Shore Bancshares Reports 2011 Results

EASTON, Md., Jan. 25, 2012/PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ: SHBI) today reported net income of $325 thousand, or $0.04per diluted common share, for the fourth quarter of 2011, compared to net income of $94 thousand, or $0.01per diluted common share, for the third quarter of 2011 and net income of $850 thousand, or $0.10per diluted common share, for the fourth quarter of 2010.  The Company reported a net loss of $897 thousand, or $(0.11)per diluted common share, for 2011, compared to a net loss of $1.7 million, or $(0.20)per diluted common share, for 2010.

When comparing the fourth quarter of 2011 to the third quarter of 2011, the increase in net income was primarily due to lower impairment charges of $1.3 million.  During the third quarter of 2011, the Company recorded goodwill impairment charges of $1.2 millionand other intangible assets impairment charges of $120 thousand.  The decrease in impairment charges was mainly offset by a higher provision for credit losses ($385 thousand) and lower net interest income ($286 thousand) and investment securities gains ($226 thousand).  When comparing the fourth quarter of 2011 to the fourth quarter of 2010, the main reason for the lower net income was a decline in net interest income of $1.0 million, which was partially offset by a decrease in the provision for credit losses of $357 thousand.

When comparing fiscal year 2011 to fiscal year 2010, the principal factors resulting in the lower net loss were a $1.7 milliondecrease in impairment charges and a $1.6 milliondecrease in the provision for credit losses, which were partially offset by a decline in net interest income of $2.9 million.

"Net income was modest for the final quarter of 2011, but we did produce an improvement over the linked third quarter of last year," said W. Moorhead Vermilye, chief executive officer.  "We were disappointed to show a loss for the full year of 2011, but encouraged that the loss narrowed to about half the amount we reported for the full year of 2010."

"Our ratio of nonperforming assets to total assets was 7.66% at December 31, 2011, compared to 8.02% at September 30, 2011. Nonperforming assets decreased $4.2 millionfrom where they stood at the end of the third quarter as two large credits totaling $8.2 millionwere brought current during the final three months of the year, and our ratio of the allowance for credit losses to period-end loans increased to 1.70% at December 31, 2011, up from 1.57% at September 30, 2011and 1.59% at December 31, 2010."

"All of these statistics are evidence of a very tough ongoing credit environment, but they do reflect that we are making gradual progress.  Although we remain very cautious, evidence suggests to us that area real estate prices might have bottomed out, which, if true, should lead to better progress in resolving and disposing our problem assets.  In the meantime, we believe our provision for credit losses and the resulting allowance as of year end are adequate to provide for probable losses in our loan portfolio."

"As we have noted previously, it took a year or two more than in other regions for the Delmarva Peninsula micro-economy to fully experience the impact of this long-running national economic downturn, and we believe that the recovery in our market areas and our return to consistent profitability will likewise lag behind much of the regional community banking industry.  As we work diligently to improve credit quality and our overall performance, it is important to note that our capital levels remain strong.  For 2011, the Company's ratio of average tangible equity to average tangible assets was 9.23% which compared very favorably to area peers," said Vermilye.

The Company's return on average assets for the fourth quarter of 2011 was 0.11%, compared to 0.03% and 0.30% for the quarters ended September 30, 2011and December 31, 2010, respectively.  The return on average equity was 1.07% for the fourth quarter of 2011, compared to 0.31% for the third quarter of 2011 and 2.73% for the fourth quarter of 2010.  The return on average tangible equity was 1.53% for the fourth quarter of 2011, compared to 4.21% for the third quarter of 2011 and 3.49% for the fourth quarter of 2010.  The return on average tangible equity for the third quarter of 2011 was positively impacted by the impairment charges of $1.3 million.  See the financial tables that follow for additional information.

The Company's return on average assets for 2011 was (0.08)%, compared to (0.15)% for 2010.  The return on average equity was (0.74)% and (1.33)% for 2011 and 2010, respectively, while the return on average tangible equity was 0.32% and 1.05% for 2011 and 2010, respectively.

Total assets were $1.158 billionat December 31, 2011, a 2.5% increase when compared to the $1.130 billionat the end of 2010.  Total loans decreased 6.1% to $841.1 millionwhile total earning assets increased 2.1% to $1.082 billionwhen compared to December 31, 2010.  Total deposits increased 3.1% to $1.010billion while total stockholders' equity decreased 1.0% from the end of 2010.  The ratio of average equity to average assets was 10.66% and 11.05% for 2011 and 2010, respectively, while the ratio of average tangible equity to average tangible assets was 9.23% and 9.43% for 2011 and 2010, respectively.  Capital levels remain well above regulatory minimums to be considered well-capitalized.

Review of Quarterly Financial Results
Net interest income for the fourth quarter of 2011 was $9.8 million, a 2.8% decrease from the third quarter of 2011 and a 9.5% decrease from the same period last year.  The decrease in net interest income when compared to the third quarter of 2011 and the fourth quarter of 2010 was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances.  The Company's net interest margin was 3.60% for the fourth quarter of 2011, 3.77% for the third quarter of 2011 and 4.09% for the fourth quarter of 2010.

