Company Quick10K Filing
Quick10K
Shore Bancshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$15.82 13 $202
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-08 Other Events, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-24 Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2019-04-15 Other Events, Exhibits
8-K 2019-02-05 Other Events, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-14 Officers, Regulation FD, Exhibits
8-K 2018-12-31 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-12-17 Other Events, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-11-05 Other Events, Exhibits
8-K 2018-11-01 Officers, Exhibits
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-09-18 Regulation FD, Exhibits
8-K 2018-09-12 Regulation FD, Exhibits
8-K 2018-08-31 Officers
8-K 2018-08-08 Other Events, Exhibits
8-K 2018-07-31 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-09 Other Events, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-04-19 Earnings, Exhibits
8-K 2018-02-01 Other Events, Exhibits
8-K 2018-01-25 Earnings, Exhibits
OKTA Okta 12,140
SFLY Shutterfly 1,530
PETX Aratana Therapeutics 238
SOLY Soliton 180
PCOM Points International 173
III Information Services Group 163
JMU JMU 1
SYNT Syntel 0
BIOE Bioethics 0
PGAI PGI 0
SHBI 2019-03-31
Part I – Financial Information
Item 1. Financial Statements.
Note 1 – Basis of Presentation
Note 2 – Sale of Subsidiary
Note 3 – Earnings per Share
Note 4 – Investment Securities
Note 5 – Loans and Allowance for Credit Losses
Note 6 – Leases
Note 7 – Goodwill and Other Intangibles
Note 8 – Other Assets
Note 9 – Other Liabilities
Note 10 - Stock-Based Compensation
Note 11 – Accumulated Other Comprehensive Income
Note 12 – Fair Value Measurements
Note 13 – Financial Instruments with Off-Balance Sheet Risk
Note 14 – Revenue Recognition
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II – Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits.
EX-31.1 shbi-20190331ex3118ee7a6.htm
EX-31.2 shbi-20190331ex312caa34a.htm
EX-32 shbi-20190331xex32.htm

Shore Bancshares Earnings 2019-03-31

SHBI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 shbi-20190331x10q.htm 10-Q shbi_Current_Folio_10Q

 

 

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 March 31, 2019

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.)

 

 

 

28969 Information Lane, 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 ☑

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,779,072 shares of common stock outstanding as of April 30, 2019.

 

 

 

 

 


 

INDEX

 

   

Page

 

 

 

Part I. Financial Information 

 

3

 

 

 

Item 1. Financial Statements 

 

3

 

 

 

Consolidated Balance Sheets –March 31, 2019 (unaudited) and December 31, 2018

 

3

 

 

 

Consolidated Statements of Income For the three months ended March 31, 2019 and 2018 (unaudited) 

 

4

 

 

 

Consolidated Statements of Comprehensive Income For the three months ended March 31, 2019 and 2018 (unaudited) 

 

5

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity For the three months ended March 31, 2019 and 2018 (unaudited) 

 

6

 

 

 

Consolidated Statements of Cash Flows For the three months ended March 31, 2019 and 2018 (unaudited) 

 

7

 

 

 

Notes to Consolidated Financial Statements (unaudited) 

 

8

 

 

 

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

 

35

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

 

45

 

 

 

Item 4. Controls and Procedures 

 

45

 

 

 

Part II. Other Information 

 

46

 

 

 

Item 1. Legal Proceedings 

 

46

 

 

 

Item 1A. Risk Factors 

 

46

 

 

 

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

 

46

 

 

 

Item 3. Defaults Upon Senior Securities 

 

46

 

 

 

Item 4. Mine Safety Disclosures 

 

46

 

 

 

Item 5. Other Information 

 

46

 

 

 

Item 6. Exhibits 

 

46

 

 

 

Exhibit Index 

 

47

 

 

 

Signatures 

 

48

 

 

 

2


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SHORE BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

2019

 

2018

ASSETS

 

