EASTON, Md., April 25, 2019 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) reported net income of $3.754 million or $0.29 per diluted common share for the first quarter of 2019, compared to net income of $12.094 million or $0.95 per diluted common share for the fourth quarter of 2018, and net income of $4.058 million or $0.32 per diluted common share for the first quarter of 2018. Net income from continuing operations for the first quarter of 2019 was $3.828 million or $0.30 per diluted common share, compared to net income from continuing operations of $3.853 million or $0.30 per diluted common share for the fourth quarter of 2018, and net income from continuing operations of $3.462 million or $0.27 per diluted common share for the first quarter of 2018.
When comparing the first quarter of 2019 to the fourth quarter of 2018, absent the sale and activity of Avon-Dixon, the Company's retail insurance entity sold on December 31, 2018, net income decreased $25 thousand or 0.6% primarily the result of less income from taxable investment securities and higher noninterest expenses which were almost entirely offset by an increase in interest and fees on loans, lower provision for credit losses and improved noninterest income. When comparing net income from continuing operations for the first quarter of 2019 to the first quarter of 2018, net income improved $366 thousand or 10.6%, primarily due to higher interest and fees on loans and a reduction in provision for credit losses, partially offset by an increase in interest expense on deposits and borrowings.
We are pleased to report financial results for the first quarter of 2019," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer. "During the first quarter of 2019 we experienced increases in both loans and core deposits getting us off to a great start for 2019. In addition to nice growth in these areas in the first quarter we are excited about the opportunity to expand our footprint with the opening of our new branch in Ocean City, Maryland by the end of 2019. We have an outstanding lending team in Ocean City and we are thrilled to support them with a full service branch. As always, we remain dedicated to providing superior customer service, enhancing shareholder value and supporting our communities and career development for our valued employees."
Balance Sheet Review
Total assets were $1.486 billion at March 31, 2019, a $2.7 million, or less than 1%, increase when compared to $1.483 billion at the end of 2018. The increase in total assets included increases in gross loans of $16.4 million, partially offset by decreases in interest-bearing deposits with other banks of $11.0 million and investment securities (including restricted securities) of $4.9 million which were used to fund loan growth for the quarter.
Total deposits increased $24.9 million, or 2.1%, when compared to December 31, 2018. The increase in total deposits primarily consisted of increases in noninterest-bearing deposits of $14.7 million, interest bearing checking deposits of $7.1 million, and savings and money market accounts of $3.3 million. Total stockholders' equity increased $3.9 million, or 2.1%, when compared to the end of 2018.
At March 31, 2019, the ratio of total equity to total assets was 12.59% and the ratio of total tangible equity to total tangible assets was 11.39%.
Total assets at March 31, 2019 increased $64.2 million, or 4.5%, when compared to total assets at March 31, 2018. Total assets year over year increased primarily as a result of an increase in deposits. Growth in loans of $91.8 million was funded primarily by the increase in deposits as well as a decline in investment securities available for sale of $33.1 million.
Total deposits at March 31, 2019 increased $60.2 million, or 5.1%, when compared to March 31, 2018. The increase in total deposits included core deposit growth within checking accounts of $24.8 million, or 11.2%, and noninterest-bearing deposits of $21.3 million or 6.6%. In addition, $22.1 million in brokered deposits were acquired to keep pace with loan demand during 2018.
Review of Quarterly Financial Results
Net interest income was $12.4 million for the first quarter of 2019, compared to $12.7 million for the fourth quarter of 2018 and $12.3 million for the first quarter of 2018. Net interest income when compared to the fourth quarter of 2018 was lower by $332 thousand primarily due to a decrease in taxable interest on investment securities of $341 thousand and an increase in interest expense on deposits of $370 thousand , partially offset by a decrease in interest expense on short-term borrowings and an increase in interest and fees on loans despite two fewer earning days for the first quarter of 2019. The Company's net interest margin improved by 3 basis points to 3.61% over the fourth quarter of 2018. The increase in net interest income when compared to the first quarter of 2018 was primarily the result of significant loan growth, with average loans increasing $95.7 million or 8.7%. The Company's net interest margin when compared to the first quarter of 2018 decreased 22 basis points from 3.83%, due to higher rates paid on interest-bearing deposits as well as an increase in the cost of short-term borrowings of 100bps and higher cost of long-term borrowings incurred since the first quarter of 2018. Partially countering the increase in the cost of interest- bearing liabilities, total earning assets increased 21bps, highlighted by an increase in the yield on loans of 13bps.