The provision for credit losses was $4.0 millionfor the three months ended December 31, 2011.  The comparable amounts were $3.7 millionand $4.4 millionfor the three months ended September 30, 2011and December 31, 2010, respectively.  The ratio of the allowance for credit losses to period-end loans was 1.70% at December 31, 2011, increasing from 1.57% at September 30, 2011and 1.59% at December 31, 2010.  Management believes that the provision for credit losses and the resulting allowance were adequate at December 31, 2011to provide for probable losses in our loan portfolio.

The level of provision for credit losses was primarily in response to loan charge-offs, nonperforming loans and a weak economy.  Net charge-offs were $3.3 millionfor the fourth quarter of 2011, lower than the $6.5 millionfor the third quarter of 2011 and even with the amount for the fourth quarter of 2010.  The ratio of quarter-to-date annualized net charge-offs to average loans was 1.53% for the fourth quarter of 2011, 2.95% for the third quarter of 2011 and 1.46% for the fourth quarter of 2010.  Nonperforming assets decreased $4.2 millionwhen compared to the end of September 2011but increased $19.1 millionwhen compared to the end of December 2010.  The decrease from the end of the prior quarter was primarily in loans 90 days past due and still accruing.  This decrease was mainly due to two large credits totaling $8.2 millionwhich were brought current during the fourth quarter of 2011.  The ratio of nonperforming assets to total assets was 7.66% at December 31, 2011, compared to 8.02% at September 30, 2011and 6.16% at December 31, 2010.

Total noninterest income for the fourth quarter of 2011 decreased $504 thousand, or 11.1%, when compared to the third quarter of 2011.  The decrease was primarily due to a $251 thousanddecline in insurance agency commissions and a $226 thousanddecline in gains on sales of investment securities.  Noninterest income for the fourth quarter of 2011 increased $71 thousand, or 1.8%, when compared to the fourth quarter of 2010.  The increase was primarily due to gains on sales of investment securities of $128 thousandand an increase in other noninterest income of $75 thousand, partially offset by a $99 thousanddecline in service charges on deposit accounts.  Included in other noninterest income for the fourth quarter of 2011 was a $56 thousandgain relating to proceeds from a life insurance policy on a former CNB director.  The lower service charges on deposit accounts were due to a decrease in customer use of overdraft protection programs.

Total noninterest expense for the fourth quarter of 2011 decreased $1.3 million, or 11.9%, when compared to the third quarter of 2011 mainly due to the $1.3 milliongoodwill and other intangible assets impairment charges recorded in the third quarter of 2011.  When compared to the fourth quarter of 2010, total noninterest expense for the fourth quarter of 2011 increased $323 thousand, or 3.6%, primarily due to higher expenses related to other real estate owned activities included in other noninterest expenses.

Review of 2011 Financial Results
Net interest income for 2011 was $39.8 million, a decrease of 6.7% when compared to 2010.  As with the quarterly results, the decrease was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances.  The net interest margin was 3.74% for 2011 and 4.02% for 2010.

The provisions for credit losses for 2011 and 2010 were $19.5 millionand $21.1 million, respectively.  Net charge-offs were $19.4 millionand $17.8 millionfor 2011 and 2010, respectively.  The ratio of year-to-date annualized net charge-offs to average loans was 2.22% for 2011 and 1.96% for 2010.

Total noninterest income for 2011 declined $723 thousandwhen compared to the same period in 2010.  The decrease in noninterest income was mainly due to declines in insurance agency commissions, service charges on deposit accounts and other noninterest income.  Other noninterest income for 2010 included a $224 thousandgain relating to the surrender of directors' life insurance policies.  These decreases in noninterest income were partially offset by $563 thousandin gains on sales of investment securities.

Total noninterest expense for 2011 decreased $2.6 millionwhen compared to the same period in 2010.  The primary reason for the decrease was lower expenses related to impairment charges, salaries, FDIC insurance premiums and insurance agency commissions.  These expenses were somewhat offset by higher expenses related to other real estate owned activities and higher data processing charges relating to the merger of The Felton Bank into CNB during the first quarter of 2011.

Shore Bancshares Information
Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Marylandand is the largest independent bank holding company located on Maryland's Eastern Shore.  It is the parent company of two banks, The Talbot Bank of Easton, Maryland, and CNB; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martinand Associates, Inc; a wholesale insurance company, TSGIA, Inc; two insurance premium finance companies, Mubell Finance, LLC and ESFS, Inc; and a registered investment adviser firm, Wye Financial Services, LLC.  Shore Bancshares, Inc. engages in the mortgage broker business under the name "Wye Mortgage Group" through a minority series investment in an unrelated Delawarelimited liability company.  Additional information is available at .

Forward-Looking Statements
This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements do not represent historical facts, but statements about management's beliefs, plans and objectives.  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".

