Shore Bancshares Inc.
Annual Report 2015

Plain-text annual report

Shore Bancshares, Inc. 2015 ANNUAL REPORT Good things happen when we’re United SELECTED FINANCIAL DATA (Dollars in thousands, except per share data) 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 Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Years Ended December 31, Years Ended December 31 2015 2014 2013 2012 2011 $ 38,871 3,346 35,525 2,075 $ 38,289 4,247 34,042 3,350 33,450 15,416 37,350 11,516 4,408 $ 7,108 30,692 16,781 39,361 8,112 3,061 $ 5,051 $ 41,351 6,475 34,876 27,784 7,092 17,459 40,686 (16,135) (6,501) $ (9,634) $ 45,901 10,562 35,339 27,745 7,594 15,758 39,555 (16,203) (6,565) $ (9,638) $ 50,852 11,088 39,764 19,470 20,294 17,318 39,167 (1,555) (658) $ (897) PER COMMON SHARE DATA: Net income (loss) – basic Net income (loss) – 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 $ 0.56 0.56 0.04 11.64 10.59 $ 0.46 0.46 - 11.13 10.08 $ (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 $ 795,114 1,135,143 975,464 - 146,967 $ 710,746 1,100,402 949,004 - 140,469 $ 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 PERFORMANCE RATIOS (for the year): Return on average total assets Return on average stockholders’ equity Net interest margin Efficiency ratio Dividend payout ratio Average stockholders’ equity to average total assets 2 ASSET QUALITY RATIOS (for the year): Nonperforming assets to total assets Nonperforming assets and accruing TDRs to total assets Allowance for credit losses to average loans Allowance for credit losses to nonaccrual loans Allowance for credit losses to nonaccrual loans and TDRs 0.64% 4.93 3.43 73.21 7.14 13.04 1.44% 2.81 1.06 68.77 30.14 0.47% 4.04 3.43 77.45 - 11.66 1.57% 3.09 1.09 57.14 25.53 (0.89)% (8.64) 3.48 77.59 - 10.31 2.11% 4.58 1.40 59.10 24.25 (0.82)% (8.07) 3.23 77.17 (0.88) 10.18 (0.08)% (0.74) 3.74 68.35 (81.82) 10.66 3.76% 5.48% 8.18 1.96 43.84 18.00 7.66 1.64 27.81 18.66 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. BOARD OF DIRECTORS Dear Shareholders: 2015 was a very successful year for Shore Bancshares, Inc. The Company reported net income of $7.108 million or $.56 per diluted common share for the year as compared to $5.051 million or $0.46 per diluted common share for 2014. Perhaps the most significant event of 2015 was the termination of the regulatory Consent Order on the Talbot Bank. The combination of steady quarterly earnings growth and the release of the Order enabled us to restore the quarterly dividend during the third quarter of 2015. We experienced a noticeable improvement in the local economy which enabled us to grow our loan portfolio. Loans grew by $84 million reflecting a 11.9% increase in total loans. In addition we experienced an increase in total deposits of 2.8% in 2015 primarily through growth in non-interest-bearing accounts from our commercial customers. Our earnings performance does not rely strictly on growing the traditional margin business of our banks. In addition to banking, Shore Bancshares offers a complete line of financial services including insurance and wealth management. We will continue to explore all of our fee-based business products and services to enhance client relationships and supplement the Company’s fee income. The introduction of innovative products and services to existing and prospective customers enhances our competitive position as the largest independent financial holding company headquartered on the Eastern Shore of Maryland. In 2015, we launched a Company-wide marketing campaign to show the connection between our companies and our diverse product and service offerings. To further support this campaign, our employees have been actively engaged in conversations with our business partners to enhance client relationships and increase referrals across our companies. We continue to explore opportunities to expand our market share. In January of 2015, we extended our footprint in Delaware with our affiliate bank, CNB, by opening a new branch location in Dover. In early October, CNB opened a loan production office in Middletown. We believe both of these areas offer significant growth opportunities. We also intend to seek acquisition opportunities through branch or whole bank acquisitions that will enhance our position in our existing and complementary markets. While the financial performance of any business is the primary indicator of success, there are multiple initiatives that occur behind the scenes that contribute to our success. At Shore Bancshares, we believe that our employees are the key to achieving our goals. We have committed to the professional growth of our employees by offering training and education to improve their technical and leadership skills. We now have a formal training program with two full time training associates. In 2015, employees participated in over 6,100 hours of