Shore Bancshares, Inc. Reports 2023 Fourth Quarter and Annual Results

Rhea-AI Summary

Shore Bancshares, Inc. reported net income of $10.5 million for Q4 2023, a turnaround from a net loss of $9.7 million in Q3 2023. The company's total deposits increased to $5.4 billion, with a focus on core transaction and time deposits. The merger with The Community Financial Corporation added $2.4 billion in assets and expanded the Bank's footprint into fast-growing regions. However, the net interest margin decreased to 3.09% due to significant deposit growth, impacting the NIM and interest income.

Insights

Financial Analyst

The reported financial results of Shore Bancshares for Q4 2023 demonstrate a significant recovery from a net loss in Q3 to a net gain, indicating a potential stabilization in earnings. The increase in net income compared to the same quarter in the previous year suggests positive growth, which could be attractive to investors. However, the year-over-year decline in net income for the fiscal year raises questions about the sustainability of earnings growth. The decrease in net interest margin (NIM) due to deposit growth and lower net accretion income suggests pressure on profitability, which may concern stakeholders focused on interest income as a revenue driver. The merger with TCFC, while contributing to asset and deposit growth, also brings integration risks and the need to realize synergies to justify the acquisition cost.

Market Research Analyst

The expansion into high-income and low-unemployment regions through the merger with TCFC positions Shore Bancshares for potential market share gains. The reported deposit growth and increased liquidity indicate a strong foundation for future loan growth, which is projected to exceed previous guidance. This is a positive signal for future revenue potential. However, the banking industry is highly competitive and the ability to attract and retain customers will be critical. Additionally, the increase in nonperforming assets, although modest, warrants monitoring as it may indicate emerging credit risk in the loan portfolio, especially in the context of the current interest rate environment.

Risk Management Analyst

The reported increase in the allowance for credit losses and the adoption of the CECL model reflect a more conservative approach to risk management, which is prudent given the uncertain economic outlook. The solid asset quality and low nonperforming assets ratio are reassuring, but the uptick in nonperforming assets and the proactive review of commercial relationships suggest that Shore Bancshares is anticipating potential headwinds. The decrease in brokered deposits and reliance on stable funding sources like customer deposits and FHLB advances indicates a strategic shift towards more stable and less costly funding, which could mitigate liquidity risk and improve the bank's risk profile.

EASTON, Md., Jan. 31, 2024 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company" or "Shore Bancshares"), the holding company for Shore United Bank N.A. (the "Bank" or "SUB") reported net income for  the fourth quarter of 2023 of $10.5 million or $0.32 per diluted common share compared to a net loss of $9.7 million or $0.29 per diluted common share for the third quarter of 2023, and net income of $8.4 million or $0.42 per diluted common share for the fourth quarter of 2022. Net income for the fiscal year of 2023 was $11.2 million or $0.42 per diluted common share, compared to net income for the fiscal year of 2022 of $31.2 million or $1.57 per diluted common share.

Fourth Quarter 2023 Highlights

• Net Interest Margin Impacted by Growth in Liquidity - Net interest margin ("NIM") decreased to 3.09% for the fourth quarter of 2023 from 3.35% for the third quarter of 2023, due to significant deposit growth and less net accretion income when compared to the third quarter of 2023. Excluding net accretion interest income of $3.0 million and $5.4 million for the same time periods, NIM decreased nine basis points to 2.87% for the fourth quarter of 2023 from 2.96% for the third quarter of 2023.
  
  
• Continued Deposit Growth - During the fourth quarter, total deposits increased 5.43% to $5.4 billion and non-interest bearing ("NIB") deposits increased 3.8% to $1.3 billion at December 31, 2023 compared to total deposits of $5.1 billion and NIB of $1.2 billion at September 30, 2023. Deposit growth for the quarter was split between core transaction and time deposits. The increased liquidity should help support 2024 loan growth. Current customer interest is indicating that growth could exceed management’s previous guidance of 4%-6% loan growth in 2024. The Bank's loan to deposit ratio at December 31, 2023 was 86%. Sustained efforts to enhance the Bank's deposit franchise are expected to attract additional deposits in future quarters.
  
  
• Stable Funding and Liquidity - Total funding, which includes customer deposits, Federal Home Loan Bank ("FHLB") advances, and brokered deposits increased $210.4 million from $5.2 billion at September 30, 2023 to $5.4 billion at December 31, 2023. The Bank had no FHLB advances at December 31, 2023 and reduced brokered deposits $67.0 million during the fourth quarter to $44.5 million or 0.8% of total deposits. The Bank's uninsured deposits at December 31, 2023 were $1.05 billion or 19.49% of total deposits. The Bank's uninsured deposits, excluding deposits secured with pledged collateral, at December 31, 2023 were $893.5 million or 16.59% of total deposits.
  
  At December 31, 2023, the Bank had approximately $1.4 billion of available liquidity including: $372.4 million in cash, $1.0 billion in secured borrowing capacity at the FHLB and other correspondent banks, and $45.0 million in unsecured lines of credit. At December 31, 2023, available liquidity of approximately $1.4 billion was 159% of uninsured deposits, excluding deposits secured with pledged collateral of $893.5 million.
  
  
• Continued Solid Asset Quality - Non-accrual loans, OREO and loan modifications to borrowers' experiencing financial difficulties ("BEFDs") were $13.3 million or 0.22% of total assets at December 31, 2023 compared to $9.2 million or 0.16% of total assets at September 30, 2023. The modest increase in nonperforming and classified assets was the result of a small increase in late payments in consumer loans and a proactive review of larger commercial relationships in the current interest rate environment.

"Stable interest income was offset by higher interest expenses in the fourth quarter as we added liquidity and continued to see pressure on the cost of deposits," stated James ("Jimmy") M. Burke, President and Chief Executive Officer of Shore Bancshares, Inc. "We made good progress expanding our market share and adding new customers in the third and fourth quarters and are optimistic that we can build on the  deposit growth we experienced in the fourth quarter. Improved liquidity should provide an opportunity to grow loans and stabilize margins. We continue to focus on expenses and have undertaken a number of expense-reduction initiatives, including a 7% reduction in headcount since the close of the transaction in the third quarter. Shore Bancshares, with its considerable scale, diversification, and resources, is well-positioned to enhance shareholder value, effectively manage risks, and deliver outstanding service to customers."

Merger with The Community Financial Corporation ("TCFC") 

The Company merged with TCFC and its wholly-owned subsidiary Community Bank of the Chesapeake ("CBTC") on July 1, 2023 (the "merger"). The acquisition method was used to account for the transaction with the Company as the acquirer. The Company recorded the assets and liabilities of TCFC at their respective fair values as of July 1, 2023. The transaction was valued at approximately $153.6 million and expanded the Bank's footprint into the Southern Maryland Counties of Charles, St. Mary's and Calvert and the greater Fredericksburg area in Virginia, which includes, Stafford and Spotsylvania Counties. This acquired market area is one of the fastest growing regions in the country and is home to a mix of federal facilities and industrial and high-tech businesses. These areas boast a strong median household income, low unemployment and projected population growth better than national averages. Based on information from the U.S. Bureau of Labor Statistics, unemployment rates in legacy CBTC's footprint have historically remained well below the national average. At the time of the acquisition, TCFC added $2.4 billion in assets, $454.5 million in investments, $1.8 billion in loans, $2.0 billion in deposits, $150.6 million in brokered deposits, $69.0 million in FHLB advances and $32.0 million in subordinated debt and trust preferred debentures. The excess of the fair value of net TCFC assets acquired over the merger consideration resulted in a $8.8 million bargain purchase gain.

