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Section 1: 10-Q (10-Q)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

OR

  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                        

Commission file number 0-22345

SHORE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland

    

52-1974638

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

 

 

18 E. Dover Street, Easton, Maryland

21601

(Address of Principal Executive Offices)

(Zip Code)

(410) 763-7800

Registrant’s Telephone Number, Including Area Code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SHBI

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

The number of shares outstanding of the registrant’s common stock as of August 7, 2020 was 12,526,708.

Table of Contents

INDEX

   

Page

Part I. Financial Information

3

Item 1. Financial Statements

3

Consolidated Balance Sheets – June 30, 2020 (unaudited) and December 31, 2019

3

Consolidated Statements of Income For the three and six months ended June 30, 2020 and 2019 (unaudited)

4

Consolidated Statements of Comprehensive Income For the three and six months ended June 30, 2020 and 2019 (unaudited)

6

Consolidated Statements of Changes in Stockholders’ Equity For the three and six months ended June 30, 2020 and 2019 (unaudited)

7

Consolidated Statements of Cash Flows For the three and six months ended June 30, 2020 and 2019 (unaudited)

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3. Quantitative and Qualitative Disclosures about Market Risk

51

Item 4. Controls and Procedures

51

Part II. Other Information

51

Item 1. Legal Proceedings

51

Item 1A. Risk Factors

51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3. Defaults Upon Senior Securities

54

Item 4. Mine Safety Disclosures

54

Item 5. Other Information

54

Item 6. Exhibits

54

Signatures

56

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SHORE BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

June 30, 

December 31, 

(In thousands, except share and per share data)

2020

2019

ASSETS

 

(Unaudited)

 

  

Cash and due from banks

$

24,585

$

18,465

Interest-bearing deposits with other banks

 

101,699

 

76,506

Cash and cash equivalents

 

126,284

 

94,971

Investment securities:

 

 

  

Available-for-sale, at fair value

 

86,020

 

122,791

Held to maturity, at amortized cost - fair value of $11,715 (2020) and $8,654 (2019)

11,710

 

8,786

Equity securities, at fair value

 

1,388

 

1,342

Restricted securities

 

3,626

 

4,190

Loans

 

1,407,249

 

1,248,654

Less: allowance for credit losses

 

(11,090)

 

(10,507)

Loans, net

 

1,396,159

 

1,238,147

Premises and equipment, net

 

24,668

 

23,821

Goodwill

 

17,518

 

17,518

Other intangible assets, net

 

1,970

 

2,252

Other real estate owned, net

 

38

 

74

Right-of-use assets

4,879

4,771

Other assets

 

45,264

 

40,572

TOTAL ASSETS

$

1,719,524

$

1,559,235

LIABILITIES

 

 

  

Deposits:

 

 

  

Noninterest-bearing

$

442,996

$

356,618

Interest-bearing

 

1,061,732

 

984,716

Total deposits

 

1,504,728

 

1,341,334

Short-term borrowings

 

1,064

 

1,226

Long-term borrowings

 

 

15,000

Lease liabilities

4,941

4,792

Other liabilities

 

8,657

 

4,081

TOTAL LIABILITIES

 

1,519,390

 

1,366,433

COMMITMENTS AND CONTINGENCIES

 

 

STOCKHOLDERS' EQUITY

 

 

  

Common stock, par value $.01 per share; shares authorized - 35,000,000; shares issued and outstanding - 12,525,667 (2020) and 12,500,372 (2019)

 

125

 

125

Additional paid in capital

 

61,129

 

61,045

Retained earnings

 

136,876

 

131,425

Accumulated other comprehensive income

 

2,004

 

207

TOTAL STOCKHOLDERS' EQUITY

 

200,134

 

192,802

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,719,524

$

1,559,235

See accompanying notes to Consolidated Financial Statements.

3

Table of Contents

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share amounts)

For Three Months Ended

For Six Months Ended

June 30, 

June 30, 

(In thousands, except per share data)

2020

    

2019

    

2020

    

2019

INTEREST INCOME

Interest and fees on loans

$

13,945

$

13,749

$

27,740

$

27,248

Interest and dividends on investment securities:

 

 

 

 

Taxable

 

638

 

887

 

1,357

 

1,885

Interest on deposits with other banks

11

113

183

276

Total interest income

 

14,594

 

14,749

 

29,280

 

29,409

INTEREST EXPENSE

Interest on deposits

 

1,556

 

2,204

 

3,615

 

4,151

Interest on short-term borrowings

 

1

 

145

 

3

 

358

Interest on long-term borrowings

6

107

113

213

Total interest expense

 

1,563

 

2,456

 

3,731

 

4,722

NET INTEREST INCOME

 

13,031

 

12,293

 

25,549

 

24,687

Provision for credit losses

 

1,000

 

200

 

1,350

 

300

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

12,031

 

12,093

 

24,199

 

24,387

NONINTEREST INCOME

Service charges on deposit accounts

 

544

 

1,028

 

1,410

 

1,962

Trust and investment fee income

 

363

 

385

 

738

 

757

Gains on sales and calls of investment securities

 

347

 

 

347

 

Other noninterest income

 

1,515

 

1,196

 

2,626

 

2,078

Total noninterest income

 

2,769

 

2,609

 

5,121

 

4,797

NONINTEREST EXPENSE

Salaries and wages

 

