Main Office 120 W. Main Street Felton, DE 19943 (302) 284-4600 (800) 989-4383 Milford Branch 698A N. DuPont Blvd. Milford, DE 19963 (302) 424-4600 Camden Branch 263 Wal-Mart Drive Camden, DE 19934 (302) 698-1432 WYE MORTGAGE GROUP, LLC 17 E. Dover Street, Suite 101 Easton, MD 21601 (410) 770-8786 (888) 204-8908 INSURANCE THE AVON-DIXON AGENCY, LLC Headquarters 28969 Information Lane Easton, MD 21601 (410) 822-0506 (800) 242-8758 Easton Office 106 N. Harrison Street Easton, MD 21601 (410) 822-0506 (800) 242-8758 Chestertown Office 899 Washington Avenue Chestertown, MD 21620 (410) 758-0757 Grasonville Office 202 Pullman Crossing Grasonville, MD 21638 (410) 822-0506 (800) 734-4176 The Avon-Dixon Agency t/a W.M. Freestate & Son 105 Lawyers Row Centreville, MD 21617 (410) 758-0757 (800) 462-0658 ELLIOTT WILSON INSURANCE, LLC 106 N. Harrison Street Easton, MD 21601 (410) 820-7797 (800) 235-9885 JACK MARTIN & ASSOCIATES, INC. 326 First Street #26 Annapolis, MD 21403 (410) 626-1000 (800) 497-8101 TRI-STATE GENERAL INSURANCE AGENCY, LTD. One Plaza East, 4th Floor Salisbury, MD 21802 (410) 546-1255 (800) 556-7894 INVESTMENTS WYE FINANCIAL & TRUST Main Office 16 N. Washington Street, Suite 1 Easton, MD 21601 (410) 763-8543 Centreville Office 109 N. Commerce Street Centreville, MD 21617 (410) 758-1600 NASDAQ: SHBI SHORE BANCSHARES, INC. INSURANCE Executive Office 18 East Dover Street Easton, MD 21601 Phone (410) 763-7800 Fax (410) 820-4238 Headquarters 28969 Information Lane Easton, MD 21601 Phone (410) 763-7800 Fax (410) 822-8893 www.shbi.com BANKING THE TALBOT BANK OF EASTON, MARYLAND 18 East Dover Street Easton, MD 21601 Phone (410) 822-1400 Fax (410) 820-4238 www.talbot-bank.com THE CENTREVILLE NATIONAL BANK OF MARYLAND 109 N. Commerce Street Centreville, MD 21617 Phone (410) 758-1600 Fax (410) 758-2364 www.cnbmd.com THE FELTON BANK 120 West Main Street Felton, DE 19943 Phone (302) 284-4600 Fax (302) 284-9791 www.feltonbank.com WYE MORTGAGE GROUP, LLC 17 E. Dover Street, Suite 101 Easton, MD 21601 Phone (410) 770-8786 Fax (410) 819-3048 www.wyemortgagegroup.com NASDAQ: SHBI (410) 763-7800 THE AVON DIXON AGENCY, LLC 28969 Information Lane Easton, MD 21601 Phone (410) 822-0506 Fax (410) 820-5629 www.avondixon.com ELLIOTT WILSON INSURANCE, LLC 106 N. Harrison Street Easton, MD 21601 Phone (410) 820-7797 Fax (410) 820-7754 www.avondixon.com JACK MARTIN & ASSOCIATES, INC. 326 First Street #26 Annapolis, MD 21403 Phone (410) 626-1000 Fax (410) 626-9966 www.jackmartin.com TRI-STATE GENERAL INSURANCE AGENCY, LTD. One Plaza East, 4th Floor Salisbury, MD 21802 Phone (410) 546-1255 Fax (800) 518-1904 www.tsgia.com INVESTMENTS WYE FINANCIAL & TRUST 16 N. Washington Street, Suite 1 Easton, MD 21601 Phone (410) 763-8543 Fax (410) 763-8557 www.wyetrust.com TRANSFER AGENT Registrar & Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 Investor Relations: (800) 368-5948 E-mail for investor inquiries: info@rtco.com www.rtco.com 

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