Balance Sheet Review

Total assets were $6.0 billion at December 31, 2023, an increase of $2.5 billion or 72.9%, when compared to $3.5 billion at December 31, 2022. The aggregate increase was primarily due to the merger, with significant increases in loans held for investment of $2.1 billion, or 81.6%, and cash and cash equivalents of $316.9 million, partially offset by an increase in allowance for credit losses of $40.7 million. The ratio of the allowance to total loans increased from 0.65% at December 31, 2022, to 1.24% at December 31, 2023. The increases were due to the adoption of CECL on January 1, 2023 and the merger. Due to a lack of uniformity of historical data between the legacy banks in their respective models, management implemented a new post merger model methodology. The Bank's provision for credit losses for the twelve months ended December 31, 2023 was $31.0 million and were due primarily to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million due to the change in ACL methodology on SUB legacy loans.

The Company's tangible common equity ratio at December 31, 2023 was 6.78%. The Company's Tier 1 and Total Risk-Based Capital Ratios at December 31, 2023 were 9.31% and 11.48%, respectively. The Bank's Tier 1 and Total Risk-Based Capital Ratios at December 31, 2023 were 10.02% and 11.27%, respectively. Non-owner occupied commercial real estate ("CRE") loans as a percentage of the Bank's Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 were $2.0 billion or 382.6% and $1.0 billion or 289.4%, respectively. Construction loans as a percentage of the Bank's Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 were $299.0 million or 56.7% and $246.3 million or 69.9%, respectively.

The Bank's office CRE portfolio, which included owner-occupied and non-owner occupied CRE loans, was $521.7 million or 11.2% of total loans of $4.6 billion at December 31, 2023, which included $142.9 million or 27.4% with medical tenants and $74.9 million or 14.4% with government or government contractor tenants. There were 507 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $0.4 million, respectively. Loan to Value ("LTV") estimates are less than 70% for $398.7 million or 76.4% of the office CRE portfolio.

The Bank had 23 CRE office loans totaling $189.8 million that were greater than $5.0 million at December 31, 2023. For this subset of the office CRE portfolio, at December 31, 2023, the average loan debt-service coverage ratio was 1.8x and average LTV was 53.9%. Most buildings in the Bank's office CRE portfolio are two stories or less and outside metropolitan areas.

Total borrowings were $72.3 million at December 31, 2023, a decrease of $10.8 million, or 13.0%, when compared to $83.1 million at December 31, 2022. Total borrowings at December 31, 2023 were comprised of $43.1 million of subordinated debt and $29.2 million of trust preferred debentures. The decrease in total borrowings at December 31, 2023 when compared to December 31, 2022 was primarily due to repayment of $40.0 million in FHLB short-term advances, partially offset by an increase of $29.2 million in subordinated debt and trust preferred debentures from the acquisition of TCFC. The Company's wholesale funding increased $4.5 million, which includes brokered deposits and FHLB advances, from $40.0 million in FHLB advances at December 31, 2022 to $44.5 million in brokered deposits at December 31, 2023. The Bank redeemed callable brokered certificates of $67.0 million during the fourth quarter of 2023.

Total deposits increased $2.4 billion, or 79.0% to $5.4 billion at December 31, 2023 when compared to December 31, 2022. The increase in total deposits was primarily due to the merger, which resulted in an increase in time deposits of $760.3 million, demand deposits of $471.4 million, money market and savings of $748.6 million and noninterest-bearing deposits of $396.0 million. Total deposits increased $277.4 million from $5.1 billion at September 30, 2023 to $5.4 billion at December 31, 2023. The increase in deposits during the fourth quarter was due to increases in non-interest bearing deposits of $46.6 million, and increases in interest bearing deposits of $230.7 million which was comprised of an increase in money market and savings deposits of $227.1 million and time deposits of $48.1 million partially offset by a decrease in demand deposits of $44.5 million.

At December 31, 2023, total deposits consisted of $5.3 billion in customer deposits and $44.5 million in traditional brokered deposits. Traditional brokered deposits decreased from $111.5 million or 2.2% of total deposits at September 30, 2023 to $44.5 million or 0.8% of total deposits at December 31, 2023. Traditional brokered deposits do not include the portion of reciprocal deposits classified as brokered deposits for call reporting purposes. For FDIC call reporting purposes reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank's liabilities or $5.0 billion. Reciprocal deposits are included in customer deposits and are used to maximize FDIC insurance available to our customers. Reciprocal deposits considered brokered deposits for call reporting purposes were $204.8 million at December 31, 2023.

NIB accounts increased from $862.0 million at December 31, 2022 to $1.3 billion at December 31, 2023, and represent 23.4% of total deposits.

Total stockholders' equity increased $146.9 million, or 40.3%, when compared to December 31, 2022, primarily due to the $153.1 million increase in paid in capital due to the merger. As of December 31, 2023, the ratio of total equity to total assets was 8.50% and the ratio of total tangible equity to total tangible assets was 6.78% compared to 10.48% and 8.67% at the end of 2022, respectively.

Review of Quarterly Financial Results

Net interest income was $41.5 million for the fourth quarter of 2023, compared to $45.6 million for the third quarter of 2023 and $26.9 million for the fourth quarter of 2022. The decrease in net interest income when compared to the third quarter of 2023 was primarily due to the increase in interest expense of $4.0 million resulting from an increase in the average balance of deposits of $187.8 million. The increase when compared to the fourth quarter of 2022 was primarily due to the increase in interest and fees on loans partially offset by the increase in interest on deposits, both significantly impacted by the merger in the third quarter of 2023.

The Company's net interest margin decreased to 3.09% for the fourth quarter of 2023 from 3.35% for the third quarter of 2023 due to lower net accretion income and an increase in the overall mix of interest bearing deposits compared to non-interest bearing deposits. Average interest-bearing deposits increased $187.8 million which resulted in an 36 basis point rate increase in interest-bearing deposits. In addition to the change in deposit mix, rates on money market and time deposits also increased, which were partly offset by lower rates on demand deposits. The increase in interest bearing deposits was the result of a strategic focus by the Company to grow deposits during the fourth quarter to support 2024 loan growth.

The Company's net interest margin decreased to 3.09% for the fourth quarter of 2023 from 3.34% for the fourth quarter of 2022. Comparing the fourth quarter of 2023 to the fourth quarter of 2022, the Company's interest-earning asset yields increased 129 basis points to 5.29% from 4.00%, while the cost of funds increased at a faster rate of 156 basis points to 2.25% from 0.69% for the same period.