 

(Unaudited)

 

 

  

Cash and due from banks

 

$

18,915

 

$

16,294

Interest-bearing deposits with other banks

 

 

39,904

 

 

50,931

Cash and cash equivalents

 

 

58,819

 

 

67,225

Investment securities:

 

 

 

 

 

  

Available-for-sale, at fair value

 

 

150,814

 

 

154,432

Held to maturity, at amortized cost - fair value of $5,865 (2019) and $6,000 (2018)

 

 

5,899

 

 

6,043

Equity securities, at fair value

 

 

1,299

 

 

1,269

Restricted securities

 

 

5,292

 

 

6,476

 

 

 

 

 

 

 

Loans

 

 

1,211,716

 

 

1,195,355

Less: allowance for credit losses

 

 

(10,418)

 

 

(10,343)

Loans, net

 

 

1,201,298

 

 

1,185,012

 

 

 

 

 

 

 

Premises and equipment, net

 

 

22,632

 

 

22,711

Goodwill

 

 

17,518

 

 

17,518

Other intangible assets, net

 

 

2,696

 

 

2,857

Other real estate owned, net

 

 

979

 

 

1,222

Right-of-use assets

 

 

3,767

 

 

 —

Other assets

 

 

14,772

 

 

17,678

Assets of discontinued operations

 

 

14

 

 

633

TOTAL ASSETS

 

$

1,485,799

 

$

1,483,076

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

  

Deposits:

 

 

 

 

 

  

Noninterest-bearing

 

$

345,151

 

$

330,466

Interest-bearing

 

 

892,118

 

 

881,875

Total deposits

 

 

1,237,269

 

 

1,212,341

 

 

 

 

 

 

 

Short-term borrowings

 

 

30,724

 

 

60,812

Long-term borrowings

 

 

15,000

 

 

15,000

Lease liabilities

 

 

3,767

 

 

 —

Other liabilities

 

 

9,146

 

 

8,415

Liabilities of discontinued operations

 

 

2,811

 

 

3,323

TOTAL LIABILITIES

 

 

1,298,717

 

 

1,299,891

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

  

Common stock, par value $.01 per share; shares authorized - 35,000,000; shares issued and outstanding - 12,779,809 (2019) and 12,749,497 (2018)

 

 

128

 

 

127

Additional paid in capital

 

 

65,408

 

 

65,434

Retained earnings

 

 

123,050

 

 

120,574

Accumulated other comprehensive (loss)

 

 

(1,504)

 

 

(2,950)

TOTAL STOCKHOLDERS’ EQUITY

 

 

187,082

 

 

183,185

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,485,799

 

$

1,483,076

 

See accompanying notes to Consolidated Financial Statements.

3


 

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

For Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

INTEREST INCOME

 

 

 

 

 

 

 

Interest and fees on loans

 

$

13,499

 

$

12,044

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

Taxable

 

 

998

 

 

1,021

 

Interest on deposits with other banks

 

 

163

 

 

38

 

Total interest income

 

 

14,660

 

 

13,103

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Interest on deposits

 

 

1,947

 

 

548

 

Interest on short-term borrowings

 

 

213

 

 

226

 

Interest on long-term borrowings

 

 

106

 

 

 —

 

Total interest expense

 

 

2,266

 

 

774

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

12,394

 

 

12,329

 

Provision for credit losses

 

 

100

 

 

489

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

 

12,294

 

 

11,840

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

934

 

 

905

 

Trust and investment fee income

 

 

372

 

 

400

 

Other noninterest income

 

 

882

 

 

835

 

Total noninterest income

 

 

2,188

 

 

2,140

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

Salaries and wages

 

 

3,766

 

 

4,226

 

Employee benefits

 

 

1,254

 

 

1,176

 

Occupancy expense

 

 

691

 

 

677

 

Furniture and equipment expense

 

 

263

 

 

255

 

Data processing

 