Shore Bancshares, Inc.										Page 4 of 11
Financial Highlights
(Dollars in thousands, except per share data)
	For the Three Months Ended						For the Twelve Months Ended
	December 31,						December 31,
	2011		2010	Change			2011		2010	Change
PROFITABILITY FOR THE PERIOD
Net interest income	$             9,837		$     10,866		(9.5)	%	$     39,764		$     42,639		(6.7)	%
Provision for credit losses	4,035		4,392		(8.1)		19,470		21,119		(7.8)
Noninterest income	4,019		3,948		1.8		17,318		18,041		(4.0)
Noninterest expense	9,405		9,082		3.6		39,167		41,720		(6.1)
Income (loss) before income taxes	416		1,340		(69.0)		(1,555)		(2,159)		28.0
Income tax expense (benefit)	91		490		(81.4)		(658)		(492)		(33.7)
Net income (loss)	$                325		$          850		(61.8)		$         (897)		$     (1,667)		46.2
Return on average assets	0.11	%	0.30	%	(19)	bp	(0.08)	%	(0.15)	%	7	bp
Return on average equity	1.07		2.73		(166)		(0.74)		(1.33)		59
Return on average tangible equity (1)	1.53		3.49		(196)		0.32		1.05		(73)
Net interest margin	3.60		4.09		(49)		3.74		4.02		(28)
Efficiency ratio - GAAP	67.62		61.03		659		68.35		68.46		(11)
Efficiency ratio - Non-GAAP (1)	67.61		60.17		744		65.83		62.83		300
PER SHARE DATA
Basic net income (loss) per common share	$               0.04		$         0.10		(60.0)	%	$        (0.11)		$        (0.20)		45.0	%
Diluted net income (loss) per common share	0.04		0.10		(60.0)		(0.11)		(0.20)		45.0
Dividends paid per common share	0.01		0.06		(83.3)		0.09		0.24		(62.5)
Book value per common share at period end	14.34		14.51		(1.2)
Tangible book value per common share at period end (1)	12.37		12.32		0.4
Market value at period end	5.15		10.54		(51.1)
Market range:
High	6.13		10.73		(42.9)		11.11		14.80		(24.9)
Low	4.20		9.25		(54.6)		3.95		9.20		(57.1)
PERIOD-END BALANCE SHEET DATA
Loans	$         841,050		$  895,404		(6.1)	%
Securities	136,260		105,782		28.8
Assets	1,158,193		1,130,311		2.5
Deposits	1,009,919		979,516		3.1
Stockholders' equity	121,249		122,513		(1.0)
AVERAGE BALANCE SHEET DATA
Loans	$         854,302		$  903,075		(5.4)	%	$  873,155		$  906,732		(3.7)	%
Securities	122,725		103,600		18.5		113,568		107,242		5.9
Earning assets	1,089,078		1,060,645		2.7		1,069,458		1,068,264		0.1
Assets	1,160,652		1,128,517		2.8		1,139,943		1,136,916		0.3
Deposits	1,013,848		978,444		3.6		992,071		980,332		1.2
Stockholders' equity	121,020		123,341		(1.9)		121,496		125,586		(3.3)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets	10.43	%	10.93	%	(50)	bp	10.66	%	11.05	%	(39)	bp
Average tangible equity to average tangible assets (1)	9.12		9.50		(38)		9.23		9.43		(20)
Annualized net charge-offs to average loans	1.53		1.46		7		2.22		1.96		26
Allowance for credit losses to period-end loans	1.70		1.59		11
Allowance for credit losses to nonaccrual loans	27.81		39.26		(1,145)
Allowance for credit losses to nonperforming loans (2)	18.02		21.59		(357)
Nonaccrual loans to total loans	6.11		4.05		206
Nonaccrual loans to total assets	4.44		3.21		123
Nonperforming assets to total loans+other real estate and
other assets owned (3)	10.43		7.74		269
Nonperforming assets to total assets	7.66		6.16		150
(1) See the reconciliation table on page 11 of 11.
(2) Nonperforming loans include nonaccrual, 90 days past due
and still accruing and accruing troubled debt restructurings.
(3) Nonperforming assets include nonperforming loans and
other real estate and other assets owned.

Shore Bancshares, Inc.					Page 5 of 11
Consolidated Balance Sheets
(In thousands, except per share data)
					December 31, 2011
	December 31,		December 31,		compared to
	2011		2010		December 31, 2010
ASSETS
Cash and due from banks	$          22,986		$          19,680		16.8	%
Interest-bearing deposits with other banks	99,776		21,593		362.1
Federal funds sold	4,980		36,691		(86.4)
Investments available for sale (at fair value)	129,780		99,055		31.0
Investments held to maturity	6,480		6,727		(3.7)
Loans	841,050		895,404		(6.1)
Less: allowance for credit losses	(14,288)		(14,227)		0.4
Loans, net	826,762		881,177		(6.2)
Premises and equipment, net	14,662		14,483		1.2
Goodwill	12,454		13,678		(8.9)
Other intangible assets, net	4,208		4,840		(13.1)
Other real estate and other assets owned, net	9,385		3,702		153.5
Other assets	26,720		28,685		(6.9)
Total assets	$    1,158,193		$    1,130,311		2.5
LIABILITIES
Noninterest-bearing deposits	$        133,801		$       124,188		7.7
Interest-bearing deposits	876,118		855,328		2.4
Total deposits	1,009,919		979,516		3.1
Short-term borrowings	17,817		16,041		11.1
Accrued expenses and other liabilities	8,753		11,309		(22.6)
Long-term debt	455		932		(51.2)
Total liabilities	1,036,944		1,007,798		2.9
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares	85		84		1.2
Warrant	-		1,543		(100.0)
Additional paid in capital	32,052		30,242		6.0
Retained earnings	90,801		92,458		(1.8)
Accumulated other comprehensive loss	(1,689)		(1,814)		6.9
Total stockholders' equity	121,249		122,513		(1.0)
Total liabilities and stockholders' equity	$    1,158,193		$    1,130,311		2.5
Period-end common shares outstanding	8,457		8,443		0.2
Book value per common share	$            14.34		$            14.51		(1.2)