The provision for credit losses was $0.9 million for the three months ended December 31, 2023. The comparable amounts were $28.2 million for the three months ended September 30, 2023, and $0.5 million for the three months ended December 31, 2022. The decrease in  the provision for credit losses for the fourth quarter of 2023 compared to the third quarter of 2023 was primarily related to the acquisition of the TCFC legacy loans in the third quarter of 2023 and the change in ACL methodology on SUB legacy loans. The increase in the provision for credit losses when compared to the fourth quarter of 2022 was also impacted by higher reserves required by the Company's CECL allowance model as compared to the incurred loss model utilized in 2022. Net charge-offs for the fourth quarter of 2023 were $0.5 million compared to net charge-offs of $1.4 million for the third quarter of 2023 and net charge offs of $84,000 for the fourth quarter of 2022. Included in the net charge-offs for the third quarter of 2023 were $1.2 million in charge-offs related to loan sales of $10.7 million that reduced classified assets and CRE concentrations.

At December 31, 2023 and September 30, 2023, nonperforming assets were $13.7 million or 0.23% of total assets and $11.3 million, or 0.20% of total assets, respectively. The balance of nonperforming assets increased primarily due to an increase in nonaccrual loans of $3.8 million, primarily offset by a decrease of $1.4 million in loans 90 days past due and still accruing. The composition of the additional  $3.8 million in nonaccrual loans at December 31, 2023 were made up of a few credits and does not signify an overall declining trend in asset quality. When comparing December 31, 2023 to December 31, 2022, nonperforming assets increased $9.8 million, primarily due to increases in nonaccrual loans of $10.9 million and offset primarily by a decrease of $1.1 million in loans 90 days past due and still accruing. The modest increase in nonperforming assets was the result of a proactive review of larger commercial relationships in the current interest rate environment.

Total noninterest income for the fourth quarter of 2023 was $7.5 million, a decrease of $7.4 million from $15.0 million for the third quarter of 2023 and an increase $1.7 million from $5.9 million for the fourth quarter of 2022. The decrease from the third quarter of 2023 was primarily due to the bargain purchase gain of $8.8 million and a decrease of $1.1 million in trust and investment fee income, both the result of the acquisition of TCFC, partially offset by a loss of $2.2 million on the sale of investment securities in the third quarter of 2023. Shortly following the closing of the merger on July 1, 2023, management sold virtually all of CBTC's available for sale investment securities. The $2.2 million loss relates to the difference in the fair values of the securities on July 1, 2023 compared to actual sales proceeds received from the sales on the settlement date. The increase from the fourth quarter of 2022 was primarily due to other noninterest income which included increases in other loan fee income, gains on life insurance contracts and an increase in credit card income all a result of the merger.

Total noninterest expense of $33.7 million for the fourth quarter of 2023 decreased $13.5 million when compared to the third quarter of 2023 expense of $47.2 million and increased $12.7 million when compared to the fourth quarter of 2022 expense of $21.0 million. Excluding merger costs and core deposit amortization of $3.2 million for the fourth quarter of 2023 and $17.5 million for the third quarter of 2023, noninterest expense for the comparable periods was $30.5 million and $29.7 million, respectively. The increase was primarily due to higher FDIC insurance premium expense as a result of the increased size of the Bank. Based on the Bank's current size, FDIC insurance premiums are expected to be between $1.0 million and $1.2 million per quarter in 2024. The increase in total noninterest expense, when excluding merger and acquisition costs and core deposit intangibles of $1.4 million for the fourth quarter of 2022, was primarily due to the acquisition of TCFC in the third quarter of 2023, and resulting additional headcount, infrastructure (11 additional branches), processing fees and FDIC insurance premiums.

Review of Twelve Month Financial Results

Net interest income for the first twelve months of 2023 was $135.3 million, an increase of $34.0 million, or 33.6%, when compared to the first twelve months of 2022. The increase in net interest income was primarily due to an increase in total interest income of $100.2 million, or 88.0%, which included an increase in interest and fees on loans of $95.2 million, or 96.1%. The increase of interest and fees on loans was primarily due to the increase in the average balance of loans of $1.3 billion, or 58.7%, and an increase in net accretion income of $7.5 million due to the merger. Increases to net interest income were partially offset by increased total interest expense of $66.2 million, or 528.0%, primarily due to increases in the cost of funds and in the average balance of interest-bearing deposits of $859.9 million, or 40.5%, largely due to the merger.

The Company's net interest margin decreased to 3.11% for 2023 from 3.15% for 2022, primarily due to costs on interest-bearing liabilities increasing at a faster rate than increasing yields on interest-earning assets. The average balance and rates paid on interest-bearing deposits increased $859.9 million and 183 basis points compared to increased average balance and yields earned on average earning assets of $1.1 billion and 138 basis points. Total net accretion income for 2023 was $9.4 million, compared to $1.9 million for 2022. During 2023, until the balance sheet restructuring in the third quarter of 2023, the net interest margin experienced compression due to the Company's liability sensitive position, the result of deposit rate pressures and significantly higher FHLB borrowing rates.

The provision for credit losses for the twelve months ended December 31, 2023 and 2022 was $31.0 million and $1.9 million, respectively. The increase in the provision for credit losses for 2023 was impacted by higher levels of reserves required by the Company's CECL model as compared to the incurred loss methodology utilized in 2022 and higher reserves required for the acquisition of TCFC in the third quarter of 2023 and a change in CECL methodology in the third quarter of 2023 for the legacy SUB loans. Net charge offs for the twelve months ended December 31, 2023 were $2.0 million compared to net recoveries of $0.8 million for the twelve months ended December 31, 2022.

Total noninterest income for the twelve months ended December 31, 2023 increased $10.1 million or 43.6%, when compared to the same period in 2022. The increase in noninterest income was due to the bargain purchase gain of $8.8 million associated with the merger, an increase of $1.8 million in trust and investment fee income and an increase of $0.9 million in interchange credits, partially offset by a $2.2 million loss on sales of investment securities and a decrease of $0.8 million in title company revenue.

Total noninterest expense for the twelve months ended December 31, 2023 increased $43.0 million, or 53.5%, when compared to the same period in 2022. Almost all noninterest expense line items increased as a result of the merger and the expanded operations of the newly combined Company. Merger-related expenses for the twelve months ended December 31, 2023 were $17.4 million, compared to the twelve months ended December 31, 2022 of $2.1 million. As the Company continues its merger integration, a key focus of management will be to streamline processes, unlock operational efficiencies and reduce overall noninterest expenses.

Shore Bancshares Information

Shore Bancshares is a financial holding company headquartered in Easton, Maryland and is the parent company of Shore United Bank, N.A. Shore Bancshares engages in title work related to real estate transactions through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc. and in trust and wealth management services through Wye Financial Partners, a division of Shore United Bank, N.A. 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. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: the expected cost savings, synergies and other financial benefits from the acquisition of TCFC or any other acquisition the Company has made or may make might not be realized within the expected time frames or at all; the effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing wars in Ukraine and the Middle East; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; any failures to adequately manage the transition from USD LIBOR as a reference rate; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding debt ceiling and the federal budget; the impact of recent or future changes in FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; our ability to remediate the material weakness identified in our internal control over financial reporting; the effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures; climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; and other factors that may affect our future results. 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.

