Shore Bancshares Inc.
Annual Report 2013

Plain-text annual report

Good thinGs happen when you’re in it toGether shore Bancshares, inc. 2013 annual report i i d e F n n G o u r F u t u r e a s w e l o o K a h e a d w h e r e y o u l l F n d u s i ’ selected Financial data (Dollars in thousands, except per share data) 2013 2012 2011 2010 2009 Years Ended December 31, RESULTS OF OPERATIONS: Interest income Interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest income Noninterest expense (Loss) income before income taxes Income tax (benefit) expense Net (loss) income Preferred stock dividends and discount accretion Net (loss) income available to common shareholders $ 41,351 6,475 34,876 27,784 7,092 17,459 40,686 (16,135 6,501 (9, 634) — $(9,634) $ 45,901 10,562 35,339 27,745 7,594 15,758 39,555 (16,203) (6,565) (9,638) — $(9,638) $50,852 11,088 39,764 19,470 20,294 17,318 39,167 (1,555) (658) (897) — $ (897) $55,461 12,822 42,639 21,119 21,520 18,041 41,720 (2,159) (492) (1,667) — $(1,667) $58,789 17,411 41,378 8,986 32,39 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) — 12.19 10.31 $ (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 $ 711,919 1,054,124 933,468 — 103,299 $ 785,082 1,185,807 1,049,273 — 114,026 $ 841,050 1,158,193 1,009,919 455 121,249 $895,404 1,130,311 979,516 932 122,513 $ 916,557 1,156,516 990,937 1,429 127,810 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 (0.89) % (8.64) 3.48 77.59 — 10.31 (0.82) % (8.07) 3.23 77.17 (0.88) 10.18 (0.08) % (0.74) 3.74 68.35 (81.82) 10.66 (0.15) % (1.33) 4.02 68.75 (120.00) 11.05 0.48 % 4.00 3.90 66.07 100.00 11.96 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. To further support the marketing campaign and future direction of our company we launched a series of quarterly meetings in the second quarter of 2013 for our top leadership staff to focus on core strategic objectives to develop a unified approach to enhance business development, and build a strong sales and marketing culture. During the third quarter of 2013, our banks switched to a new debit card platform to add an additional layer of security in monitoring fraudulent activity. The new platform includes adaptive software that will enable us to contact our custom- ers to confirm when a transaction appears to be outside of a customer’s normal spending patterns. Our benefits insurance division of the Avon Dixon Agency is responding to the changes surrounding the Affordable Care Act by offering free webinars and seminars to help business clients who are forced to balance the shift in health care benefits and the potential costs that may be incurred as the law is implemented. Wye Financial and Trust continues to support Shore Bancshares in competing with larger financial services by providing brokerage, wealth management, and trust services for our banks and insurance companies as well as independent clients, thereby building deeper relationships with our customers. In the fourth quarter of 2013, the loan operations departments of Talbot Bank and CNB were merged into a central location to leverage the resources and talents of our staff, create efficiencies, and support the future loan growth of our banks. In the last year, we have implemented many new initiatives and internal process improvements, and we have promoted and hired staff to help us navigate through the challenges of 2013. With many of these issues now behind us we will focus our resources on the most promising markets, diversified lending, and product, employee, and business development. At Shore Bancshares we are committed to meet the overall strategic mission of our company; to be the dominant financial institution on the Delmarva Peninsula. Finally, we thank you, our shareholders, for your continuing support and investment in the future of our company. Sincerely, Lloyd “Scott” L. Beatty, Jr. Christopher F. Spurry dear shareholders: We are pleased to have 2013 end on a positive note. Shore Bancshares Inc., reported a net income of $1.2 million or $0.14 per diluted common share, compared to a net loss of $11.4 million or ($1.35) per diluted common share for the third quarter of 2013. The primary reason for the improved results was due to a decline in the credit provision for credit losses which is a direct result of the bulk sale of non-performing loans in the third quarter. On October 28, 2013, Shore Bancshares Inc., the wholly owned subsidiary of The Talbot Bank of Easton made the decision to sell a significant number of its non-performing loans to curtail credit losses and provide an opportunity for future earnings and growth. A significant portion of our non-performing loans were real estate development loans that had been restructured due to the current market conditions. Also in the loan sale