Shore Bancshares, Inc.									Page 6 of 11
Consolidated Statements of Income
(In thousands, except per share data)
	For the Three Months Ended					For the Twelve Months Ended
	December 31,					December 31,
	2011		2010	% Change		2011		2010	% Change
INTEREST INCOME
Interest and fees on loans	$ 11,649		$ 12,958	(10.1)	%	$ 47,549		$ 51,962	(8.5)	%
Interest and dividends on investment securities:
Taxable	797		804	(0.9)		3,031		3,209	(5.5)
Tax-exempt	38		47	(19.1)		154		212	(27.4)
Interest on federal funds sold	1		13	(92.3)		25		60	(58.3)
Interest on deposits with other banks	46		7	557.1		93		18	416.7
Total interest income	12,531		13,829	(9.4)		50,852		55,461	(8.3)
INTEREST EXPENSE
Interest on deposits	2,673		2,937	(9.0)		10,995		12,681	(13.3)
Interest on short-term borrowings	15		15	-		56		83	(32.5)
Interest on long-term debt	6		11	(45.5)		37		58	(36.2)
Total interest expense	2,694		2,963	(9.1)		11,088		12,822	(13.5)
NET INTEREST INCOME	9,837		10,866	(9.5)		39,764		42,639	(6.7)
Provision for credit losses	4,035		4,392	(8.1)		19,470		21,119	(7.8)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES	5,802		6,474	(10.4)		20,294		21,520	(5.7)
NONINTEREST INCOME
Service charges on deposit accounts	700		799	(12.4)		2,845		3,257	(12.6)
Trust and investment fee income	380		358	6.1		1,563		1,503	4.0
Investment securities gains	128		-	-		563		-	-
Insurance agency commissions	2,061		2,116	(2.6)		9,358		10,113	(7.5)
Other noninterest income	750		675	11.1		2,989		3,168	(5.7)
Total noninterest income	4,019		3,948	1.8		17,318		18,041	(4.0)
NONINTEREST EXPENSE
Salaries and wages	4,378		4,220	3.7		16,825		17,477	(3.7)
Employee benefits	923		893	3.4		3,840		3,829	0.3
Occupancy expense	563		562	0.2		2,312		2,328	(0.7)
Furniture and equipment expense	234		262	(10.7)		1,059		1,200	(11.8)
Data processing	660		620	6.5		2,852		2,607	9.4
Directors' fees	83		68	22.1		500		412	21.4
Goodwill and other intangible assets impairment	-		-	-		1,344		3,051	(55.9)
Amortization of intangible assets	126		129	(2.3)		512		515	(0.6)
Insurance agency commissions expense	285		339	(15.9)		1,267		1,569	(19.2)
FDIC insurance premium expense	254		445	(42.9)		1,298		1,834	(29.2)
Other noninterest expenses	1,899		1,544	23.0		7,358		6,898	6.7
Total noninterest expense	9,405		9,082	3.6		39,167		41,720	(6.1)
Income (loss) before income taxes	416		1,340	(69.0)		(1,555)		(2,159)	28.0
Income tax expense (benefit)	91		490	(81.4)		(658)		(492)	(33.7)
NET INCOME (LOSS)	$       325		$       850	(61.8)		$     (897)		$  (1,667)	46.2
Weighted average shares outstanding - basic	8,457		8,443	0.2		8,451		8,442	0.1
Weighted average shares outstanding - diluted	8,457		8,443	0.2		8,451		8,442	0.1
Basic net income (loss) per common share	$      0.04		$      0.10	(60.0)		$    (0.11)		$    (0.20)	45.0
Diluted net income (loss) per common share	0.04		0.10	(60.0)		(0.11)		(0.20)	45.0
Dividends paid per common share	0.01		0.06	(83.3)		0.09		0.24	(62.5)