 

Shore Bancshares, Inc. Financial Highlights (Unaudited)
		For the Three Months Ended December 31,						For the Twelve Months Ended December 31,
(Dollars in thousands, except per share data)		2023		2022		Change		2023		2022		Change
PROFITABILITY FOR THE PERIOD
Net interest income		$            41,525		$            26,943		54.1 %		$          135,307		$          101,302		33.6 %
Provision for credit losses		896		450		99.1		30,953		1,925		1,507.9
Noninterest income		7,548		5,862		28.8		33,159		23,086		43.6
Noninterest expense		33,670		21,000		60.3		123,329		80,322		53.5
Income before income taxes		14,507		11,355		27.8		14,184		42,141		(66.3)
Income tax expense		4,017		2,948		36.3		2,956		10,964		(73.0)
Net income		$            10,490		$              8,407		24.8		$            11,228		$            31,177		(64.0)
Return on average assets		0.72 %		0.97 %		(25) bp		0.24 %		0.90 %		(66) bp
Return on average assets excluding amortization of intangibles and merger related expenses - Non-GAAP		0.88		1.09		(21)		0.58		0.99		(41)
Return on average equity		8.21		9.22		(101)		2.54		8.76		(622)
Return on average tangible equity - Non-GAAP (1), (2)		12.88		12.83		5		7.74		11.96		(422)
Interest rate spread		2.34		3.04		(70)		2.42		2.96		(54)
Net interest margin		3.09		3.34		(25)		3.11		3.15		(4)
Efficiency ratio - GAAP		68.61		64.01		460		73.21		64.57		864
Efficiency ratio - Non-GAAP (1)		61.99		59.60		239		58.44		61.21		(277)
Non-interest income to avg assets		0.52		0.68		(16)		0.71		0.67		4
Non-interest expense to avg assets		2.33		2.42		(9)		2.64		2.33		31
Net operating expense to avg assets		1.80		1.75		5		1.93		1.66		27
PER SHARE DATA
Basic and diluted net income per common share		$               0.32		$               0.42		(23.8) %		$               0.42		$               1.57		(73.2) %
Dividends paid per common share		$               0.12		$               0.12		— %		$               0.48		$               0.48		— %
Book value per common share at period end		15.41		18.34		(16.0)
Tangible book value per common share at period end - Non-GAAP (1)		12.06		14.87		(18.9)
Market value at period end		14.25		17.43		(18.2)
Market range:
High		14.51		20.85		(30.4)		18.15		21.41		(15.2)
Low		9.66		17.04		(43.3)		9.66		17.04		(43.3)
AVERAGE BALANCE SHEET DATA
Loans		$       4,639,467		$       2,467,324		88.0 %		$       3,639,058		$       2,293,627		58.7 %
Investment securities		619,920		661,968		(6.4)		674,866		589,842		14.4
Earning assets		5,339,833		3,206,591		66.5		4,356,855		3,220,672		35.3
Assets		5,745,440		3,441,079		67.0		4,663,539		3,444,981		35.4
Deposits		5,136,818		3,006,734		70.8		4,029,014		3,014,109		33.7
Short-term and Long Term FHLB advances, Repurchase Agreements		1,141		8,044		(85.8)		111,392		10,247		987.1
Subordinated Debt & TRUPS		72,155		43,031		67.7		57,708		42,917		34.5
Stockholders' equity		507,040		361,623		40.2		441,790		355,850		24.2

 

Shore Bancshares, Inc. Financial Highlights (Unaudited) - Continued
		For the Three Months Ended December 31,						For the Twelve Months Ended December 31,
(Dollars in thousands, except per share data)		2023		2022		Change		2023		2022		Change
CREDIT QUALITY DATA
Net charge-offs/(recoveries)		$                500		$                  84		495.2 %		$               2,019		$             (774)		360.9 %
Nonaccrual loans		$            12,784		$              1,908		570.0 %
Loans 90 days past due and still accruing		738		1,841		(59.9)
Other real estate owned		179		197		(9.1)
Total nonperforming assets		13,701		3,946		247.2
BEFD (2023)  TDR (2022)		367		4,405		(91.7)
Total nonperforming assets and BEFD modification		$            14,068		$              8,351		68.5
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.50 %		10.48 %		(198) bp
Period-end tangible equity to tangible assets - Non-GAAP (1)		6.78		8.67		(189)
Annualized net charge-offs (recoveries) to average loans		0.04 %		0.01 %		3 bp		0.06 %		(0.03) %		9 bp
Allowance for credit losses as a percent of:
Period-end loans		1.24 %		0.65 %		59 bp
Nonaccrual loans		448.62		872.27		(42,365)
Nonperforming assets		418.59		421.77		(318)
Accruing BEFD modifications		15,626.98		377.82		1,524,916
Nonperforming assets and accruing BEFDs		407.67		199.29		20,838
As a percent of total loans:
Nonaccrual loans		0.28 %		0.07 %		21 bp
As a percent of total loans+other real estate owned:
Nonperforming assets		0.30 %		0.15 %		15 bp
As a percent of total assets:
Nonaccrual loans		0.21 %		0.05 %		16 bp
Nonperforming assets		0.23 %		0.11 %		12

(1)	See the reconciliation table that begins on page 20.
(2)	This ratio excludes merger related expenses (Non-GAAP) on page 20.

 

Shore Bancshares, Inc. Consolidated Balance Sheets (Unaudited)
						December 31, 2023
						compared to
(In thousands, except per share data)		December 31, 2023		December 31, 2022		December 31, 2022
ASSETS
Cash and due from banks		$                  63,172		$                37,661		67.7 %
Interest-bearing deposits with other banks		309,241		17,838		1,633.6
Cash and cash equivalents		372,413		55,499		571.0
Investment securities available for sale (at fair value)		110,521		83,587		32.2
Investment securities held to maturity (net of allowance for credit losses of $94 (2023)) at amortized cost)		513,188		559,455		(8.3)
Equity securities, at fair value		5,703		1,233		362.5
Restricted securities		17,900		11,169		60.3
Loans held for sale, at fair value		8,782		4,248		106.7
Loans held for investment		4,641,010		2,556,107		81.6
Less: allowance for credit losses		(57,351)		(16,643)		244.6
Loans, net		4,583,659		2,539,464		80.5
Premises and equipment, net		82,386		51,488		60.0
Goodwill		63,266		63,266		—
Other intangible assets, net		48,090		5,547		767.0
Other real estate owned, net		179		197		(9.1)
Mortgage servicing rights, at fair value		5,926		5,275		12.3
Right of use assets, net		12,487		9,629		29.7
Cash surrender value on life insurance		101,704		59,218		71.7
Other assets		84,714		28,001		202.5
Total assets		$             6,010,918		$           3,477,276		72.9
LIABILITIES
Noninterest-bearing deposits		$             1,258,037		$              862,015		45.9 %
Interest-bearing deposits		4,128,083		2,147,769		92.2
Total deposits		5,386,120		3,009,784		79.0
Advances from FHLB - short-term		—		40,000		(100.0)
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS")		29,158		18,398		58.5
Subordinated debt		43,139		24,674		74.8
Total borrowings		72,297		83,072		(13.0)
Lease liabilities		12,857		9,908		29.8
Accrued expenses and other liabilities		28,509		10,227		178.8
Total liabilities		$             5,499,783		$           3,112,991		76.7
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized 50,000,000 shares		$                      332		$                    199		66.8
Additional paid in capital		356,007		201,494		76.7
Retained earnings		162,290		171,613		(5.4)
Accumulated other comprehensive loss		(7,494)		(9,021)		16.9
Total stockholders' equity		511,135		364,285		40.3
Total liabilities and stockholders' equity		$             6,010,918		$           3,477,276		72.9
Period-end common shares outstanding		$                  33,162		$                19,865		66.9
Book value per common share		$                    15.41		$                  18.34		(16.0)