was a variety of real estate that was acquired through the foreclosure process and held on The Talbot Bank’s balance sheet. By selling the non-performing assets we improved our risk profile; we are now in a position to change the trajectory of our future by aggressively pursuing opportunities that will enhance revenue. In reflection, 2013 was a transformation year for Shore Bancshares, Inc., beginning with executive leadership changes. In January of 2013, Mr. George Rapp joined the company as Chief Financial Officer of Shore Bancshares, Inc. Mr. Rapp has extensive finan- cial banking experience and has held numerous positions as an executive leader at various companies. Mr. Patrick Bilbrough was promoted to Chief Executive Officer at the Talbot Bank, succeeding Mr. Buck Duncan who retired in January of 2013. In June of 2013, Mr. Lloyd “Scott” L. Beatty, Jr. was promoted to Chief Executive Officer of Shore Bancshares, Inc., succeeding Mr. Moorhead Vermilye who retired as Chief Executive Officer of Shore Bancshares, Inc. Later in June of 2013, Donna Stevens was promoted to Senior Vice President, Chief Operations Officer at Shore Bancshares, Inc., after serving as Senior Vice President of Operations and Compliance at CNB. The economic crisis over the past five years presented significant challenges for our companies. Businesses on the Delmarva have not rebounded as well as in other regions. Real estate activity and prices continue to remain sluggish with few signs of improve- ment. The latent effects of the economy and the real estate market have altered our strategy. STRATEGIC MOVES IN 2013 In the first quarter of 2013 we partnered with a marketing agency to aid us in conducting a series of focus groups to help us better understand our custom- ers and prospects of Shore Bancshares and its business entities. The research concluded that respondents felt it was important to have a provider that meets all of their service needs, is local in the community, and can offer “big bank” products and services under one roof. As a result of our research findings, in July we launched a new brand campaign “good things are happening here™” to leverage our company culture and commitment to our local communities and to promote the broad range of innovative banking, insurance, and wealth management solutions available throughout our community of companies. i i d e F n n G o u r F u t u r e a s w e l o o K a h e a d w h e r e y o u l l F n d u s i ’ Good people MaKe Good thinGs happen Shore BancShareS Today in a marketplace of continual innovation and change, a company needs strong strategic leadership to survive. Shore Bancshares Executive Leaders, Lloyd L. “Scott” Beatty, Jr., President and Chief Executive Officer and George S. Rapp, Chief Financial Officer are invest- ing the time and energy to make positive changes in 2014. In 2013, the leadership team at Shore Bancshares, Inc. launched quarterly officer and manager meetings to build employee relationships across all of its companies. “The platform of these meetings focuses on the ‘big picture’ our road map to success,” says Mr. Rapp. “By bringing our employees together, they all hear the same message”. SCOTT BEATTY GEORGE RAPP Like most companies, employees spend a considerable amount of time communicating through e-mail and telephone without ever meeting face to face. “The quarterly meetings not only provide a consistent message about financial performance, strategic objectives, and the status of projects, they bring something more; the opportunity for employees to share information with their co-workers,” comments Mr. Beatty. Throughout 2014 the companies will continue to meet quarterly to share information about their lines of business and discuss the successes and modifications we need to increase profitability. “We believe that every day affords the opportunity to become better than what we were yesterday,” says Mr. Beatty. The Shore Bancshares story may have begun over a decade ago, but the spirit, principles and core values that have driven our success so far will guide us into the future and to continue to help make many good things happen for our stockholders, customers and employees. Wye Financial & TruST As a division of CNB, Wye Financial & Trust’s history reaches back to 1876 when Centreville National Bank opened its doors to business. In 2002 CNB created Wye Financial Services which evolved to become Wye Financial & Trust in 2005. Personal, relationship-based customer service is at the core of Wye Financial & Trust’s philosophy and distinguishes our small and independent wealth management team. Our business is built on a commitment to providing high quality advice, delivered by a professionally credentialed staff with access to world-class portfolio managers. At