Today, 30 years after its inception, ShoreBank has proven that a banking corporation can become a financial success by helping individuals and businesses build stronger communities and a healthier environment.

In an interview, Ron Grzywinski, ShoreBank's chairman; Mary Houghton, president; Todd Brown, vice chairman; and Bob Nash, vice chairman, discussed this year's performance, future innovations and ShoreBank's triple bottom line goals of profitability, community development and conservation.

Q: How did ShoreBank perform financially in 2003, and how does its performance compare with other banks?

ShoreBank's financial performance demonstrates that we can benefit communities and encourage environmental responsibility while meeting or exceeding the financial performance of peer banks.

Our bank in Chicago and Detroit, by far the largest of the ShoreBank companies, had an outstanding year. It achieved a net income of $15.4 million, $1.9 million more than any previous year. These earnings amount to a 16.8 percent return on equity and were bolstered by a 54.7 percent efficiency ratio. This is the second year in a row that it has performed significantly better than the median performance of its peer banks of $1 billion to $3 billion in assets, none of which are community development or environmental banks.

The banks in the Pacific Northwest and Cleveland also continue to make good progress; ShoreBank Pacific's profits exceeded expectations. All our banks increased their new loan volume, in part due to the continued strong demand for real estate loans brought about by the low interest rate environment. Overall, the banks made a total of $385 million in loans, 25 percent more than last year.

On a consolidated basis, which includes the results of all the for-profit affiliates, ShoreBank Corporation had its best year ever. It earned $7 million, 5 percent more than in 2002. Results in 2003 reflected $2.1 million in after-tax costs related to winding down real estate development activities in Chicago and transferring housing developments to new institutional owners. ShoreBank Corporation also absorbed more than $300,000 in net costs incurred while creating a new international investment company.

Q: How does ShoreBank balance its mission with its need to be profitable?

It is not a matter of balancing. Our financial success shows that it is good business to provide financial and information services to communities in ways that create wealth for customers, strengthen communities and preserve natural resources.

Seventy one percent of the loans ShoreBank made in 2003 were what we call community development investments. These include loans made to individuals or businesses in the priority communities where we concentrate our investing. These are places where household incomes and property values fall below the regional median. Community development investments also include loans to minority-owned businesses, nonprofits and faith-based organizations, as well as conservation loans, first-time homebuyer grants and real estate development undertaken by ShoreBank companies.

We are excited that in 2003 ShoreBank made $279 million in new community development investments, 20 percent more than in any previous year. We also made $71 million in conservation loans, 26 percent more than in any preceding year. In short, ShoreBank Corporation made significant progress toward its mission while having its most profitable year yet.

Q: What impact do these community development loans have on the communities in which ShoreBank operates?

Quality, affordable housing is a key factor in healthy communities; consequently, ShoreBank focuses on residential real estate lending in its urban markets. In 2003, 60 percent of our consolidated development loans were for residential real estate. These loans are primarily made on moderately priced buildings and include financing for renovations, which help produce quality housing at affordable prices. The residential real estate loans made in 2003 financed the purchase and rehab of more than 4,300 homes and apartments, bringing the 30-year total to more than 42,000 apartments.

Business loans help our customers create jobs and generate economic returns and tax revenue, which are reinvested in their communities in the form of schools and other public services. The ShoreBank companies that serve small businesses — which include the banks, the five nonprofit companies and ShoreBank Capital — made $51 million in small business loans, their highest total ever.

ShoreBank companies also made $40 million in loans to faith-based organizations and other nonprofits that in turn redevelop properties and provide social services in their communities.

Conservation loans amounting to $71 million were made to customers seeking to improve their use of key resources such as energy, water, materials and land. These loans help them reduce operating costs by using resources more efficiently, lessen solid waste, and improve air and water quality.

Q: What services other than banking does ShoreBank provide?

ShoreBank provides a wide array of services through its other companies that complement its lending activities and effectively multiply its local impact.

The nonprofit affiliates provide services for individuals, such as financial fluency programs, job placement services, and seminars about increasing energy efficiency in homes. They also provide services to business customers to help them identify potential employees, make marketing and process improvements, assess environmental improvement opportunities and create networks among local businesses.

ShoreBank Advisory Services (SAS), another subsidiary, provides consulting and research services to financial institutions, governments, foundations and communities in the U.S. and around the world. In 2003, SAS worked with other U.S. institutions to create a variety of programs and services for low- and moderate-income families, such as asset-building accounts at development-oriented banks and credit unions, and a program to increase day care slots in California. Internationally, SAS oversaw the disbursement of 1,348 small business and real estate loans totaling $72 million through financial institutions in Central and Eastern Europe, and provided consulting services to financial institutions in numerous other countries.

2003 also marked the full-scale implementation of MetroEdge, an SAS business that delivers unique market research to encourage businesses, especially retailers, to invest in urban neighborhoods.

Q: What other highlights stand out from 2003?

ShoreBank successfully raised $17.7 million in capital and launched ShoreCap International. It makes equity investments in regulated financial institutions that make small business or micro loans in Asia, Africa and Eastern Europe, where few local banks make such loans. ShoreCap International is a collaboration among private and public sector investors in the U.S., Asia and Europe, and is the only company or fund of its kind led by a U.S. bank holding company. We are currently raising grant resources for a companion nonprofit firm, ShoreCap Exchange, that provides technical assistance to the institutions in which ShoreCap International invests.

We are also pleased that Todd Brown joined ShoreBank Corporation this year as vice chairman. He served most recently in a series of senior executive positions at Kraft Foods. He is now chairman of the boards for the banks in Chicago and Detroit, and Cleveland, and is responsible for developing and implementing a strategy to expand to new urban areas. In addition, Chris Warren was appointed president of ShoreBank Enterprise Cleveland.

Q: What lies ahead for ShoreBank?

ShoreBank has big plans for greater impact during the next few years, including significant growth for the bank in Chicago and Detroit. We will increase our focus on activities that simultaneously promote conservation, strengthen communities and increase the financial return to shareholders. We are adopting new processes to ensure strategic innovation in meeting these three goals.

ShoreBank does not change the world by itself. We are successful because of the hard work and passion of our customers, investors and employees. Our customers identify opportunities to grow their businesses or invest in their communities. Our investors are fully committed to and share the vision of a triple bottom line mission of profitability, community development and healthy environments. And our employees apply their knowledge, skills, passion and dedication to ensure personal service to customers and excellence in execution. We are very grateful to them all. Together we make a difference every day!