training. We believe our focus on education is a vital component to the achievement of our objectives. At Shore Bancshares, we believe that investing in our communities is another key component of our ongoing success. In 2015, we invited our employees to participate in a company-wide fundraising challenge for children in our region. The Company offered to match the money the employees raised dollar for dollar up to $5 thousand dollars. As always, our employees went over and above the challenge. They gave a significant amount of their personal time and demonstrated tremendous creativity and resourcefulness in raising more than $21 thousand through a variety of events. These funds and the additional Company donation generated in excess of $26 thousand dollars to support various grant requests for youth programs across the Mid-Shore. It is also important to note that our employees typically contribute in excess of 15,000 volunteer hours annually to our communities. This commitment of time by our employees to the communities we serve is a fact that is often overlooked when discussing the significance of community banking to local citizens and economies. As we look to 2016 and beyond, we will continue to focus on helping our clients, shareholders, employees and communities achieve the success they deserve. We believe we have built a very strong organization that is well positioned to continue to grow and further contribute to the needs of all of our stakeholders. We thank you, our shareholders, for your continued support of Shore Bancshares and commitment to our plans for our continued success. Sincerely, Lloyd L. “Scott” Beatty, Jr. Christopher F. Spurry Pictured: Scott Beatty, CEO (left), Chris Spurry, Chairman (right) WE CONTINUE TO LOOK AT OPPORTUNITIES FOR EXPANSION Middletown Dover South Carolina The Delaware market area continues to show growth. To capitalize on this opportunity our affiliate bank, CNB opened a new location in Dover, Delaware with a two year growth target to grow deposits by $20 million and loans by $10 million. As of year-end the Dover location has reached the halfway point on its deposit goal and is at 70% of meeting its two year loan goal. CNB also opened a new Loan Production Office in Middletown, Delaware to service the expanding business market in the New Castle County area. Early results of new business relationships indicate positive outcomes in 2016. In January of 2015, our affiliate Jack Martin & Associates, specializing in boat, yacht and marine insurance expanded their footprint into South Carolina and Georgia by adding a remote agent who specializes in the marine industry. ENHANCING CLIENT RELATIONSHIPS BANKING To respond to the increased use of debit cards versus checks for payment, we expanded our Overdraft Services giving clients the option to add ATM and debit card transactions to our discretionary overdraft service. In the wake of large scale data breaches and the increase in counterfeit card fraud, we are actively working with our third party vendors to implement EMV (Europay, MasterCard and Visa) technology to our debit cards in the first quarter of 2016. EMV is a global standard for credit and debit cards to be equipped with computer chips to authenticate chip-card transactions, protect consumers and improve payment security. Streamlining our internal processes continues to be a high priority. In August, we consolidated the sales and service of our Cash Management and Merchant Services department to Shore Bancshares, allowing our branches to focus more on day to day sales and servicing. We continue to explore new core products and services to improve efficiencies, increase fee based revenue and offer added convenience to our clients, employees, communities and shareholders. INSURANCE The recognition of consumers’ potential role as an active participant in selecting insurance coverage is not a new development but one that keeps our insurance team on its toes. Our insurance division uses demand-side strategies to help consumers and business owners differentiate between high and low value services when shopping for insurance coverage. Unlike captive agents who are only able to write a policy with one company, our agents are able to compare rates and coverage with over 100 top-rated insurance companies. In the last year, the Avon-Dixon Agency increased new business origination by 16% ranging from auto, health, cyber-security, marine, trucking services and more. The agency continues to help customers with risks involving employment practices, professional services and travel. INVESTMENTS As the financial markets report crashing oil prices, a slowdown in China and a slow moving U.S. economy, our investment business was not immune to churn. Over the last year, we have rebuilt our team of financial advisors at Wye Financial & Trust bringing new energy and focus to the company. We view this change as an opportunity for increased sales activity and growth in the coming year. To enhance our investment client’s online experience, the evaluation of a new trust platform was conducted in 2015 to bring new features and functionality to the user’s online experience.  