 

910

 

 

868

 

Directors’ fees

 

 

86

 

 

114

 

Amortization of other intangible assets

 

 

162

 

 

99

 

FDIC insurance premium expense

 

 

205

 

 

205

 

Other real estate owned expense, net

 

 

233

 

 

(46)

 

Legal and professional

 

 

601

 

 

448

 

Other noninterest expenses

 

 

1,172

 

 

1,430

 

Total noninterest expense

 

 

9,343

 

 

9,452

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

5,139

 

 

4,528

 

Income tax expense

 

 

1,311

 

 

1,066

 

Income from continuing operations

 

 

3,828

 

 

3,462

 

 

 

 

 

 

 

 

 

(Loss) income from discontinued operations before income taxes

 

 

(99)

 

 

779

 

Income tax (benefit) expense

 

 

(25)

 

 

183

 

(Loss) income from discontinued operations

 

 

(74)

 

 

596

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

3,754

 

$

4,058

 

Earnings per common share - Basic

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.30

 

$

0.27

 

(Loss) income from discontinued operations

 

 

(0.01)

 

 

0.05

 

Net income

 

$

0.29

 

$

0.32

 

Earnings per common share - Diluted

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.30

 

$

0.27

 

(Loss) income from discontinued operations

 

 

(0.01)

 

 

0.05

 

Net income

 

$

0.29

 

$

0.32

 

Dividends paid per common share

 

$

0.10

 

$

0.07

 

 

See accompanying notes to Consolidated Financial Statements.

4


 

 

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

For Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Net Income

 

$

3,754

 

$

4,058

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available-for-sale-securities

 

 

1,983

 

 

(2,866)

 

Tax effect

 

 

(541)

 

 

793

 

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

 

 

 7

 

 

 7

 

Tax effect

 

 

(3)

 

 

(3)

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

1,446

 

 

(2,069)

 

Comprehensive income

 

$

5,200

 

$

1,989

 

 

See accompanying notes to Consolidated Financial Statements.

5


 

 

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the Three months Ended March 31, 2019 and 2018

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common

 

Paid in

 

Retained

 

Comprehensive

 

Stockholders’

 

    

Stock

    

Capital

    

Earnings

    

Income(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common

 

Paid in

 

Retained

 

Comprehensive

 

Stockholders’

 

 

Stock

    

Capital

    

Earnings

    

Income(Loss)

    

Equity

Balances, January 1, 2018

 

$

127

 

$

65,256

 

$

99,662

 

$

(1,309)

 

$

163,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 —

 

 

 —

 

 

4,058

 

 

 —

 

 

4,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,069)

 

 

(2,069)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 —

 

 

143

 

 

 —

 

 

 —

 

 

143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared

 

 

 —

 

 

 —

 

 

(891)

 

 

 —

 

 

(891)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2018

 

$

127

 

$

65,399

 

$

102,829

 

$

(3,378)

 

$

164,977

See accompanying notes to Consolidated Financial Statements.

6


 

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

For Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Income

 

$

3,754

 

$

4,058

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Net accretion of acquisition accounting estimates

 

 

(145)

 

 

(134)

Provision for credit losses

 

 

100

 

 

489

Depreciation and amortization

 

 

506

 

 

450

Net amortization of securities

 

 

127

 

 

181

Stock-based compensation expense

 

 

63

 

 

143

Deferred income tax (benefit) expense

 

 

(143)

 

 

265

Losses (gains) on sales and valuation adjustments on other real estate owned

 

 

226

 

 

(55)

Fair value adjustment on equity securities

 

 

(22)

 

 

(19)

Net changes in:

 

 

 

 

 

 

Accrued interest receivable

 

 

(414)

 

 

256

Other assets

 

 

3,574

 

 

(4,398)

Accrued interest payable

 

 

(295)

 

 

72

Other liabilities

 

 

404

 

 

893

Net cash provided by operating activities

 

