Selected Financial Data
_______ ________________________________________
(Dollars in thousands, except per share data)
2008
____________________________________________________________________________________________
2012
2010
2011
2009
Years Ended December 31,
RESULTS OF OPERATIONS:
$61,474
Interest income
21,555
Interest expense
39,919
Net interest income
3,337
Provision for credit losses
36,582
Net interest income after provision for credit losses
20,350
Noninterest income
38,370
Noninterest expense
18,562
(Loss) income before income taxes
7,092
Income tax (benefit) expense
11,470
Net (loss) income
—
Preferred stock dividends and discount accretion
Net (loss) income available to common shareholders
$11,470
__________________________________________________
$50,852 $55,461
12,822
11,088
42,639
39,764
21,119
19,470
21,520
20,294
18,041
17,318
41,720
39,167
(2,159)
(1,555)
(492)
(658)
(1,667)
(897)
—
—
$(1,667)
$(897)
$45,901
10,562
35,339
27,745
7,594
15,758
39,555
(16,203)
(6,565)
(9,638)
—
$ (9,638)
$58,789
17,411
41,378
8,986
32,392
19,541
40,248
11,685
4,412
7,273
1,876
$5,397
PER COMMON SHARE DATA:
Net (loss) income – basic
Net (loss) income – diluted
Dividends paid
Book value (at year end)
Tangible book value (at year end)1
FINANCIAL CONDITION (at year end):
Loans
Assets
Deposits
Long-term debt
Stockholders’ equity
$(1.14)
(1.14)
0.01
13.48
11.56
$(0.11)
(0.11)
0.09
14.34
12.37
$(0.20)
(0.20)
0.24
14.51
12.32
$0.64
0.64
0.64
15.18
12.64
$1.37
1.37
0.64
15.16
12.55
$ 785,082 $ 841,050 $ 895,404 $ 916,557 $ 888,528
1,185,807 1,158,193 1,130,311 1,156,516 1,044,641
845,371
1,049,273 1,009,919
7,947
455
127,385
121,249
990,937
1,429
127,810
979,516
932
122,513
—
114,026
PERFORMANCE RATIOS (for the year):
Return on average total assets
Return on average stockholders’ equity
Net interest margin
Efficiency ratio2
Dividend payout ratio
Average stockholders’ equity to average total assets
(0.82)%
(8.07)%
3.23%
77.17%
(0.88)%
10.18%
(0.08)%
(0.74)%
3.74%
68.35%
(0.15)%
(1.33)%
4.02%
68.75%
(81.82)% (120.00)%
11.05%
10.66%
0.48%
4.00%
3.90%
66.07%
100.00%
11.96%
1.13%
9.22%
4.23%
63.66%
46.72%
12.30%
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.
Letter to Shareholders
To Our Shareholders,
A year ago, when we closed 2011 and wrote
our annual message to shareholders, our
comments included:
“We expect to devote the majority of our
efforts in 2012 toward further improvement
of credit quality and the improvement of
earnings.”
“On the credit quality side, this will involve
closely monitoring the health of existing
credits, continuing to focus intensely on
prudent loan workouts, and reducing the level
of nonperforming assets on our balance sheet
through orderly liquidation of loan collateral
and other real estate owned.”
“As for the improvement of earnings, we have
undertaken a variety of business development
initiatives planned to attract selected new
relationships, originate quality loans to reverse
the decline in the loan portfolio, and grow
deposit share. We have realigned key team
leaders and other personnel to proactively
conduct new business development, as we
clearly recognize there are solid opportunities
across our footprint, even in this environment,
for our organization as the dominant
independent banking company on the
Delmarva Peninsula.”
So, how well did we deliver on what we said
we expected to do?
• We significantly reduced troubled assets
(loans) and bank-owned real estate that
we have foreclosed upon by writing off
approximately $26 million during 2012,
bringing the total during this multi-year
Delmarva real estate downturn to about
$63 million since 2010. Our historically
strong capital levels resulting from our
hallmark conservative balance sheet
management enabled the company to
absorb necessary write-downs and to dispose
of nonperforming loans. Our capital ratios
remain strong, with Tier 1 Leverage and Total
Risk-Based ratios of 8.32% and 13.32% at year-
end. Both are substantially above the levels
required to be considered “well capitalized”
as defined by the regulatory authorities.
development, construction, housing sales,
and real estate maintenance. Still, we are
quite confident that our company will
emerge from this unprecedented cycle
as the ongoing dominant financial
institution across our geographic
footprint. We have the capital strength,
the management talent—with a good
succession plan, the leading market
share, and the long-standing reputation
needed to prevail as the dominant and
most successful financial services
provider locally headquartered in the
Delmarva region.
We appreciate the support and confidence
of all of our loyal shareholders.
Sincerely,
W. Moorhead Vermilye
Christopher F. Spurry
• In terms of improving earnings, we
made a major decision late in the fourth
quarter to incur the cost of terminating a
portion of an interest rate cap instrument,
as reported in our year-end earnings
press release. This action will contribute
to an ongoing improvement in the
net interest margin of our banking
operations beginning in the first quarter
of 2013 and continuing thereafter.
Restoring the margin to historical levels
in our lead subsidiary Talbot Bank will be
meaningful in increasing net income.
• On controlling the expense side of the
income statement, we have been closely-
focused. There have been no senior
executive bonuses paid, pay raises given
to employees were modest—where
deserved, director fees have been capped
and to further contain costs, open but
non-critical positions remain unfilled.
We continue to assess a variety of other
cost-containment options as we move
into 2013.