Shore Bancshares, Inc.														Page 7 of 11
Consolidated Average Balance Sheets
(Dollars in thousands)
	For the Three Months Ended								For the Twelve Months Ended
	December 31,								December 31,
	2011				2010				2011				2010
	Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/
	balance		rate		balance		rate		balance		rate		balance		rate
Earning assets
Loans	$    854,302		5.42	%	$    903,075		5.71	%	$    873,155		5.46	%	$    906,732		5.75	%
Investment securities
Taxable	118,315		2.67		98,378		3.24		109,059		2.78		101,162		3.17
Tax-exempt	4,410		5.27		5,222		5.40		4,509		5.19		6,080		5.29
Federal funds sold	8,709		0.05		34,018		0.16		23,808		0.10		39,770		0.15
Interest-bearing deposits	103,342		0.18		19,952		0.12		58,927		0.16		14,520		0.12
Total earning assets	1,089,078		4.58	%	1,060,645		5.20	%	1,069,458		4.78	%	1,068,264		5.22	%
Cash and due from banks	18,728				19,867				19,198				16,567
Other assets	68,014				62,305				67,695				65,774
Allowance for credit losses	(15,168)				(14,300)				(16,408)				(13,689)
Total assets	$ 1,160,652				$ 1,128,517				$ 1,139,943				$ 1,136,916
Interest-bearing liabilities
Demand deposits	$    157,657		0.19	%	$    128,592		0.22	%	$    145,533		0.21	%	$    130,297		0.24	%
Money market and savings deposits	273,906		1.07		258,713		0.84		265,910		1.00		258,650		0.76
Certificates of deposit $100,000 or more	241,810		1.46		256,167		1.77		245,214		1.62		256,393		2.00
Other time deposits	201,249		1.91		208,808		2.23		205,154		1.99		214,121		2.46
Interest-bearing deposits	874,622		1.21		852,280		1.37		861,811		1.28		859,461		1.48
Short-term borrowings	16,421		0.37		15,381		0.39		15,319		0.37		16,348		0.51
Long-term debt	466		4.46		932		4.46		814		4.50		1,304		4.41
Total interest-bearing liabilities	891,509		1.20	%	868,593		1.35	%	877,944		1.26	%	877,113		1.46	%
Noninterest-bearing deposits	139,226				126,164				130,260				120,871
Accrued expenses and other liabilities	8,897				10,419				10,243				13,346
Stockholders' equity	121,020				123,341				121,496				125,586
Total liabilities and stockholders' equity	$ 1,160,652				$ 1,128,517				$ 1,139,943				$ 1,136,916
Net interest spread			3.38	%			3.85	%			3.52	%			3.76	%
Net interest margin			3.60	%			4.09	%			3.74	%			4.02	%

Shore Bancshares, Inc.												Page 8 of 11
Financial Highlights By Quarter
(Dollars in thousands, except per share data)
	4th quarter		3rd quarter		2nd quarter		1st quarter		4th quarter		4Q 11		4Q 11
	2011		2011		2011		2011		2010		compared to		compared to
	(4Q 11)		(3Q 11)		(2Q 11)		(1Q 11)		(4Q 10)		3Q 11		4Q 10
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income	$       9,889		$     10,172		$     10,001		$       9,921		$     10,932		(2.8)	%	(9.5)	%
Less: Taxable-equivalent adjustment	52		49		59		59		66		6.1		(21.2)
Net interest income	9,837		10,123		9,942		9,862		10,866		(2.8)		(9.5)
Provision for credit losses	4,035		3,650		5,395		6,390		4,392		10.5		(8.1)
Noninterest income	4,019		4,523		4,381		4,395		3,948		(11.1)		1.8
Noninterest expense	9,405		10,677		9,194		9,891		9,082		(11.9)		3.6
Income (loss) before income taxes	416		319		(266)		(2,024)		1,340		30.4		(69.0)
Income tax expense (benefit)	91		225		(33)		(941)		490		(59.6)		(81.4)
Net income (loss)	$          325		$            94		$         (233)		$     (1,083)		$          850		245.7		(61.8)
Return on average assets	0.11	%	0.03	%	(0.08)	%	(0.39)	%	0.30	%	8	bp	(19)	bp
Return on average equity	1.07		0.31		(0.77)		(3.59)		2.73		76		(166)
Return on average tangible equity (1)	1.53		4.21		(0.60)		(3.92)		3.49		(268)		(196)
Net interest margin	3.60		3.77		3.80		3.79		4.09		(17)		(49)
Efficiency ratio - GAAP	67.62		72.66		63.93		69.09		61.03		(504)		659
Efficiency ratio - Non-GAAP (1)	67.61		64.18		63.05		68.57		60.17		343		744
PER SHARE DATA
Basic net income (loss) per common share	$         0.04		$         0.01		$        (0.03)		$        (0.13)		$         0.10		300.0	%	(60.0)	%
Diluted net income (loss) per common share	0.04		0.01		(0.03)		(0.13)		0.10		300.0		(60.0)
Dividends paid per common share	0.01		0.01		0.01		0.06		0.06		-		(83.3)
Book value per common share at period end	14.34		14.31		14.30		14.32		14.51		0.2		(1.2)
Tangible book value per common share at period end (1)	12.37		12.32		12.14		12.14		12.32		0.4		0.4
Market value at period end	5.15		4.36		6.98		9.75		10.54		18.1		(51.1)
Market range:
High	6.13		7.06		10.21		11.11		10.73		(13.2)		(42.9)
Low	4.20		3.95		6.51		9.42		9.25		6.3		(54.6)
PERIOD-END BALANCE SHEET DATA
Loans	$  841,050		$  862,566		$  877,331		$  884,715		$  895,404		(2.5)	%	(6.1)	%
Securities	136,260		112,328		113,271		106,920		105,782		21.3		28.8
Assets	1,158,193		1,157,536		1,124,191		1,131,334		1,130,311		0.1		2.5
Deposits	1,009,919		1,011,919		973,442		986,486		979,516		(0.2)		3.1
Stockholders' equity	121,249		120,986		120,941		120,926		122,513		0.2		(1.0)
AVERAGE BALANCE SHEET DATA
Loans	$  854,302		$  869,221		$  881,976		$  887,531		$  903,075		(1.7)	%	(5.4)	%
Securities	122,725		113,938		111,190		106,235		103,600		7.7		18.5
Earning assets	1,089,078		1,069,636		1,056,658		1,062,164		1,060,645		1.8		2.7
Assets	1,160,652		1,142,588		1,125,213		1,131,259		1,128,517		1.6		2.8
Deposits	1,013,848		994,968		976,840		982,249		978,444		1.9		3.6
Stockholders' equity	121,020		121,327		121,187		122,466		123,341		(0.3)		(1.9)
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets	10.43	%	10.62	%	10.77	%	10.83	%	10.93	%	(19)	bp	(50)	bp
Average tangible equity to average tangible assets (1)	9.12		9.17		9.29		9.35		9.50		(6)		(38)
Annualized net charge-offs to average loans	1.53		2.95		2.96		1.44		1.46		(142)		7
Allowance for credit losses to period-end loans	1.70		1.57		1.86		1.97		1.59		13		11
Allowance for credit losses to nonaccrual loans	27.81		27.31		33.74		35.83		39.26		50		(1,145)
Allowance for credit losses to nonperforming loans (2)	18.02		16.31		22.68		21.16		21.59		171		(357)
Nonaccrual loans to total loans	6.11		5.75		5.53		5.51		4.05		36		206
Nonaccrual loans to total assets	4.44		4.28		4.31		4.31		3.21		16		123
Nonperforming assets to total loans+other real estate and
other assets owned (3)	10.43		10.65		9.04		9.82		7.74		(22)		269
Nonperforming assets to total assets	7.66		8.02		7.12		7.72		6.16		(36)		150
(1) See the reconciliation table on page 11 of 11.
(2) Nonperforming loans include nonaccrual, 90 days past due
and still accruing and accruing troubled debt restructurings.
(3) Nonperforming assets include nonperforming loans and
other real estate and other assets owned.

