Good thinGs
happen when
you’re in it
toGether
shore Bancshares, inc.
2013 annual report
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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.
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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
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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.”
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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
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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
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