2,130

 

3,792

 

6,426

 

7,558

Employee benefits

 

1,535

 

1,068

 

3,257

 

2,322

Occupancy expense

 

702

 

668

 

1,400

 

1,359

Furniture and equipment expense

 

247

 

295

 

564

 

558

Data processing

 

1,037

 

919

 

2,081

 

1,829

Directors' fees

 

113

 

116

 

254

 

202

Amortization of other intangible assets

 

138

 

155

 

282

 

317

FDIC insurance premium expense

 

124

 

181

 

215

 

386

Other real estate owned expenses, net

 

 

60

 

18

 

293

Legal and professional fees

 

553

 

559

 

1,187

 

1,160

Other noninterest expenses

 

1,084

 

1,172

 

2,328

 

2,344

Total noninterest expense

 

7,663

 

8,985

 

18,012

 

18,328

Income from continuing operations before income taxes

 

7,137

 

5,717

 

11,308

 

10,856

Income tax expense

 

1,802

 

1,489

 

2,855

 

2,800

Income from continuing operations

 

5,335

 

4,228

 

8,453

 

8,056

Loss from discontinued operations before income taxes

 

 

(4)

 

 

(103)

Income tax benefit

 

 

 

 

(25)

Loss from discontinued operations

 

 

(4)

 

 

(78)

NET INCOME

$

5,335

$

4,224

$

8,453

$

7,978

4

Table of Contents

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)

(Dollars in thousands, except per share amounts)

Earnings per common share - Basic

Income from continuing operations

$

0.43

$

0.33

$

0.68

$

0.63

Loss from discontinued operations

 

 

 

 

(0.01)

Net income

$

0.43

$

0.33

$

0.68

$

0.62

Earnings per common share - Diluted

Income from continuing operations

$

0.43

$

0.33

$

0.68

$

0.63

Loss from discontinued operations

 

 

 

 

(0.01)

Net income

$

0.43

$

0.33

$

0.68

$

0.62

Dividends paid per common share

0.12

0.10

$

0.24

$

0.20

See accompanying notes to Consolidated Financial Statements.

5

Table of Contents

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

For Three Months Ended

For Six Months Ended

June 30, 

June 30, 

(Dollars in thousands)

    

2020

    

2019

    

2020

    

2019

    

Net income

$

5,335

$

4,224

$

8,453

$

7,978

Other comprehensive income:

Investment securities:

Unrealized holding gains on available-for-sale-securities

 

1,093

 

1,797

 

2,807

 

3,780

Tax effect

 

(292)

 

(492)

 

(760)

 

(1,033)

Reclassification of (gains) recognized in net income

 

(347)

 

 

(347)

 

Tax effect

 

88

 

 

88

 

Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity

 

4

 

7

 

12

 

14

Tax effect

 

 

(1)

 

(3)

 

(4)

Total other comprehensive income

 

546

 

1,311

 

1,797

 

2,757

Comprehensive income

$

5,881

$

5,535

$

10,250

$

10,735

See accompanying notes to Consolidated Financial Statements.

6

Table of Contents

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the Three and Six months Ended June 30, 2020 and 2019

(Dollars in thousands)

Accumulated

Additional

Other

Total

Common

Paid in

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Earnings

    

Income

    

Equity

Balances, January 1, 2020

$

125

$

61,045

$

131,425

$

207

$

192,802

Net income

 

 

 

3,118

 

 

3,118

Other comprehensive income

 

 

 

 

1,251

 

1,251

Stock-based compensation

 

 

61

 

 

 

61

Vesting of restricted stock, net of shares surrendered

 

(39)

 

 

(39)

Cash dividends declared

 

 

 

(1,499)

 

 

(1,499)

Balances, March 31, 2020

$

125

$

61,067

$

133,044

$

1,458

$

195,694

Net Income

 

 

 

5,335

 

 

5,335

Other comprehensive income

 

 

 

 

546

 

546

Stock-based compensation

 

 

62

 

 

 

62

Cash dividends declared

(1,503)

(1,503)

Balances, June 30, 2020

$

125

$

61,129

$

136,876

$

2,004

$

200,134

Accumulated

Additional

Other

Total

Common

Paid in

Retained

Comprehensive

Stockholders’

Stock

    

Capital

    

Earnings

    

(Loss)

    

Equity

Balances, January 1, 2019

$

127

$

65,434

$

120,574

$

(2,950)

$

183,185

Net Income

 

 

 

3,754

 

 

3,754

Other comprehensive income

 

 

 

 

1,446

 

1,446

Stock-based compensation

 

 

63

 

 

 

63

Exercise of options and vesting of restricted stock, net of shares surrendered

1

(89)

(88)

Cash dividends declared

 

 

 

(1,278)

 

 

(1,278)

Balances, March 31, 2019

$

128

$

65,408

$

123,050

$

(1,504)

$

187,082

Net Income

 

 

 

4,224

 

 

4,224

Other comprehensive income

 

 

 

 

1,311

 

1,311

Stock-based compensation

 

 

(32)

 

 

 

(32)

Cash dividends declared

 

 

 

(1,278)

 

 

(1,278)

Balances, June 30, 2019

$

128

$

65,376

$

125,996

$

(193)

$

191,307

See accompanying notes to Consolidated Financial Statements.

7

Table of Contents