 

Shore Bancshares, Inc. Consolidated Statements of Income (Unaudited)
		For the Three Months Ended December 31,						For the Twelve Months Ended December 31,
(In thousands, except per share data)		2023		2022		% Change		2023		2022		% Change
INTEREST INCOME
Interest and fees on loans		$           65,914		$           27,664		138.3 %		$         194,339		$           99,122		96.1 %
Interest on investment securities:
Taxable		3,992		3,945		1.2		16,832		11,507		46.3
Tax-exempt		6		6		—		46		6		666.7
Interest on federal funds sold		—		—		—		92		—		—
Interest on deposits with other banks		1,224		664		84.3		2,770		3,210		(13.7)
Total interest income		$           71,136		$           32,279		120.4		$         214,079		$         113,845		88.0
INTEREST EXPENSE
Interest on deposits		$           28,133		$             4,554		517.8		$           68,800		$             9,983		589.2
Interest on short-term borrowings		16		72		(77.8)		5,518		74		7,356.8
Interest on long-term borrowings		1,462		710		105.9		4,454		2,486		79.2
Total interest expense		$           29,611		$             5,336		454.9		$           78,772		$           12,543		528.0
NET INTEREST INCOME		$           41,525		$           26,943		54.1		$         135,307		$         101,302		33.6
Provision for credit losses		896		450		99.1		30,953		1,925		1507.9
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		$           40,629		$           26,493		53.4		$         104,354		$           99,377		5.0
NONINTEREST INCOME
Service charges on deposit accounts		$             1,519		$             1,346		12.9		$             5,501		$             5,652		(2.7)
Trust and investment fee income		844		401		110.5		3,608		1,784		102.2
Loss on sales and calls of investment securities		—		—		—		(2,166)		—		—
Interchange credits		1,633		1,280		27.6		5,714		4,812		18.7
Mortgage-banking revenue		1,105		1,567		(29.5)		4,513		5,210		(13.4)
Title Company revenue		139		194		(28.4)		551		1,340		(58.9)
Bargain purchase gain		—		—		—		8,816		—		—
Other noninterest income		2,308		1,074		114.9		6,622		4,288		54.4
Total noninterest income		$             7,548		$             5,862		28.8		$           33,159		$           23,086		43.6

 

Shore Bancshares, Inc. Consolidated Statements of Income (Unaudited) - Continued
		For the Three Months Ended December 31,						For the Twelve Months Ended December 31,
(In thousands, except per share data)		2023		2022		% Change		2023		2022		% Change
NONINTEREST EXPENSE
Salaries and wages		$           12,823		$             8,909		43.9 %		$           44,645		$           35,931		24.3 %
Employee benefits		3,389		2,786		21.6		12,358		9,908		24.7
Occupancy expense		2,328		1,694		37.4		7,791		6,242		24.8
Furniture and equipment expense		790		648		21.9		2,551		2,018		26.4
Data processing		2,762		1,856		48.8		8,783		6,890		27.5
Directors' fees		426		222		91.9		1,156		839		37.8
Amortization of intangible assets		2,595		460		464.1		6,105		1,988		207.1
FDIC insurance premium expense		1,733		315		450.2		3,479		1,426		144.0
Other real estate owned, net		—		13		(100.0)		1		65		(98.5)
Legal and professional fees		1,411		636		121.9		4,337		2,840		52.7
Merger related expenses		602		967		(37.7)		17,356		2,098		727.3
Other noninterest expenses		4,811		2,494		92.9		14,767		10,077		46.5
Total noninterest expense		33,670		21,000		60.3		123,329		80,322		53.5
Income before income taxes		14,507		11,355		27.8		14,184		42,141		(66.3)
Income tax expense		4,017		2,948		36.3		2,956		10,964		(73.0)
NET INCOME		$           10,490		$             8,407		24.8		$           11,228		$           31,177		(64.0)
Weighted average shares outstanding - basic and diluted		33,322		19,862		67.8		26,660		19,847		34.3
Basic and diluted net income per common share		$               0.32		$               0.42		(23.8)		$               0.42		$               1.57		(73.2)
Dividends paid per common share		$               0.12		$               0.12		—		$               0.48		$               0.48		—

 

Shore Bancshares, Inc. Consolidated Average Balance Sheets (Unaudited)
		For the Three Months Ended												For the Three Months Ended
		December 31, 2023						December 31, 2022						December 31, 2023						September 30, 2023
		Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/
(Dollars in thousands)		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
Earning assets
Loans (1), (2), (3)
Consumer real estate		$       1,331,150		$       18,653		5.56 %		$          813,673		$         7,911		3.86 %		$       1,331,150		$       18,653		5.56 %		$       1,141,707		$       14,548		5.06 %
Commercial real estate		2,728,094		38,730		5.63		1,246,966		15,114		4.81		2,728,094		38,730		5.63		2,831,569		40,536		5.68
Commercial		221,342		4,295		7.70		149,068		1,966		5.23		221,342		4,295		7.70		233,756		5,315		9.02
Consumer		333,807		3,859		4.59		244,471		2,602		4.22		333,807		3,859		4.59		332,486		4,183		4.99
State and political		1,290		13		4.00		1,084		11		4.03		1,290		13		4.00		929		10		4.27
Credit Cards		6,320		166		10.42		—		—		—		6,320		166		10.42		6,164		149		9.59
Other		17,464		277		6.29		12,062		96		3.16		17,464		277		6.29		16,137		201		4.94
Total Loans		4,639,467		65,993		5.64		2,467,324		27,700		4.45		4,639,467		65,993		5.64		4,562,748		64,942		5.65
Investment securities
Taxable		619,259		3,992		2.58		661,519		3,945		2.39		619,259		3,992		2.58		778,081		5,047		2.59
Tax-exempt (1)		661		8		4.84		449		7		6.24		661		8		4.84		663		34		20.51
Federal funds sold		—		—		—		—		—		—		—		—		—		7,533		92		4.85
Interest-bearing deposits		80,446		1,224		6.04		77,299		664		3.40		80,446		1,224		6.04		55,547		1,213		8.66
Total earning assets		5,339,833		71,217		5.29		3,206,591		32,316		4.00		5,339,833		71,217		5.29		5,404,572		71,328		5.24
Cash and due from banks		63,506						29,358						63,506						51,714
Other assets		399,409						221,599						399,409						359,726
Allowance for credit losses		(57,308)						(16,469)						(57,308)						(46,700)
Total assets		$       5,745,440						$       3,441,079						$       5,745,440						$       5,769,312
Interest-bearing liabilities
Demand deposits		$       1,117,117		$         6,673		2.37 %		$          670,424		$         2,217		1.31 %		$       1,117,117		$         6,673		2.37 %		$       1,056,956		$         6,659		2.50 %
Money market and savings deposits		1,605,930		8,330		2.06		1,043,076		1,581		0.60		1,605,930		8,330		2.06		1,572,920		6,810		1.72
Brokered deposits		92,840		1,347		5.76		—		—		—		92,840		1,347		5.76		98,649		1,225		4.93
Certificates of deposit $100,000 or more		701,051		6,898		3.90		217,051		433		0.79		701,051		6,898		3.90		706,642		6,272		3.52
Other time deposits		391,820		4,885		4.95		205,293		322		0.62		391,820		4,885		4.95		285,743		2,507		3.48
Interest-bearing deposits (4)		3,908,758		28,133		2.86		2,135,844		4,553		0.85		3,908,758		28,133		2.86		3,720,910		23,473		2.50
Advances from FHLB - short-term		1,141		16		5.56		7,391		72		3.86		1,141		16		5.56		70,348		692		3.90
Advances from FHLB - long-term		—		—		—		653		(11)		(6.08)		—		—		—		—		—		—
Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") (4)		72,155		1,462		8.04		43,031		720		6.64		72,155		1,462		8.04		71,907		1,461		8.06
Total interest-bearing liabilities		3,982,054		29,611		2.95		2,186,919		5,334		0.96		3,982,054		29,611		2.95		3,863,165		25,626		2.63
Noninterest-bearing deposits		1,228,060						870,890						1,228,060						1,345,976
Accrued expenses and other liabilities		28,286						21,647						28,286						27,057
Stockholders' equity		507,040						361,623						507,040						533,114
Total liabilities and stockholders' equity		$       5,745,440						$       3,441,079						$       5,745,440						$       5,769,312
Net interest income				$       41,606						$       26,982						$       41,606						$       45,702
Net interest spread						2.34 %						3.04 %						2.34 %						2.61 %
Net interest margin						3.09 %						3.34 %						3.09 %						3.35 %
Cost of Funds						2.25 %						0.69 %						2.25 %						1.95 %
Cost of Deposits						2.17 %						0.60 %						2.17 %						1.84 %
Cost of Debt						8.00 %						6.07 %						8.00 %						6.00 %