Shore Bancshares, Inc.													Page 9 of 11
Consolidated Statements of Income By Quarter
(In thousands, except per share data)
											4Q 11		4Q 11
											compared to		compared to
	4Q 11		3Q 11		2Q 11		1Q 11		4Q 10		3Q 11		4Q 10
INTEREST INCOME
Interest and fees on loans	$ 11,649		$ 12,003		$ 11,896		$ 12,001		$ 12,958		(2.9)	%	(10.1)	%
Interest and dividends on investment securities:
Taxable	797		795		782		657		804		0.3		(0.9)
Tax-exempt	38		38		40		38		47		-		(19.1)
Interest on federal funds sold	1		3		5		16		13		(66.7)		(92.3)
Interest on deposits with other banks	46		29		12		6		7		58.6		557.1
Total interest income	12,531		12,868		12,735		12,718		13,829		(2.6)		(9.4)
INTEREST EXPENSE
Interest on deposits	2,673		2,720		2,769		2,833		2,937		(1.7)		(9.0)
Interest on short-term borrowings	15		15		13		13		15		-		-
Interest on long-term debt	6		10		11		10		11		(40.0)		(45.5)
Total interest expense	2,694		2,745		2,793		2,856		2,963		(1.9)		(9.1)
NET INTEREST INCOME	9,837		10,123		9,942		9,862		10,866		(2.8)		(9.5)
Provision for credit losses	4,035		3,650		5,395		6,390		4,392		10.5		(8.1)
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES	5,802		6,473		4,547		3,472		6,474		(10.4)		(10.4)
NONINTEREST INCOME
Service charges on deposit accounts	700		697		744		704		799		0.4		(12.4)
Trust and investment fee income	380		389		418		376		358		(2.3)		6.1
Investment securities gains	128		354		2		79		-		(63.8)		-
Insurance agency commissions	2,061		2,312		2,475		2,510		2,116		(10.9)		(2.6)
Other noninterest income	750		771		742		726		675		(2.7)		11.1
Total noninterest income	4,019		4,523		4,381		4,395		3,948		(11.1)		1.8
NONINTEREST EXPENSE
Salaries and wages	4,378		4,097		4,104		4,246		4,220		6.9		3.7
Employee benefits	923		878		886		1,153		893		5.1		3.4
Occupancy expense	563		585		568		596		562		(3.8)		0.2
Furniture and equipment expense	234		262		291		272		262		(10.7)		(10.7)
Data processing	660		661		680		851		620		(0.2)		6.5
Directors' fees	83		198		112		107		68		(58.1)		22.1
Goodwill and other intangible assets impairment	-		1,344		-		-		-		(100.0)		-
Amortization of intangible assets	126		129		128		129		129		(2.3)		(2.3)
Insurance agency commissions expense	285		250		357		375		339		14.0		(15.9)
FDIC insurance premium expense	254		180		404		460		445		41.1		(42.9)
Other noninterest expenses	1,899		2,093		1,664		1,702		1,544		(9.3)		23.0
Total noninterest expense	9,405		10,677		9,194		9,891		9,082		(11.9)		3.6
Income (loss) before income taxes	416		319		(266)		(2,024)		1,340		30.4		(69.0)
Income tax expense (benefit)	91		225		(33)		(941)		490		(59.6)		(81.4)
NET INCOME (LOSS)	$       325		$         94		$     (233)		$  (1,083)		$       850		245.7		(61.8)
Weighted average shares outstanding - basic	8,457		8,457		8,446		8,443		8,443		-		0.2
Weighted average shares outstanding - diluted	8,457		8,457		8,446		8,443		8,443		-		0.2
Basic net income (loss) per common share	$      0.04		$      0.01		$    (0.03)		$    (0.13)		$      0.10		300.0		(60.0)
Diluted net income (loss) per common share	0.04		0.01		(0.03)		(0.13)		0.10		300.0		(60.0)
Dividends paid per common share	0.01		0.01		0.01		0.06		0.06		-		(83.3)

