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