(1)	All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.
(2)	Average loan balances include nonaccrual loans.
(3)	Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $4.8 million, $0.6 million and $6.1 million of accretion interest on loans for the three months ended December 31, 2023 and 2022, and September 30, 2023, respectively.
(4)	Interest expense on deposits and borrowing includes amortization of deposit discount and amortization of borrowing fair value adjustments. There were $(1.5) million, $0.2 million and $(0.5) million of amortization of deposits premium, and $(0.2) million, $(47,000), and $(0.2) million of amortization of borrowing fair value adjustments for the three months ended December 31, 2023 and 2022, and September 30, 2023, respectively.

 

Shore Bancshares, Inc. Consolidated Average Balance Sheets (Unaudited)
		For the Twelve Months Ended December 31,
		2023						2022
		Average				Yield/		Average				Yield/
(Dollars in thousands)		Balance		Interest		Rate		Balance		Interest		Rate
Earning assets
Loans (1), (2), (3)
Consumer real estate		$      1,076,713		$      54,583		5.07 %		$         699,192		$      31,401		4.49 %
Commercial real estate		2,039,153		110,058		5.40		1,182,845		51,821		4.38
Commercial		184,214		13,607		7.39		194,785		7,829		4.02
Consumer		322,033		15,298		4.75		195,542		7,560		3.87
State and political		1,025		41		4.00		1,613		64		3.97
Credit Cards		3,147		315		10.01		—		—		—
Other		12,773		678		5.31		19,650		601		3.06
Total Loans		3,639,058		194,580		5.35		2,293,627		99,276		4.33
Investment securities
Taxable		674,203		16,832		2.50		589,729		11,507		1.95
Tax-exempt (1)		663		58		8.75		113		7		6.19
Federal funds sold		1,899		92		4.84		—		—		—
Interest-bearing deposits		41,032		2,770		6.75		337,203		3,210		0.95
Total earning assets		4,356,855		214,332		4.92		3,220,672		114,000		3.54
Cash and due from banks		43,555						18,158
Other assets		303,906						221,592
Allowance for credit losses		(40,777)						(15,441)
Total assets		$      4,663,539						$      3,444,981
Interest-bearing liabilities
Demand deposits		$         883,976		$      20,134		2.28 %		$         638,105		$        3,869		0.61 %
Money market and savings deposits		1,275,088		20,039		1.57		1,043,032		3,609		0.35
Brokered deposits		56,101		2,919		5.20		—		—		—
Certificates of deposit $100,000 or more		492,226		16,583		3.37		239,927		1,364		0.57
Other time deposits		278,144		9,125		3.28		204,536		1,141		0.56
Interest-bearing deposits (4)		2,985,535		68,800		2.30		2,125,600		9,983		0.47
Securities sold under retail repurchase agreements and federal funds purchased		—		—		—		683		2		0.29
Advances from FHLB - short-term		111,392		5,518		4.95		1,863		72		3.86
Advances from FHLB - long-term		—		—		—		7,701		35		0.45
Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") (4)		57,708		4,454		7.72		42,917		2,451		5.71
Total interest-bearing liabilities		3,154,635		78,772		2.50		2,178,764		12,543		0.58
Noninterest-bearing deposits		1,043,479						888,509
Accrued expenses and other liabilities		23,635						21,858
Stockholders' equity		441,790						355,850
Total liabilities and stockholders' equity		$      4,663,539						$      3,444,981
Net interest income				$    135,560						$    101,457
Net interest spread						2.42 %						2.96 %
Net interest margin						3.11 %						3.15 %
Cost of Funds						1.88 %						0.41 %
Cost of Deposits						1.71 %						0.33 %
Cost of Debt						5.90 %						4.82 %

(1)	All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.
(2)	Average loan balances include nonaccrual loans.
(3)	Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $11.8 million and $1.5 million of accretion interest on loans for the twelve months ended December 31, 2023 and 2022, respectively.
(4)	Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $(1.8) million of amortization of deposit discounts and $0.6 million of amortization of deposit premium, and $(0.6) million and $(0.2) million of amortization of borrowing fair value adjustment for the twelve months ended December 31, 2023 and 2022, respectively.

 