Wye Financial & Trust we adapt our wealth management services to meet the individual needs of our clients, whether they be individuals, families, or institutions. Our services include but are not limited to: comprehensive planning, wealth management, fiduciary and trust services. These services are important to our banking and insurance customers, and support the growth strategies of the entire Shore Bancshares company. By working with internal partners across all the affiliates, Wye Financial & Trust can help grow and build deeper life-long relationships with our customers. BETH SPURRY We live and work in the communities that we serve. The staff of Wye Financial & Trust believes in giving back to our neighbors. We have consistently provided support through charitable giving and volunteer hours to numerous organizations and events on the Eastern Shore. “We put the customer at the center of all of our work by providing the wealth management and financial planning services they need in the ways that are most helpful to them,” comments Beth Spurry, Senior Vice President. “We continually look for ways to grow the value of our company to benefit our customers, our affiliates, our shareholders and our community.” cnB We are optimistic about the future of our bank and have put ourselves in a “ready to go” position as the right opportuni- ties present themselves.  “Community banks have held to their deep local roots by offering trademark customer service, lower fees than the big banks and more lending flexibility,” says Win Trice, President and Chief Executive Officer of CNB. CNB rates as one of the healthiest banks on the Delmarva Peninsula, allowing us the flexibility to offer more lending solutions than our nearby competitors. CNB has a talented business development and lending team in place who have built strong relationships with our customers. We work closely with our affiliate companies to utilize company resources to enhance our performance to benefit our customers and shareholders. Attracting new customers and deepening relationships with our existing customers is critical to our success. By introducing our customers to services offered by other affiliate companies, in insurance and wealth management, we are building a process that will yield high rewards in the coming year. Personal customer service is the norm for doing business and practiced daily in all of our 11 branches. CNB volunteers provided 8,155 hours of community service in 2013; the highest number of hours on record over preceding years. All that we have achieved so far has been through the teamwork and strength of our employees. TalBoT BanK We are now in a strong position to aggressively pursue lending opportunities that will support the growth of the communities in which we live and work. As a local community bank, we are linked to the people and businesses that we serve. We continually strive to invest in our community whether it is through charitable giving or volunteer service hours provided by our employees. Talbot Bank had the honor of being named ‘Best Bank of the Eastern Shore’ by the What’s up eastern Shore magazine reader’s poll. The award recognized Talbot Bank as the best for bank services that the Shore has to offer. “We have been a partner, neighbor and friend to our community for over 125 years,” comments Pat Bilbrough, President and Chief Executive Officer of Talbot Bank. “We strive to serve our customers well and to make a real difference in their lives.” We believe that being a local bank is much more than opening a branch on every corner. It’s the critical role we take in channeling loans to our depositor’s neighborhoods, thereby helping to keep our communities vibrant and growing. Larger regional banks may take deposits in one state and lend in others. As a local bank, we focus our attention on the needs of local businesses and our officers as well as executive management are accessible to our customers. “Talbot Bank is in a great position to gain market share in the coming year,” says Pat Bilbrough. “We are ready to put 2013 behind us and focus on future success.” PAT BILBROUGH WIN TRICE avon-Dixon Since 1850, The Avon-Dixon Agency has enjoyed a long history operating as an independent, full-service insurance agency with multiple divisions in Maryland, including Jack Martin & Associates, Freestate and Son, and Elliott Wilson Insurance. The many lines of person- al, business and benefit insurance products offered by Avon-Dixon provide unique solutions to match each client’s individual needs.  