The new platform was implemented in the first quarter of 2016.   Banking, insurance and investments are competitive businesses. Continuously adding products and services allows us to enhance our client relationships and maintain a competitive advantage. Focus on Employees We believe that by providing formal training in addition to on the job training to our employees, we are able to better serve our community and our clients. Employee Education Hours Helping our employees and our communities grow. In our effort to enhance our employees’ knowledge and foster opportunities for career advancement, we opened a centralized training facility in Ridgely, Maryland. We believe that by providing formal training in addition to on the job training to our employees, we are able to better serve our community and our clients. During the year, our employees attended training and education sessions with topics ranging from sales, product knowledge, systems and software to service and ethics. Overall our employees participated in 1,797 training classes totaling over 6,100 hours in 2015. In 2015, our employees participated in over 6,100 hours of training to help our local economy thrive and our employees grow professionally. Employee Training Hours by Category 2015 Other 540 On-Boarding 288 Policy 810 Systems & Software 737 Service & Ethics 1,251 Sales 1,555 Supervisory & Product Knowledge 924 6,100 Employees Volunteered Focus on Community Hours At Shore Bancshares, our community of companies is built around the character of our people. We are vested in our communities and we demonstrate our commitment by giving back. Helping our employees and our communities grow. Corporate Contributions In 2015, our employees volunteered over 15,000 hours of their time in addition to Corporate contributions that totaled over $100k. Youth & Education $43,150 Community Development $33,756 Health & Human Services $13,204 Environment & Agriculture $10,175 While we’re proud to help so many different organizations in our service areas, we felt it was important to look for a way for all of our companies to participate in a challenge that could unite our efforts of volunteering and fundraising to have a more significant impact. In April, we accepted a Community Challenge for Kids with the Bryan Brothers Foundation. The Bryan Brothers Foundation asked businesses like ours to step up and participate in the challenge by competing against other local businesses to raise money for programs and organizations designed to help kids. The Bryan Brothers Foundation benefits multiple non-profit organizations throughout our communities by giving grants to those organizations and programs that help children and youth on the Shore. To kick-off this challenge, employees were encouraged to participate in one of the following ways: make a donation or create a team fundraising event for the Bryan Brothers Foundation. In return, Shore Bancshares agreed to match a portion of the fundraising proceeds, and incent participants with an opportunity to win a day off with pay and offer additional prizes for the team raising the most money. Our employees have embraced the team challenge by creating multiple fund-raising events from bake sales and ugly tie contests to a designer purse bingo, silent auction and more. Since April of 2015, the employees of Shore Bancshares and its community of companies have raised over $21,837 dollars towards the Bryan Brothers Community Challenge for Kids. The challenge will continue through March 2016 when the company and its employees will declare a victory! 15,000$100kCOMPANY WIDE MARKETING CAMPAIGN Our overall marketing strategy is to increase public awareness of Shore Bancshares, Inc. and the connection between our bank, insurance and investment companies. By developing campaign messages to demonstrate the unity across our community of companies along with the consistent use of our tagline, “Good things are happening here®” we have been successful in connecting the dots and demonstrating our breadth of services. Through the use of multi-media channels; print, online, digital, radio, television, direct mail and now social media, our message has been broadcasted to all demo- graphics in our market areas and beyond. To reach our growing audience of millennials, we began actively engaging in the social conversation in May of 2015 for our insurance affiliates and in October for our banks. We believe that social media is a great space for sustaining and promoting a positive brand reputation and image to our employees and clients. Social