Shore Bancshares, Inc.																							Page 10 of 11
Consolidated Average Balance Sheets By Quarter
(Dollars in thousands)
																					Average balance
																					4Q 11		4Q 11
																					compared to		compared to
	4Q 11				3Q 11				2Q 11				1Q 11				4Q 10				3Q 11		4Q 10
	Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/
	balance		rate		balance		rate		balance		rate		balance		rate		balance		rate
Earning assets
Loans	$    854,302		5.42	%	$    869,221		5.49	%	$    881,976		5.43	%	$    887,531		5.50	%	$    903,075		5.71	%	(1.7)	%	(5.4)	%
Investment securities
Taxable	118,315		2.67		109,498		2.88		106,609		2.94		101,625		2.62		98,378		3.24		8.1		20.3
Tax-exempt	4,410		5.27		4,440		5.12		4,581		5.27		4,610		5.08		5,222		5.40		(0.7)		(15.5)
Federal funds sold	8,709		0.05		15,905		0.07		24,310		0.09		46,813		0.14		34,018		0.16		(45.2)		(74.4)
Interest-bearing deposits	103,342		0.18		70,572		0.16		39,182		0.12		21,585		0.12		19,952		0.12		46.4		418.0
Total earning assets	1,089,078		4.58	%	1,069,636		4.79	%	1,056,658		4.86	%	1,062,164		4.88	%	1,060,645		5.20	%	1.8		2.7
Cash and due from banks	18,728				20,414				18,327				19,316				19,867				(8.3)		(5.7)
Other assets	68,014				69,394				68,190				65,426				62,305				(2.0)		9.2
Allowance for credit losses	(15,168)				(16,856)				(17,962)				(15,647)				(14,300)				(10.0)		6.1
Total assets	$ 1,160,652				$ 1,142,588				$ 1,125,213				$ 1,131,259				$ 1,128,517				1.6		2.8
Interest-bearing liabilities
Demand deposits	$    157,657		0.19	%	$    154,685		0.20	%	$    137,775		0.22	%	$    131,628		0.22	%	$    128,592		0.22	%	1.9		22.6
Money market and savings deposits	273,906		1.07		266,871		1.03		261,869		0.97		260,841		0.93		258,713		0.84		2.6		5.9
Certificates of deposit $100,000 or more	241,810		1.46		235,362		1.63		244,805		1.67		259,179		1.70		256,167		1.77		2.7		(5.6)
Other time deposits	201,249		1.91		204,836		1.91		206,310		2.02		208,301		2.10		208,808		2.23		(1.8)		(3.6)
Interest-bearing deposits	874,622		1.21		861,754		1.25		850,759		1.31		859,949		1.34		852,280		1.37		1.5		2.6
Short-term borrowings	16,421		0.37		15,640		0.37		15,020		0.36		14,165		0.37		15,381		0.39		5.0		6.8
Long-term debt	466		4.46		932		4.46		932		4.51		932		4.56		932		4.46		(50.0)		(50.0)
Total interest-bearing liabilities	891,509		1.20	%	878,326		1.24	%	866,711		1.29	%	875,046		1.32	%	868,593		1.35	%	1.5		2.6
Noninterest-bearing deposits	139,226				133,214				126,081				122,300				126,164				4.5		10.4
Accrued expenses and other liabilities	8,897				9,721				11,234				11,447				10,419				(8.5)		(14.6)
Stockholders' equity	121,020				121,327				121,187				122,466				123,341				(0.3)		(1.9)
Total liabilities and stockholders' equity	$ 1,160,652				$ 1,142,588				$ 1,125,213				$ 1,131,259				$ 1,128,517				1.6		2.8
Net interest spread			3.38	%			3.55	%			3.57	%			3.56	%			3.85	%
Net interest margin			3.60	%			3.77	%			3.80	%			3.79	%			4.09	%