The provision for credit losses was $100 thousand for the three months ended March 31, 2019. The comparable amounts were $460 thousand and $489 thousand for the three months ended December 31, 2018 and March 31, 2018, respectively. The provision for credit losses decreased in the first quarter of 2019 over the fourth quarter of 2018 due to the absence of a large charge-off which occurred late in 2018 reducing net charge-offs by $420 thousand. In addition, decreases in both total nonperforming assets of $1.6 million and troubled debt restructurings ("TDRs") of $835 thousand improved overall credit quality. The lower level of provision for credit losses when comparing the first quarter of 2019 to the first quarter of 2018 was primarily due to recoveries of $185 thousand, which resulted in a reduction to net charge-offs of $327 thousand. The ratio of annualized net charge-offs to average loans was 0.01% for the first quarter of 2019, 0.15% for the fourth quarter of 2018 and 0.13% for the first quarter of 2018. The ratio of the allowance for credit losses to period-end loans at March 31, 2019 was 0.86%, lower than the 0.87% and 0.89% at December 31, 2018 and March 31, 2018, respectively.
Nonperforming assets excluding accruing TDRs were $16.4 million at March 31, 2019, $18.0 million at December 31, 2018 and $8.6 million at March 31, 2018. Nonperforming assets including accruing TDRs at March 31, 2019 were $24.2 million, compared to $26.7 million at December 31, 2018 and $18.4 million at March 31, 2018. The decrease in nonperforming assets at March 31, 2019 compared to December 31, 2018 was due to decreases in nonaccrual loans of $1.3 million, other real estate owned ("OREO") of $243 thousand and accruing TDRs of $835 thousand. When compared to March 31, 2018, the increase in nonperforming assets was due to a large nonaccrual loan added late in the fourth quarter of 2018, in which the Company does not anticipate any further losses. At March 31, 2019, the ratio of nonaccrual loans to total assets was 1.03%, compared to 1.12% and 0.49% at December 31, 2018 and March 31, 2018, respectively. In addition, the ratio of accruing TDRs to total assets at March 31, 2019 was 0.53%, improving from 0.58% and 0.68% at December 31, 2018 and March 31, 2018.
Total noninterest income from continuing operations for the first quarter of 2019 increased $76 thousand when compared to the fourth quarter of 2018 and increased $48 thousand when compared to the first quarter of 2018. The increase from the fourth quarter of 2018 was the result of additional fees on bank service charges included in other noninterest income, partially offset by a decrease in service charges on deposit accounts. The increase from the first quarter of 2018 was due to increases in service charges on deposit accounts and additional fees on bank service charges included in other noninterest income.
Total noninterest expense from continuing operations for the first quarter of 2019 increased $127 thousand when compared to the fourth quarter of 2018 and decreased $109 thousand when compared to the first quarter of 2018. The increase in noninterest expense compared to the fourth quarter of 2018 was primarily due to higher costs associated with employee benefits of $457 thousand, which included higher insurance premiums for group insurance and federal unemployment insurance which is usually paid in the first two quarters of the year. The decrease in noninterest expenses from the first quarter of 2018 was primarily due to lower salaries and wages partially due to lower bonuses and stock incentive payouts, almost entirely offset by increases in OREO expenses of $279 thousand and legal and professional fees of $153 thousand.
Shore Bancshares Information
Shore 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 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.
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SOURCE Shore Bancshares, Inc.