Shore Bancshares Reports 2019 Results

EASTON, Md., Jan. 30, 2020 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company") reported income from continuing operations of $4.014 million or $0.32 per diluted common share for the fourth quarter of 2019, compared to income from continuing operations of $4.214 million or $0.33 per diluted common share for the third quarter of 2019, and income from continuing operations of $3.853 million or $0.30 per diluted common share for the fourth quarter of 2018, which excludes the results of operations and sale of its retail insurance business, Avon Dixon, LLC ("Avon") on December 31, 2018 for net proceeds of $25.2 million and a net gain after tax of $8.2 million, or $0.65 per diluted common share.  The Company reported income from continuing operations of $16.284 million or $1.28 per diluted common share for fiscal year 2019, compared to income from continuing operations of $15.763 million or $1.24 per diluted common share for fiscal year 2018, which excludes the results of operations and sale of Avon which totaled $9.234 million, or $0.72 per diluted common share.

When comparing income from continuing operations for the fourth quarter of 2019 to the third quarter of 2019, net income decreased $200 thousand due to an increase in noninterest expenses of $461 thousand, partially offset by increases in net interest income of $84 thousand and noninterest income of $165 thousand.  When comparing income from continuing operations for the fourth quarter of 2019 to the fourth quarter of 2018, the improved results were due to an increase in noninterest income of $582 thousand, coupled with a decrease in the provision for credit losses of $260 thousand, partially offset by an increase in noninterest expenses of $629 thousand.

"2019 was a great year for deposit growth and despite a flat yield curve for most of the year, revenues remained strong." said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer.  "We experienced deposit growth of nearly 11% in 2019 allowing us to reduce our alternative funding levels. During the year we increased our dividend by 31% and instituted a stock repurchase program through which we acquired 278,700 shares of our common stock. In addition, we hired new lending teams to reach untapped markets. We head into 2020 with a very positive outlook and a strategic focus for growth as we remain committed to providing excellent customer service and maximizing shareholder value." 

Balance Sheet ReviewTotal assets were $1.559 billion at December 31, 2019, a $76.2 million, or 5.1%, increase when compared to $1.483 billion at December 31, 2018.  The increase was primarily due to total deposits increasing $129.0 million or 10.6%.  The significant growth in deposits funded increases in loans of $53.3 million, or 4.5%, interest-bearing deposits with other banks of $25.6 million, or 50.2%, and other assets of $22.9 million, or 129.5%, which includes the purchase of approximately $26.5 million of bank owned life insurance ("BOLI") during 2019.  In addition, the increase in deposits allowed the Company to decrease its short-term borrowings by $59.6 million, or 98.0%.  

Total deposits increased $129.0 million, or 10.6%, when compared to December 31, 2018.  The increase in total deposits primarily consisted of increases in interest-bearing checking deposits of $62.4 million, noninterest-bearing deposits of $26.2 million, time deposits greater than $100 thousand of $29.7 million, savings and money market accounts of $24.0 million and other time deposits of $8.8 million, partially offset by a decrease in brokered deposits of $22.1 million.

Total stockholders' equity increased $9.6 million, or 5.2%, when compared to the end of 2018. At December 31, 2019, the ratio of total equity to total assets was 12.37% and the ratio of total tangible equity to total tangible assets was 11.24%.

Review of Quarterly Financial Results Net interest income was $12.8 million for the fourth quarter of 2019, compared to $12.7 million for the third quarter of 2019 and $12.7 million for the fourth quarter of 2018. The primary reason for the increase in net interest income when compared to the third quarter of 2019 was due to the decrease in the average balance in short-term borrowings of $15.8 million, or 89.3%, which resulted in a reduction to interest expense of $111 thousand. Net interest income increased when compared to the fourth quarter of 2018 due to increases in the average balances on loans of $56.9 million, or 4.8% and interest-bearing deposits with other banks of $53.4 million, or 294.1%, resulting in $591 thousand and $192 thousand of additional interest income, respectively. These increases were partially offset by a decline in the average balance in taxable investment securities of $32.2 million, or 18.1%, resulting in a decrease of $512 thousand in interest income.  When comparing the fourth quarter of 2019 and 2018 on the liability side of the balance sheet, the average balance on interest-bearing deposits increased $107.4 million, or 12.5%, adding $710 thousand of additional interest expense, partially offset by a decrease in the average balance on short-term borrowings of $70.6 million, or 97.4%, decreasing interest expense by $480 thousand. The Company's net interest margin decreased to 3.47% from 3.52% in the third quarter of 2019 and down from 3.58% in the fourth quarter of 2018.

