EASTON, Md., July 26, 2018 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company") reported net income of $4.391 million or $0.34 per diluted common share for the second quarter of 2018, compared to net income of $4.058 million or $0.32 per diluted common share for the first quarter of 2018, and net income of $2.352 million or $0.19 per diluted common share for the second quarter of 2017.  The Company reported net income of $8.449 million or $0.66 per diluted common share for the first half of 2018, compared to net income of $5.151 million or $0.41 per diluted common share for the first half of 2017. 

When comparing the second quarter of 2018 to the first quarter of 2018, the main reason for the improved results were increases in interest and fees on loans of $587 thousand, a reduction in noninterest expense of $635 thousand, partially offset by an increase in interest expense on short-term borrowings and the reduction of insurance agency contingent commissions which are typically received during the first quarter of the year.  When comparing the second quarter of 2018 to the second quarter of 2017, the primary reasons for the improved results were increases in net interest income of $1.7 million and noninterest income of $361 thousand, coupled with a reduction in the provision for credit losses of $556 thousand.  These positive variances were partially offset by increases in interest expense of $492 thousand and noninterest expense of $628 thousand.

"We are pleased to report a strong quarter of earnings and continued loan growth. Annualized loan growth is 11.7%," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer.  "As we continue to experience strong loan demand, we are focused on strategies for attracting and retaining core deposits which will keep our cost of funding at a lower level.  We are currently experiencing strong opportunities for growth in our markets outside of the Eastern Shore of Maryland, which we plan to capitalize on throughout the remainder of the year."  

Balance Sheet Review
Total assets were $1.452 billion at June 30, 2018, a $57.9 million, or 4.2%, increase when compared to $1.394 billion at the end of 2017.  The primary reason for the increase was the addition of $63.4 million in loans, which was funded by a decrease in investment securities available for sale of $21.4 million and an increase in short-term borrowings of $81.0 million.

Total deposits decreased $27.7 million, or 2.3%, when compared to December 31, 2017.  The decrease was due to decreases in checking accounts of $28.8 million, time deposits of $20.1 million, money market and savings deposits of $4.5 million and noninterest-bearing deposits of $1.7 million, partially offset by an increase in brokered deposits of $27.4 million.  The issuance of brokered deposits as an alternative to FHLB borrowings provided lower interest costs for comparative terms.  Total stockholders' equity increased $4.4 million, or 2.7%, when compared to the end of 2017.  At June 30, 2018, the ratio of total equity to total assets was 11.58% and the ratio of total tangible equity to total tangible assets was 9.59%, lower than the 11.75% and 9.65%, respectively, at December 31, 2017 primarily due to the significant growth in loans for the first six months of 2018.

Total assets at June 30, 2018 increased $88.9 million, or 6.5%, when compared to total assets at June 30, 2017.  The primary reason for the increase was the growth in loans of $122.3 million, or 11.8% which was partially funded by the decrease in investment securities available for sale of $26.0 million.  Total deposits decreased $21.2 million, or 1.8%, when compared to June 30, 2017, which included a reduction in interest-bearing deposits of $63.7 million, partially offset by an increase in noninterest-bearing deposits of $15.2 million and the purchase of brokered deposits of $27.4 million.  Total stockholders' equity increased $8.2 million, or 5.1%, when compared to June 30, 2017. 

Review of Quarterly Financial Results
Net interest income was $12.6 million for the second quarter of 2018, compared to $12.3 million for the first quarter of 2018 and $10.9 million for the second quarter of 2017.  The increase in net interest income when compared to the first quarter of 2018 was primarily due to an increase in average loans of $35.1 million and an extra day of earning interest resulting in $587 thousand of additional interest and fees on loans, partially offset by an increase in interest on short-term borrowings of $235 thousand and higher rates paid on interest-bearing deposits of $32 thousand.  The increase in net interest income for the second quarter of 2018 when compared to the second quarter of 2017 was primarily due to an increase in average loans of $188.2 million resulting in $2.2 million in additional interest and fees on loans, partially offset by an increase in short-term borrowings of $450 thousand and higher rates paid on interest-bearing deposits of $42 thousand.  The Company's net interest margin decreased to 3.79% from 3.83% in the first quarter of 2018 and increased from 3.73% in the second quarter of 2017.  The decline in net interest margin from the first quarter of 2018 is the direct result of increased short-term borrowings which were temporarily utilized to fund loan growth during the period in which the Bank experiences cyclical runoff of municipal deposits.  

The provision for credit losses was $418 thousand for the three months ended June 30, 2018.  The comparable amounts were $489 thousand and $974 thousand for the three months ended March 31, 2018 and June 30, 2017, respectively.  The decrease in the amount of provision for credit losses from the first quarter of 2018 of $71 thousand was due to improved credit quality in the portfolio.  The decrease in the amount of provision for credit losses from the second quarter of 2017 was due to a significant charge-off of a negotiated restructured commercial loan in the second quarter of 2017. Net charge-offs were $84 thousand for the second quarter of 2018, $352 thousand for the first quarter of 2018 and $769 thousand for the second quarter of 2017.  The ratio of annualized net charge-offs to average loans was 0.03% for the second quarter of 2018, 0.13% for the first quarter of 2018 and 0.32% for the second quarter of 2017.  The ratio of the allowance for credit losses to period-end loans was 0.87% at June 30, 2018, lower than the 0.89% at March 31, 2018 and 0.88% at June 30, 2017.