Shore Bancshares, Inc. Financial Highlights By Quarter (Unaudited)
		4th Quarter		3rd Quarter		2nd Quarter		1st Quarter		4th Quarter		12/31/2023		12/31/2023
		2023		2023		2023		2023		2022		compared to		compared to
(Dollars in thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022		Q3 2023		Q4 2022
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$         41,606		$         45,702		$         22,545		$           25,705		$         26,981		(9.0) %		54.2 %
Less: Taxable-equivalent adjustment		81		80		51		41		38		1.3		113.2
Net interest income		41,525		45,622		22,494		25,664		26,943		(9.0)		54.1
Provision for credit losses		896		28,176		667		1,213		450		(96.8)		99.1
Noninterest income		7,548		14,984		5,294		5,334		5,862		(49.6)		28.8
Noninterest expense		33,670		47,158		21,608		20,893		21,000		(28.6)		60.3
Income/(loss) before income taxes		14,507		(14,728)		5,513		8,892		11,355		198.5		27.8
Income tax expense/ (benefit)		4,017		(4,991)		1,495		2,435		2,948		180.5		36.3
Net income/ (loss)		$         10,490		$        (9,737)		$           4,018		$             6,457		$           8,407		207.7		24.8
Return on average assets		0.72 %		(0.67) %		0.45 %		0.75 %		0.97 %		139 bp		(25) bp
Return on average assets excluding amortization of intangibles and merger related expenses - Non-GAAP		0.88		0.01		0.59		0.84		1.09		87		(21)
Return on average equity		8.21		(7.25)		4.49		7.25		9.22		1,546		(101)
Return on average tangible equity - Non-GAAP (1), (2)		12.88		1.74		7.16		10.09		12.83		1,114		5
Net interest margin		3.09		3.35		2.68		3.18		3.35		(26)		(26)
Efficiency ratio - GAAP		68.61		77.81		77.76		67.40		64.01		(920)		460
Efficiency ratio - Non-GAAP (1)		61.99		47.19		71.75		63.67		59.59		1,480		240
PER SHARE DATA
Basic and diluted net income/ (loss) per common share		$             0.32		$          (0.29)		$             0.20		$              0.32		$             0.42		210.3 %		(23.8) %
Dividends paid per common share		0.12		0.12		0.12		0.12		0.12		—		—
Book value per common share at period end		15.41		15.14		18.24		18.17		18.34		1.8		(16.0)
Tangible book value per common share at period end - Non-GAAP (1)		12.06		11.70		14.83		14.74		14.87		3.1		(18.9)
Market value at period end		14.25		10.52		11.56		14.28		17.43		35.5		(18.2)
Market range:
High		14.51		13.37		14.45		18.15		20.85		8.5		(30.4)
Low		9.66		10.27		10.65		14.00		17.04		(5.9)		(43.3)

 

Shore Bancshares, Inc. Financial Highlights By Quarter (Unaudited) - Continued
		4th Quarter		3rd Quarter		2nd Quarter		1st Quarter		4th Quarter		12/31/2023		12/31/2023
		2023		2023		2023		2023		2022		compared to		compared to
(Dollars in thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022		Q3 2023		Q4 2022
AVERAGE BALANCE SHEET DATA
Loans		$     4,639,467		$     4,562,748		$     2,709,944		$      2,611,644		$     2,467,324		1.68 %		88.04 %
Investment securities		619,920		778,744		645,842		654,193		661,968		(20.39)		(6.35)
Earning assets		5,339,833		5,404,572		3,369,183		3,279,686		3,206,591		(1.20)		66.53
Assets		5,745,440		5,769,312		3,596,311		3,506,336		3,441,079		(0.41)		66.97
Deposits		5,136,818		5,066,886		2,908,662		2,968,448		3,006,734		1.38		70.84
Short-term and Long Term FHLB advances		1,141		70,348		261,797		113,972		7,391		(98.38)		(84.56)
Subordinated Debt & TRUPS		72,155		71,907		43,185		43,108		43,031		0.34		67.68
Stockholders' equity		507,040		533,114		363,225		361,174		361,623		(4.89)		40.21
CREDIT QUALITY DATA
Net charge offs		$              500		$           1,449		$                50		$                 20		$                84		(65.49) %		495.24 %
Nonaccrual loans		$         12,784		$           8,982		$           3,481		$             1,894		$           1,908		42.33 %		570.02 %
Loans 90 days past due and still accruing		738		2,149		1,065		611		1,841		(65.66)		(59.91)
Other real estate owned		179		179		179		179		197		—		(9.14)
Total nonperforming assets		$         13,701		$         11,310		$           4,725		$             2,684		$           3,946		21.14		247.21
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.50 %		8.79 %		9.97 %		10.18 %		10.48 %		(29) bp		(198) bp
Period-end tangible equity to tangible assets - Non-GAAP (1)		6.78		6.93		8.26		8.41		8.67		(15)		(189)
Annualized net charge-offs to average loans		0.04 %		0.13 %		0.01 %		— %		0.01 %		(9) bp		3 bp
Allowance for credit losses as a percent of:
Period-end loans (3)		1.24 %		1.24 %		1.05 %		1.07 %		0.65 %		— bp		59 bp
Period-end loans (4)		1.24		1.24		1.05		1.07		0.78		—		46
Nonaccrual loans		448.62		635.17		833.50		1502.85		872.27		(18,655)		(42,365)
Nonperforming assets		418.59		504.43		614.05		1060.51		421.77		(8,584)		(318)
As a percent of total loans:
Nonaccrual loans		0.28 %		0.19 %		0.13 %		0.07 %		0.07 %		9 bp		21 bp
As a percent of total loans+other real estate owned:
Nonperforming assets		0.30 %		0.24 %		0.17 %		0.10 %		0.15 %		6 bp		15 bp
As a percent of total assets:
Nonaccrual loans		0.21 %		0.16 %		0.10 %		0.05 %		0.05 %		5 bp		16 bp
Nonperforming assets		0.23		0.20		0.13		0.08		0.11		3		12

(1)	See the reconciliation table that begins on page 20.
(2)	This ratio excludes merger related expenses (Non-GAAP) on page 20.
(3)	Includes all loans held for investment, including PPP loan balances for all periods shown.
(4)	For 2023, this ratio excludes only PPP loans given the Company's adoption of the CECL standard. For periods in 2022, this ratio excludes PPP loans and loans acquired in the Severn and Northwest acquisitions.

 

Shore Bancshares, Inc. Consolidated Statements of Income By Quarter (Unaudited)
												12/31/2023		12/31/2023
												compared to		compared to
(In thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022		Q3 2023		Q4 2022
INTEREST INCOME
Interest and fees on loans		$       65,914		$       64,869		$       32,729		$       30,828		$       27,664		1.6 %		138.3 %
Interest on investment securities:
Taxable		3,992		5,047		3,729		4,064		3,945		(20.9)		1.2
Tax-exempt		6		27		5		7		6		(77.8)		—
Interest on federal funds sold		—		92		—		—		—		(100.0)		—
Interest on deposits with other banks		1,224		1,213		170		163		664		0.9		84.3
Total interest income		71,136		71,248		36,633		35,062		32,279		(0.2)		120.4
INTEREST EXPENSE
Interest on deposits		28,133		23,473		9,914		7,281		4,554		19.9		517.8
Interest on short-term borrowings		16		692		3,449		1,361		72		(97.7)		(77.8)
Interest on long-term borrowings		1,462		1,461		776		756		710		0.1		105.9
Total interest expense		29,611		25,626		14,139		9,398		5,336		15.6		454.9
NET INTEREST INCOME		41,525		45,622		22,494		25,664		26,943		(9.0)		54.1
Provision for credit losses		896		28,176		667		1,213		450		(96.8)		99.1
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		40,629		17,446		21,827		24,451		26,493		132.9		53.4
NONINTEREST INCOME
Service charges on deposit accounts		1,519		1,505		1,264		1,213		1,346		0.9		12.9
Trust and investment fee income		844		1,933		399		432		401		(56.3)		110.5
Loss on sales and calls of investment securities		—		(2,166)		—		—		—		100.0		—
Interchange credits		1,633		1,557		1,311		1,212		1,280		4.9		27.6
Mortgage-banking revenue		1,105		1,377		1,054		977		1,567		(19.8)		(29.5)
Title Company revenue		139		89		186		137		194		56.2		(28.4)
Bargain purchase gain		—		8,816		—		—		—		(100.0)		—
Other noninterest income		2,308		1,873		1,080		1,363		1,074		23.2		114.9
Total noninterest income		7,548		14,984		5,294		5,334		5,862		(49.6)		28.8