The provision for credit losses was $200 thousand for the three months ended December 31, 2019.  The comparable amounts were $200 thousand and $460 thousand for the three months ended September 30, 2019 and December 31, 2018, respectively. The provision for credit losses remained unchanged from the third quarter of 2019 due to stagnant growth within the loan portfolio during such periods.  The decrease in the provision for credit losses from the fourth quarter of 2018 was due to a reduction in net charge-offs. Net charge-offs were $131 thousand for the fourth quarter of 2019, $67 thousand for the third quarter of 2019 and $445 thousand for the fourth quarter of 2018.  The ratio of annualized net charge-offs to average loans was 0.04% for the fourth quarter of 2019, 0.02% for the third quarter of 2019 and 0.15% for the fourth quarter of 2018.  The ratio of the allowance for credit losses to period-end loans was 0.84% at December 31, 2019, slightly lower than the 0.85% at September 30, 2019 and lower than the 0.87% at December 31, 2018.

At December 31, 2019, nonperforming assets were $12.0 million, a decrease of $1.3 million, or 10.0%, when compared to September 30, 2019, primarily due to a decrease in nonaccrual loans of $1.9 million, or 15.5%. Accruing troubled debt restructurings ("TDRs") decreased $87 thousand, or 1.1%, over the same time period. When comparing December 31, 2019 to December 31, 2018, nonperforming assets decreased $6.0 million, or 33.4%, and accruing TDRs decreased $1.2 million, or 13.4%. The decrease in nonperforming assets was due to diligent workout efforts by the Company to reduce nonaccrual loans and other real estate owned properties. The ratio of nonperforming assets and accruing TDRs to total assets was 1.25%, 1.34% and 1.80% at December 31, 2019, September 30, 2019 and December 31, 2018, respectively.  In addition, the ratio of accruing TDRs to total loans at December 31, 2019 was 0.60%, compared to 0.61% at September 30, 2019 and 0.72% at December 31, 2018.

Total noninterest income from continuing operations for the fourth quarter of 2019 increased $165 thousand, or 6.5%, when compared to the third quarter of 2019 and increased $582 thousand, or 27.6%, when compared to the fourth quarter of 2018.  The increase from the third quarter of 2019 was primarily the result of additional BOLI income earned in the fourth quarter. The increase from the fourth quarter of 2018 was due to additional income from BOLI purchased during 2019, higher loan and bank service fees and the life insurance proceeds.

Total noninterest expense from continuing operations for the fourth quarter of 2019 increased $461 thousand, or 4.9%, when compared to the third quarter of 2019 and increased $629 thousand, or 6.8%, when compared to the fourth quarter of 2018.  The increase in noninterest expense compared to the third quarter of 2019 was the result of higher employee benefits due to an increase in medical claims from the Company's self-funded insurance program and an increase in salaries and wages due to accrued bonus and incentive payouts. These increases were partially offset by a decrease in other real estate owned expenses, net of $134 thousand and lower FDIC insurance premiums of $42 thousand. The increase in noninterest expenses from the fourth quarter of 2018 was primarily due to increases in employee benefits from higher medical claims, the addition of supplemental executive retirement plans ("SERPs") during 2019 and data processing, partially offset by lower FDIC insurance premiums, amortization of intangible assets and other real estate owned expenses.

Review of 2019 Financial ResultsNet interest income for 2019 was $50.1 million, a decrease of $504 thousand, or 1.0%, when compared to 2018.  The decrease was the direct result of an increase in interest expense $4.4 million, or 82.8%, and a decrease in taxable investment securities of $707 thousand, or 16.5%, which were partially offset by increases in interest and fees on loans of $4.1 million, or 7.9%, interest on deposits with other banks of $508 thousand, or 177.6%, and a decrease in interest expense on short-term borrowings of $1.2 million, or 70.6%. The average balance on loans increased $73.2 million, or 6.3%, and the yield on these loans increased 7bps when comparing the periods.  This increase in volume and yields on loans was offset by an increase in the average balance of interest-bearing deposits of $64.0 million, or 7.5%, with an associated increase in rates paid on these deposits of 54bps. This resulted in a net interest margin of 3.54% for 2019 compared to 3.74% for 2018.

The provision for credit losses for 2019 and 2018 was $700 thousand and $1.7 million, respectively, while net charge-offs were $536 thousand and $1.1 million, respectively.  The decrease in provision for credit losses was the result of improved overall credit quality, lower net charge-offs and lower loan growth for 2019 compared to 2018.  The ratio of net charge-offs to average loans was 0.04% for 2019 and 0.10% for 2018.

Total noninterest income from continuing operations for 2019 increased $1.0 million, or 11.2%, when compared to 2018. The increase in noninterest income primarily consisted of increases in BOLI income and higher loan and bank service fees.

Total noninterest expense from continuing operations for 2019 increased $726 thousand, or 2.0%, when compared to the same period in 2018. The increase in noninterest expenses were primarily due to higher employee benefits of $1.3 million, data processing of $459 thousand, legal and professional fees of $242 thousand and other noninterest expenses of $265 thousand, partially offset by decreases in salaries and wages of $1.1 million, amortization of intangible assets of $261 thousand and FDIC insurance premiums of $427 thousand.

Shore Bancshares InformationShore Bancshares 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. Shore Bancshares 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 StatementsThe 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.