At June 30, 2018, nonperforming assets were $8.3 million, a decrease of $313 thousand, or 3.6%, when compared to March 31, 2018, primarily in nonaccrual loans which decreased $252 thousand, or 3.6%. Accruing troubled debt restructurings ("TDRs") decreased $106 thousand, or 1.1% over the same time period.  When comparing June 30, 2018 to June 30, 2017, nonperforming assets decreased $1.4 million, or 14.8%, and accruing TDRs decreased $2.5 million, or 20.7%.  The positive trend in nonperforming assets and TDRs when comparing June 30, 2018 to June 30, 2017 resulted mostly from the Company's continued workout efforts.  The ratio of nonperforming assets to total assets was 0.57%, 0.61% and 0.72% at June 30, 2018, March 31, 2018 and June 30, 2017, respectively.  In addition, the ratio of accruing TDRs to total assets at June 30, 2018 was 0.66%, compared to 0.68% at March 31, 2018 and 0.89% at June 30, 2017.

Total noninterest income for the second quarter of 2018 decreased $389 thousand, or 7.9%, when compared to the first quarter of 2018 and increased $361 thousand, or 8.6%, when compared to the second quarter of 2017.  The decrease from the first quarter of 2018 was primarily due to a decline in insurance agency commissions of $543 thousand which was partially offset by increases in service charges on deposit accounts of $42 thousand, trust and investment fee income of $14 thousand and other noninterest income of $98 thousand. Insurance agency commissions for the second quarter of 2018 were lower when compared to the first quarter of 2018 due to the fact that contingency commission payments are typically received in the first quarter of the year.  The increase from the second quarter of 2017 was mainly due to increases in insurance agency commissions of $119 thousand, service charges on deposit accounts of $69 thousand, trust and investment fee income of $42 thousand and other bank fees and service charges of $116 thousand. 

Total noninterest expense for the second quarter of 2018 decreased $635 thousand, or 5.5%, when compared to the first quarter of 2018 and increased $628 thousand, or 6.2%, when compared to the second quarter of 2017.  The decrease when compared to the first quarter of 2018 was primarily due to a decrease in data processing a result of the Company's renegotiated contract with its core processor and lower employee benefit costs.  The increase in noninterest expense from the second quarter of 2017 was due to the operating costs of four additional branches (three acquired in May 2017 and one opened in September 2017), employee benefits due to the higher insurance premiums paid for group insurance and higher salaries and wages due to pay increases implemented in the first quarter of 2018, offset by decreases in data processing, other real estate owned expenses and legal and professional fees.

Review of Six-Month Financial Results
Net interest income for the first six months of 2018 was $25.0 million, an increase of $4.1 million, or 19.8% when compared to the first six months of 2017.  The increase was primarily due an increase in average loans of approximately $203.4 million.  The increase in volume on loans was primarily funded by core deposits and short-term borrowings, allowing the overall yield on total earning assets to increase 18 basis points.  This, coupled with higher yields earned on investment securities, resulted in a net interest margin of 3.80% for the first six months of 2018 compared to 3.71% for the first six months of 2017.    

The provision for credit losses for the six months ended June 30, 2018 and 2017 was $907 thousand and $1.4 million, respectively, while net charge-offs were $567 thousand and $995 thousand, respectively.  The decrease in provision for credit losses is the result of improved credit quality in the portfolio.  The ratio of annualized net charge-offs to average loans was 0.10% for the first half of 2018 and 0.22% for the first half of 2017.

Total noninterest income for the six months ended June 30, 2018 increased $483 thousand, or 5.4%, when compared to the same period in 2017.  The increase in noninterest income primarily consists of increases in service charges on deposit accounts of $140 thousand, trust and investment income of $81 thousand and other fees on bank services of $225 thousand, which are a direct result of operating four additional branches. 

Total noninterest expense for the six months ended June 30, 2018 increased $2.4 million, or 12.3%, when compared to the same period in 2017.  The increase was primarily due to the cost of operating four additional branches which caused increases in almost all noninterest expense line items, offset by lower data processing fees, other real estate owned expenses and legal and professional fees. 

Shore Bancshares Information
Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland's Eastern Shore.  It is the parent company of Shore United Bank; one retail insurance producer firm, The Avon-Dixon Agency, LLC, with two specialty lines, Elliott Wilson Insurance (Trucking) and Jack Martin Associates (Marine); and an insurance premium finance company, Mubell Finance, LLC.  Shore Bancshares Inc. engages in trust and wealth management services through Wye Financial & Trust, a division of Shore United Bank.  Additional information is available at www.shorebancshares.com.

Forward-Looking Statements
The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management's current expectations and beliefs concerning future developments and their potential effects on the Company.  Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company.  There can be no assurance that future developments affecting the Company will be the same as those anticipated by management.  These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions.  Although these statements reflect management's good faith beliefs and projections, they are not guarantees of future performance and they may not prove true.  These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements.  For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled "Risk Factors".

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.