 

7,735

 

 

2,201

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITES:

 

 

 

 

 

 

Proceeds from maturities and principal payments of investment securities available for sale

 

 

5,475

 

 

10,003

Proceeds from maturities and principal payments of investment securities held to maturity

 

 

150

 

 

91

Purchases of equity securities

 

 

(8)

 

 

(3)

Net change in loans

 

 

(16,304)

 

 

(26,678)

Purchases of premises and equipment

 

 

(192)

 

 

(405)

Proceeds from sales of other real estate owned

 

 

17

 

 

280

Net redemption of restricted securities

 

 

1,184

 

 

 —

Net cash (used in) investing activities

 

 

(9,678)

 

 

(16,712)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net changes in:

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

14,685

 

 

(4,473)

Interest-bearing deposits

 

 

10,306

 

 

(21,209)

Short-term borrowings

 

 

(30,088)

 

 

51,259

Common stock dividends paid

 

 

(1,278)

 

 

(891)

Repurchase of shares for tax withholding on exercised options and vested restricted stock

 

 

(88)

 

 

 —

Net cash (used in) provided by financing activities

 

 

(6,463)

 

 

24,686

Net (decrease) increase in cash and cash equivalents

 

 

(8,406)

 

 

10,175

Cash and cash equivalents at beginning of period

 

 

67,225

 

 

31,820

Cash and cash equivalents at end of period

 

$

58,819

 

$

41,995

 

 

 

 

 

 

 

Supplemental cash flows information:

 

 

 

 

 

 

Interest paid

 

$

2,624

 

$

739

Income taxes paid

 

$

 —

 

$

 —

Lease liabilities arising from right-of-use assets

 

$

3,877

 

$

 —

Unrealized gain (loss) on securities available for sale

 

$

1,983

 

$

(2,866)

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

 

$

 7

 

$

 7

 

 

 

 

 

 

 

 

See accompanying notes to Consolidated Financial Statements.

7


 

Shore Bancshares, Inc.

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018

(Unaudited)

 

 

Note 1 – Basis of Presentation

 

The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiaries with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The accompanying interim financial statements are unaudited; however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at March 31, 2019, the consolidated results of income and comprehensive income for the three months ended March 31, 2019 and 2018, and changes in stockholders’ equity and cash flows for the three months ended March 31, 2019 and 2018, have been included. All such adjustments are of a normal recurring nature. The amounts as of December 31, 2018 were derived from the 2018 audited financial statements. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for any other interim period or for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2018. For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation.

 

When used in these notes, the term “the Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiaries.

 

Recent Accounting Standards

 

ASU No. 2016-13 - In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company believes this ASU will have a significant impact on our consolidated financial statements and the method in which we calculate our credit losses, primarily on loans and held to maturity securities. At this time, the Company has established a project management team which meets periodically to discuss and assign roles and responsibilities, key tasks to complete, and a general time line to be followed for implementation. The team has been working with an advisory consultant and has purchased a vendor model for implementation. Historical data has been collected and uploaded to the new model and the team is in the process of finalizing the methodologies that will be utilized. The team expects to be running a parallel simulation to its current incurred loss impairment model in the second quarter of 2019. The Company is continuing to evaluate the extent of the potential impact of this standard and continues to keep current on evolving interpretations and industry practices via webcasts, publications, conferences, and peer bank meetings.

 

ASU No. 2017-04 – In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim

8


 

goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures. 