Shore Bancshares, Inc.													Page 11 of 11
Reconciliation of Generally Accepted Accounting Principles (GAAP)
and Non-GAAP Measures
(In thousands, except per share data)
											YTD		YTD
	4Q 11		3Q 11		2Q 11		1Q 11		4Q 10		12/31/2011		12/31/2010
The following reconciles return on average equity and return on
average tangible equity (Note 1):
Net income (loss)	$            325		$               94		$           (233)		$        (1,083)		$            850		$           (897)		$          (1,667)
Net income (loss) - annualized (A)	$         1,289		$            373		$           (935)		$        (4,392)		$         3,372		$           (897)		$          (1,667)
Net income (loss), excluding net amortization and
impairment charges of intangible assets	$            401		$         1,094		$           (155)		$        (1,005)		$            928		$            335		$           1,101
Net income (loss), excluding net amortization and
impairment charges of intangible assets - annualized (B)	$         1,591		$         4,340		$           (622)		$        (4,076)		$         3,682		$            335		$           1,101
Average stockholders' equity (C)	$     121,020		$     121,327		$     121,187		$     122,466		$     123,341		$     121,496		$       125,586
Less: Average goodwill and other intangible assets	(16,732)		(18,190)		(18,334)		(18,465)		(17,877)		(17,926)		(20,337)
Average tangible equity (D)	$     104,288		$     103,137		$     102,853		$     104,001		$     105,464		$     103,570		$       105,249
Return on average equity (GAAP) (A)/(C)	1.07	%	0.31	%	(0.77)	%	(3.59)	%	2.73	%	(0.74)	%	(1.33)	%
Return on average tangible equity (Non-GAAP) (B)/(D)	1.53	%	4.21	%	(0.60)	%	(3.92)	%	3.49	%	0.32	%	1.05	%
The following reconciles GAAP efficiency ratio and non-GAAP
efficiency ratio (Note 2):
Noninterest expense (E)	$         9,405		$       10,677		$         9,194		$         9,891		$         9,082		$       39,167		$         41,720
Less: Amortization of intangible assets	(126)		(129)		(128)		(129)		(129)		(512)		(515)
Impairment charges	-		(1,344)		-		-		-		(1,344)		(3,051)
Adjusted noninterest expense (F)	$         9,279		$         9,204		$         9,066		$         9,762		$         8,953		$       37,311		$         38,154
Taxable-equivalent net interest income (G)	$         9,889		$       10,172		$       10,001		$         9,921		$       10,932		$       39,983		$         42,904
Noninterest income (H)	$         4,019		$         4,523		$         4,381		$         4,395		$         3,948		$       17,318		$         18,041
Less: Investment securities (gains)/losses	(128)		(354)		(2)		(79)		-		(563)		-
Other nonrecurring (gains)/losses	(56)		-		-		-		-		(56)		(224)
Adjusted noninterest income (I)	$         3,835		$         4,169		$         4,379		$         4,316		$         3,948		$       16,699		$         17,817
Efficiency ratio (GAAP) (E)/(G)+(H)	67.62	%	72.66	%	63.93	%	69.09	%	61.03	%	68.35	%	68.46	%
Efficiency ratio (Non-GAAP) (F)/(G)+(I)	67.61	%	64.18	%	63.05	%	68.57	%	60.17	%	65.83	%	62.83	%
The following reconciles book value per common share and tangible
book value per common share (Note 1):
Stockholders' equity (J)	$     121,249		$     120,986		$     120,941		$     120,926		$     122,513
Less: Goodwill and other intangible assets	(16,662)		(16,788)		(18,261)		(18,389)		(18,518)
Tangible equity (K)	$     104,587		$     104,198		$     102,680		$     102,537		$     103,995
Shares outstanding (L)	8,457		8,457		8,457		8,443		8,443
Book value per common share (GAAP) (J)/(L)	$         14.34		$         14.31		$         14.30		$         14.32		$         14.51
Tangible book value per common share (Non-GAAP) (K)/(L)	$         12.37		$         12.32		$         12.14		$         12.14		$         12.32
The following reconciles average equity to average assets and
average tangible equity to average tangible assets (Note 1):
Average stockholders' equity (M)	$     121,020		$     121,327		$     121,187		$     122,466		$     123,341		$     121,496		$       125,586
Less: Average goodwill and other intangible assets	(16,732)		(18,190)		(18,334)		(18,465)		(17,877)		(17,926)		(20,337)
Average tangible equity (N)	$     104,288		$     103,137		$     102,853		$     104,001		$     105,464		$     103,570		$       105,249
Average assets (O)	$ 1,160,652		$ 1,142,588		$ 1,125,213		$ 1,131,259		$ 1,128,517		$ 1,139,943		$   1,136,916
Less: Average goodwill and other intangible assets	(16,732)		(18,190)		(18,334)		(18,465)		(17,877)		(17,926)		(20,337)
Average tangible assets (P)	$ 1,143,920		$ 1,124,398		$ 1,106,879		$ 1,112,794		$ 1,110,640		$ 1,122,017		$   1,116,579
Average equity/average assets (GAAP) (M)/(O)	10.43	%	10.62	%	10.77	%	10.83	%	10.93	%	10.66	%	11.05	%
Average tangible equity/average tangible assets (Non-GAAP) (N)/(P)	9.12	%	9.17	%	9.29	%	9.35	%	9.50	%	9.23	%	9.43	%
Note 1: Management believes that reporting tangible equity and tangible assets more closely approximates the adequacy of capital for regulatory purposes.
Note 2: Management believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling cash-based operating activities.

SOURCE Shore Bancshares, Inc.