Our operating environment remains
challenging. Adverse external circum-
stances and unpredictable variables—the
factors beyond our control, continue to
resist improvement. Everyone recognizes
the uncertainty associated with the future
of the national economy, but there are
unique factors affecting the Delmarva
micro-economy. These revolve around
commercial and residential real-estate
W. Moorhead Vermilye
Chief Executive Officer
Christopher F. Spurry
Chairman of the Board
Lloyd L. “Scott” Beatty, Jr.
President and COO
SHORE BANCSHARES, INC.
BANKING
INSURANCE
HERBERT L. ANDREW, III
Farmer
BLENDA W. ARMISTEAD
Investor
LLOYD L. “SCOTT” BEATTY, JR.
President and COO, Shore Bancshares, Inc.
WILLIAM W. “BUCk” DUNCAN
Retired Bank Executive
JAMES A. JUDGE
Certified Public Accountant, Anthony, Judge & Ware, LLC
NEIL R. LECOMPTE
Certified Public Accountant, Office of Neil R. LeCompte
FRANk E. MASON, II
President and CEO, JASCO
DAVID J. BATES
Investor
CHRISTOPHER F. SPURRY
Chairman, President, Spurry and Associates, Inc.
F. WINFIELD TRICE, JR.
President and CEO, CNB
W. MOORHEAD VERMILYE
Chief Executive Officer, Shore Bancshares, Inc.
JOHN H. WILSON
President, Coastal South of MD, Inc.
Officers
W. Moorhead Vermilye
Lloyd L. “Scott” Beatty, Jr.
George S. Rapp
W. David Morse
Andrea G. Bayline
Timothy J. Berrigan
Pamela J. Dill
Debra H. Rich
Chief Executive Officer
President and COO
Vice President and CFO
Secretary and Legal Counsel
Vice President, Internal Audit
Vice President and
Chief Information Officer
Vice President and
Chief Human Relations Officer
Vice President and
Chief Project Officer
THE TALBOT BANK OF EASTON,
MARYLAND
HERBERT L. ANDREW, III, Chairman
BLENDA W. ARMISTEAD
LLOYD L. “SCOTT” BEATTY, JR.
CAROLE ANN CLEM
R. MICHAEL CLEMMER, JR.
JOHN W. DILLON
DAVID A. FIkE
DUANE F. MARSHALL
STEPHEN M. SHEARER
CHRISTOPHER F. SPURRY
DAVID P. VALLIANT
W. MOORHEAD VERMILYE
Officers
Patrick M.Bilbrough
kevin Moran
Susan E. Leaverton
Laura P. Heikes
President and CEO
Senior Vice President
and SLO
Vice President and CFO
Vice President and
Branch Administration
Officer
CNB
ANN B. COLLIER
MARk M. FREESTATE
THOMAS k. HELFENBEIN
JAMES A. JUDGE
CLYDE V. kELLY, III
NEIL R. LeCOMPTE
DAVID W. MOORE
JERRY F. PIERSON
WM. MAURICE SANGER, Chairman
JEFFREY E. THOMPSON
F. WINFIELD TRICE, JR.
MARY ELLEN VALLIANT
Officers
F. Winfield Trice, Jr.
Thomas E. Beery
Charles E. Ruch, Jr.
Edward C. Allen
Donna J. Stevens
President and CEO
Senior Vice President
and SLO
Senior Vice President
and SCO
Vice President and CFO
SeniorVice President and
Senior Operations and
Compliance Officer
THE AVON-DIXON AGENCY, LLC
ELLIOTT WILSON INSURANCE, LLC
JACK MARTIN & ASSOCIATES, INC.
LLOYD L. “SCOTT” BEATTY, JR.
JAMES “DICk” DEERIN, JR.
MARk M. FREESTATE
MARY ANN HENkER
WILLIAM L. LANE, JR., Chairman
DAVID C. LEE
EDWARD “NED” McDONALD
GEORGE T. MORAN
RICHARD C. TRIPPE, JR.
MORGAN WELLS
JOHN H. WILSON
Officer
Richard C. Trippe, Jr.
President and CEO
TRI-STATE GENERAL INSURANCE
AGENCY, LTD.
Officers
Edward A. Dickerson, III
Lloyd L. “Scott” Beatty, Jr.
Brenda Dickerson
Jodi Swift
President
Secretary
Executive Vice President
Operations Manager
INVESTMENTS
WYE FINANCIAL & TRUST
A DIVISION OF CNB
Officer
Elizabeth Spurry
Senior Vice President
From top of staircase, left to right:
Herbert L. Andrew, III, Frank E. Mason, III, John H. Wilson, James A. Judge, Christopher F. Spurry, Neil R. LeCompte, F. Winfield Trice, Jr.,
Lloyd L. “Scott” Beatty, Jr., David J. Bates, Blenda W. Armistead, William W. “Buck” Duncan, W. Moorhead Vermilye
Photo: The Tidewater Inn in Historic Easton, Maryland
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
Insurance
THE TALBOT BANK OF
EASTON, MARYLAND
18 East Dover Street
Easton, MD 21601
Phone (410) 822-1400
Fax (410) 820-7180
www.talbot-bank.com
CNB
109 N. Commerce Street
Centreville, MD 21617
Phone (410) 758-1600
Fax (410) 758-2364
www.cnb-bank.com
THE AVON-DIXON AGENCY, LLC
106 N. Harrison Street
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.elliottwilsonins.com
JACK MARTIN & ASSOCIATES, INC.
135 Old Solomon’s Island Road
Annapolis, MD 21401
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
Easton, MD 21601
Phone (410) 763-8543
Fax (410) 763-8557
www.wyefinancialandtrust.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
NASDAQ:SHBI