 

ASU No. 2018-13 – In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”  The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

 

Note 2 – Sale of Subsidiary

Avon-Dixon Agency Sale

On December 31, 2018, the Company completed the sale of the specific assets and activities related to its insurance agency, Avon-Dixon Agency, LLC (“Avon-Dixon”) to Avon-Dixon, an Alera Group Agency, LLC (“Alera”). Also, on this date the Company discontinued the operations of its premium finance company, Mubell Finance, LLC (“Mubell”). Together, Avon-Dixon and Mubell companies are referred to as the “Insurance Subsidiaries”. The Insurance Subsidiaries represented the Company’s insurance products and services segment, the activities of which related to originating, servicing and underwriting retail insurance policies. Assets sold to Alera included various intangible assets and a 40% interest in segregated portfolio of Eastern Re. LTD.,  a specialty reinsurance company. Mubell, along with certain other assets and liabilities that will be sold or settled separately within one year, is classified as discontinued operations in the accompanying Consolidated Balance Sheets and Consolidated Statements of Income.

The specific assets acquired by Alera include, among other things, the insurance origination offices, insurance expirations, workforce and system procedures, trade names and goodwill. Alera has assumed certain obligations and liabilities of the Company under the acquired leases, and with respect to the employment of transferred employees. The Company received $25.2 million cash payment, upon the closing of the transaction.

The following table summarizes the calculation of the net gain on disposal of discontinued operations.

 

 

 

 

($ in thousands)

    

Year Ended December 31, 2018

Proceeds from the transaction

 

$

29,276

Compensation expense related to the transaction

 

 

2,588

Broker fees

 

 

935

Other transaction costs

 

 

594

Net cash proceeds

 

 

25,159

Net assets sold

 

 

(12,423)

Net gain on disposal

 

$

12,736

 

 

 

 

 

9


 

The following tables present the financial information of discontinued operations as of the dates and for the periods indicated:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

($ in thousands)

    

2019

    

2018

ASSETS

 

 

 

 

 

 

Premises and equipment, net

 

$

 —

 

$

 —

Goodwill

 

 

 8

 

 

 8

Other assets

 

 

 6

 

 

625

Assets of discontinued operations

 

$

14

 

$

633

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other liabilities

 

$

2,811

 

$

3,323

Liabilities of discontinued operations

 

$

2,811

 

$

3,323

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31,

($ in thousands)

    

2019

    

2018

Noninterest income

 

 

 

 

 

 

Insurance agency commissions

 

$

 —

 

$

2,694

All other income

 

 

14

 

 

95

Total noninterest income

 

 

14

 

 

2,789

Noninterest expense

 

 

 

 

 

 

Salaries and wages

 

 

31

 

 

1,247

Employee benefits

 

 

 7

 

 

341

Occupancy expense

 

 

18

 

 

104

Furniture and equipment

 

 

 1

 

 

 —

Amortization of intangible assets

 

 

 —

 

 

12

Legal and professional fees

 

 

64

 

 

16

Other noninterest expenses

 

 

(8)

 

 

290

Total noninterest expense

 

 

113

 

 

2,010

(Loss) income from discontinued operations before income taxes

 

 

(99)

 

 

779

Income tax (benefit) expense

 

 

(25)

 

 

183

(Loss) income from discontinued operations

 

$

(74)

 

$

596

 

 

 

10


 

Note 3 – Earnings Per Share

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common stock equivalents (stock-based awards). The following table provides information relating to the calculation of earnings per common share:

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

March 31, 

(In thousands, except per share data)

    

2019

    

2018

Net income from continuing operations

 

$

3,828

 

$

3,462

Net (loss) income from discontinued operations

 

 

(74)

 

 

596

Net Income

 

$

3,754

 

$

4,058

Weighted average shares outstanding - Basic

 

 

12,769

 

 

12,715

Dilutive effect of common stock equivalents-options

 

 

 4

 

 

16

Weighted average shares outstanding - Diluted

 

 

12,773

 

 

12,731

 

 

 

 

 

 

 

Basic earnings per common share

 

 

  

 

 

  

Income from continuing operations

 

$

0.30

 

$

0.27

(Loss) income from discontinued operations

 

 

(0.01)

 

 

0.05

Net income

 

$

0.29

 

$

0.32

 

 

 

 

 

 

 

Diluted earnings per common share