The insurance specialists at Avon-Dixon serve customers throughout the United States. Avon-Dixon is a strong, customer-focused insurance agency that responds to ever changing personal and business environments affected by legislation and laws, the most notable of which is currently the Affordable Care Act (ACA). The benefits division is actively reaching out to educate clients and the public through public service announcements, email campaigns, webinars and individual meetings to help them understand how the ACA will impact them. Employees at Avon-Dixon believe that civic involvement means serving and getting to know the communities in which they live. Participation in various types of local activities and organizations provides a foundation a s w e l o o K a h e a d RICH TRIPPE for caring and helping their customers no matter where that customer lives. This expands the impact of Avon-Dixon beyond the local community outward to the entire region. “At Avon-Dixon, we remain dedicated to helping people manage the risks of everyday life,” say Rich Trippe, President. “Avon-Dixon can help make good things happen whether a customer is just starting out in life or in business, is already established or is planning for the future.” w h e r e y o u l l F n d u s i ’ Board oF directors SHORE BANCSHARES, INC. BANKING INSURANCE 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 DIANA JOHNSON WILLIAM L. LANE JR., Chairman EDWARD “NED” MCDONALD RICHARD C. TRIPPE, JR. MORGAN WELLS JOHN H. WILSON Officers Richard C. Trippe, Jr.  President and Chief Executive Officer William L. Lane, Jr.   Executive Vice President Mark M. Freestate     Executive Vice President TRI-STATE GENERAL INSURANCE AGENCY, LTD. Officers Edward A. Dickerson, III President Lloyd L. “Scott” Beatty, Jr. Secretary Brenda Dickerson Executive Vice President INVESTMENTS WYE FINANCIAL & TRUST Officer Elizabeth Spurry Senior Vice President HERBERT L. ANDREW, III Farmer BLENDA W. ARMISTEAD Investor LLOYD L. “SCOTT” BEATTY, JR. President and Chief Executive Officer Shore Bancshares, Inc. 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 Chief Executive Officer, JASCO DAvID J. BATES Investor CHRISTOPHER F. SPURRY Chairman President, Spurry and Associates, Inc. F. WINFIELD TRICE, JR. President and Chief Executive Officer, CNB W. MOORHEAD vERMILYE Senior Business Development Officer Talbot Bank JOHN H. WILSON President, Coastal South of MD, Inc. Officers Lloyd L. “Scott” Beatty, Jr. President and Chief Executive Officer Shore Bancshares, Inc. George S. Rapp Vice President and Chief Financial Officer W. David Morse Secretary and Legal Counsel Andrea G. Bayline Vice President, Internal Audit Donna J. Stevens Senior Vice President Chief Operations Officer Timothy J. Berrigan Vice President and Chief Information Officer Pamela J. Dill Vice President and Chief Human Relations Officer Debra H. Rich 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 STEvE M. SHEARER CHRISTOPHER F. SPURRY DAvID P. vALLIANT W. MOORHEAD vERMILYE Officers Patrick M. Bilbrough President and Chief Executive Officer Laura P. Heikes Senior Vice President Branch Administration Officer Kathleen Kurtz                    Senior Vice President Senior Credit Officer Kevin W. Moran                  Senior Vice President Senior Lending Officer CNB ANN B. COLLIER MARK M. FREESTATE THOMAS K. HELFENBEIN JAMES A. JUDGE CLYDE v. KELLY, III, vice-Chairman DAvID W. MOORE WM. MAURICE SANGER, Chairman JEFFREY E. THOMPSON F. WINFIELD TRICE, JR. MARY ELLEN M. vALLIANT Officers F. Winfield Trice, Jr. President and Chief Executive Officer Charles E. Ruch, Jr. Senior Vice President and Chief Credit Officer Edward C. Allen Vice President and Chief Financial Officer INSURANCE 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 DIANA JOHNSON WILLIAM L. LANE JR., Chairman EDWARD “NED” MCDONALD RICHARD C. TRIPPE, JR. MORGAN WELLS JOHN H. WILSON Officers Richard C. Trippe, Jr.  President and Chief Executive Officer William L. Lane, Jr.   Executive Vice President Mark M. Freestate     Executive Vice President TRI-STATE GENERAL INSURANCE AGENCY, LTD. Officers President Secretary Edward A. Dickerson, III Lloyd L. “Scott” Beatty, Jr. Brenda Dickerson Executive Vice President INVESTMENTS WYE FINANCIAL & TRUST Officer Elizabeth Spurry Senior Vice President Kent County CHESTERTOWN ANNAPOLIS STEVENSVILLE CHESTER Anne Arundel County GRASONVILLE Queen Anne’s County CENTREVILLE MARYLAND HILLSBORO DENTON CAMDEN Kent County FELTON MILFORD DELAWARE BAY DELAWARE BAY ST. MICHAELS EASTON Caroline County MARYLAND Talbot County TRAPPE DELAWARE Sussex County CAMBRIDGE Dorchester County Wicomico County SALISBURY TILGHMAN ISLAND C H E S A P E A K E B A Y SHORE BANCSHARES, INC. INSURANCE POTOMAC RIVER 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) 820-7180 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 w h e r e y o u ATLANTIC l l OCEAN F n d u s i ’ shorebancshares.com nasdaQ:shBi 

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