media sites are powerful communication tools that can have a positive impact on a company’s reputation and the overall brand experience for the client. With the volume of conversations occurring in the social world, it is good business sense to be invested in listening to our clients, prospects or any other discussions relating to our products or services. By listening to these conversations, we have the ability to analyze and monitor customer sentiments and trends which can be used to improve our customer management process, enhance product quality and develop new offerings to meet client needs. It can also help us identify areas to improve client satisfaction, allow us to fully engage our clients in every interaction and deepen our client relationships. Through the use of Facebook and LinkedIn our companies now have a social presence with a growing fan base and many followers. Social media sites are powerful communication tools that can have a positive impact on a company’s reputation and overall brand experience for the client. What are we communicating about? Service Volunteering Holidays Events Community Tips Employees Affiliate Connections Products 162 Followers Followers Per Company Page 21 10 12 11 16 16 15 61 70 60 50 40 30 20 10 0 SHBI ADA EWI JMA FS TB CNB WFT 15 Posts 2% Engagement Rate 453 Posts 8.6% Engagement Rate 350 300 250 200 150 100 50 0 1,496 Fans Likes Per Company Page 280 253 239 303 259 172 ADA EWI JMA FS TB CNB INSURANCE Avon-Dixon Agency, LLC Elliott Wilson Insurance Jack Martin & Associates Lloyd L. “Scott” Beatty, Jr. James “Dick” Deerin, Jr. Mark M. Freestate 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 & Chief Executive Officer W. David Morse Secretary George S. Rapp Treasurer when we’re BOARD OF DIRECTORS SHORE BANCSHARES Blenda W. Armistead Investor David J. Bates Investor Lloyd L. “Scott” Beatty, Jr. President & Chief Executive Officer Shore Bancshares, Inc. James A. Judge Certified Public Accountant Anthony Judge & Ware, LLC Frank E. Mason, II President & Chief Executive Officer JASCO David W. Moore President & Chief Executive Officer Milford Housing Development Corporation Christopher F. Spurry Chairman Founder/Former Owner of Spurry & Associates, Inc. W. Moorhead Vermilye Senior Business Development Officer The Talbot Bank John H. Wilson President, Coastal South of MD, Inc. Officers Lloyd L. “Scott” Beatty, Jr. President & Chief Executive Officer George S. Rapp Vice President & Chief Financial Officer W. David Morse Secretary & Legal Counsel Donna J. Stevens Senior Vice President & Chief Operating Officer Timothy J. Berrigan Vice President & Chief Information Officer Pamela J. Dill Vice President & Chief Human Resources Officer Debra H. Rich Vice President, Chief Marketing & Project Officer BANKING The Talbot Bank 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 & Chief Executive Officer George S. Rapp Chief Financial Officer Kathleen Kurtz Executive Vice President & Senior Credit Officer Michael T. Cavey Executive Vice President & Senior Lending Officer W. David Morse Vice President & Legal Counsel CNB Ann B. Collier Mark M. Freestate Thomas K. Helfenbein James A. Judge Clyde V. Kelly, III, Chairman David W. Moore Wm. Maurice Sanger Jeffrey E. Thompson, Vice Chairman Mary Ellen M. Valliant Officers Edward C. Allen President & Chief Executive Officer Charles E. Ruch, Jr. Senior Vice President & Chief Credit Officer Lynn Payne Vice President & Chief Financial Officer GOODTHINGSHAPPENUnited BANKING The Talbot Bank of Easton, Maryland 18 E. Dover Street Easton, MD 21601 410.822.1400 800.673.8258 talbot-bank.com CNB 109 N. Commerce Street Centreville, MD 21617 410.758.1600 877.758.1600 cnb-bank.com INSURANCE Avon-Dixon Agency, LLC 106 N. Harrison Street Easton, MD 21601 410.822.0506 800.242.8758 avondixon.com Elliott Wilson Insurance 106 N. Harrison Street Easton, MD 21601 410.820.7797 800.235.9885 elliottwilsonins.com Jack Martin & Associates 135 Old Solomons Island Road Annapolis, MD 21401 410.626.1000 800.497.5804 jackmartin.com INVESTMENTS Wye Financial & Trust 16 N. Washington Street Easton, MD 21601 410.763.8543 wyefinancialandtrust.com ENHANCE CLIENT RELATIONSHIPS SHORE BANCSHARES, INC. Headquarters 28969 Information Lane Easton, MD 21601 410.763.7800 TRANSFER AGENT Broadridge Corporate Issuer Solutions P.O. Box 1342 Brentwood, NY 11717 866.232.0392 720.358.3588 Investor Relations Contact: Mr. George S. Rapp 410.822.3855 George.Rapp@SHBI.com NASDAQ:SHBI Total stockholders’ equity, net of goodwill and other intangible assets, divided by the number of shares of common stock outstanding at year end. Noninterest expense as a percentage of total revenue (net interest income plus total noninterest income). Lower ratios indicate improved productivity. shorebancshares.com NASDAQ:SHBI 

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