 

Shore Bancshares, Inc. Consolidated Statements of Income By Quarter (Unaudited) - Continued
												12/31/2023		12/31/2023
												compared to		compared to
(In thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022		Q3 2023		Q4 2022
NONINTEREST EXPENSE
Salaries and wages		$      12,823		$      14,183		$        8,955		$        8,684		$        8,909		(9.6) %		43.9 %
Employee benefits		3,389		3,607		2,440		2,921		2,786		(6.0)		21.6
Occupancy expense		2,328		2,245		1,599		1,619		1,694		3.7		37.4
Furniture and equipment expense		790		750		477		534		648		5.3		21.9
Data processing		2,762		2,485		1,739		1,798		1,856		11.2		48.8
Directors' fees		426		295		185		250		222		44.4		91.9
Amortization of intangible assets		2,595		2,634		435		441		460		(1.5)		464.1
FDIC insurance premium expense		1,733		618		758		371		315		180.4		450.2
Other real estate owned expenses, net		—		2		—		(1)		13		(100.0)		(100.0)
Legal and professional fees		1,411		1,217		959		750		636		15.9		121.9
Merger related expenses		602		14,866		1,197		691		967		(96.0)		(37.8)
Other noninterest expenses		4,811		4,256		2,864		2,835		2,494		13.0		92.9
Total noninterest expense		33,670		47,158		21,608		20,893		21,000		(28.6)		60.3
(Loss)/Income before income taxes		14,507		(14,728)		5,513		8,892		11,355		198.5		27.8
Income tax (benefit)/expense		4,017		(4,991)		1,495		2,435		2,948		180.5		36.3
NET (LOSS)/INCOME		$      10,490		$     (9,737)		$        4,018		$        6,457		$        8,407		207.7		24.8
Weighted average shares outstanding - basic and diluted		33,322		33,246		19,903		19,886		19,862		0.2		67.8
Basic and diluted net (loss)/ income per common share		$          0.32		$       (0.29)		$          0.20		$          0.32		$          0.42		210.3		(23.8)
Dividends paid per common share		0.12		0.12		0.12		0.12		0.12		—		—

 

Shore Bancshares, Inc. Consolidated Average Balance Sheets By Quarter (Unaudited)
		Q4 2023						Q3 2023						Q2 2023						Q1 2023						Q4 2022
		Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/
(Dollars in thousands)		balance		Interest		rate		balance		Interest		rate		balance		Interest		rate		balance		Interest		rate		balance		Interest		rate
Earning assets
Loans (1), (2), (3)
Consumer real estate		$        1,331,150		$       18,653		5.56 %		$        1,141,707		$       14,548		5.06 %		$            946,545		$       10,876		4.61 %		$            881,799		$       10,507		4.83 %		$            813,673		$          7,911		3.86 %
Commercial real estate		2,728,094		38,730		5.63		2,831,569		40,536		5.68		1,292,406		15,620		4.85		1,279,923		15,173		4.81		1,246,966		15,114		4.81
Commercial		221,342		4,295		7.70		233,756		5,315		9.02		137,554		2,177		6.35		142,797		1,819		5.17		149,068		1,966		5.23
Consumer		333,807		3,859		4.59		332,486		4,183		4.99		323,798		3,983		4.93		297,528		3,274		4.46		244,471		2,602		4.22
State and political		1,290		13		4.00		929		10		4.27		900		8		3.57		978		9		3.73		1,084		11		4.03
Credit Cards		6,320		166		10.42		6,164		149		9.59		—		—		—		—		—		—		—		—		—
Other		17,464		277		6.29		16,137		201		4.94		8,741		116		5.37		8,619		83		3.91		12,062		96		3.16
Total Loans		4,639,467		65,993		5.64		4,562,748		64,942		5.65		2,709,944		32,780		4.85		2,611,644		30,865		4.79		2,467,324		27,700		4.45
Investment securities
Taxable		619,259		3,992		2.58		778,081		5,047		2.59		645,178		3,729		2.32		653,527		4,064		2.49		661,519		3,945		2.39
Tax-exempt (1)		661		8		4.84		663		34		20.51		664		6		3.62		666		9		5.41		449		7		6.24
Federal funds sold		—		—		—		7,533		92		4.85		—		—		—		—		—		—		—		—		—
Interest-bearing deposits		80,446		1,224		6.04		55,547		1,213		8.66		13,397		170		5.09		13,849		163		4.77		77,299		664		3.40
Total earning assets		5,339,833		71,217		5.29		5,404,572		71,328		5.24		3,369,183		36,685		4.37		3,279,686		35,101		4.34		3,206,591		32,316		4.00
Cash and due from banks		63,506						51,714						29,923						28,602						29,358
Other assets		399,409						359,726						225,935						228,054						221,599
Allowance for credit losses		(57,308)						(46,700)						(28,730)						(30,006)						(16,469)
Total assets		$        5,745,440						$        5,769,312						$        3,596,311						$        3,506,336						$        3,441,079
Interest-bearing liabilities
Demand deposits		$        1,117,117		$          6,673		2.37 %		$        1,056,956		$          6,659		2.50 %		$            685,674		$          3,913		2.29 %		$            694,894		$          3,236		1.89 %		$            670,424		$          2,217		1.31 %
Money market and savings deposits		1,605,930		8,330		2.06		1,572,920		6,810		1.72		907,068		2,526		1.12		1,004,553		2,373		0.96		1,043,076		1,581		0.60
Brokered deposits		92,840		1,347		5.76		98,649		1,225		4.93		—		—		—		—		—		—		—		—		—
Certificates of deposit $100,000 or more		701,051		6,898		3.90		706,642		6,272		3.52		312,367		2,337		3.00		241,436		1,076		1.81		217,051		433		0.79
Other time deposits		391,820		4,885		4.95		285,743		2,507		3.48		225,495		1,138		2.03		207,403		595		1.16		205,293		322		0.62
Interest-bearing deposits (4)		3,908,758		28,133		2.86		3,720,910		23,473		2.50		2,130,604		9,914		1.87		2,148,286		7,280		1.37		2,135,844		4,553		0.85
Advances from FHLB - short-term		1,141		16		5.56		70,348		692		3.90		261,797		3,449		5.28		113,972		1,361		4.84		7,391		72		3.86
Advances from FHLB - long-term		—		—		—		—		—		—		—		—		—		—		—		—		653		(11)		(6.08)
Subordinated debt and Guaranteed preferred  beneficial interest in junior subordinated debentures  ("TRUPS") (4)		72,155		1,462		8.04		71,907		1,461		8.06		43,185		776		7.21		43,108		756		7.11		43,031		720		6.64
Total interest-bearing liabilities		3,982,054		29,611		2.95		3,863,165		25,626		2.63		2,435,586		14,139		2.33		2,305,366		9,397		1.65		2,186,919		5,334		0.96
Noninterest-bearing deposits		1,228,060						1,345,976						778,058						820,162						870,890
Accrued expenses and other liabilities		28,286						27,057						19,442						19,634						21,647
Stockholders' equity		507,040						533,114						363,225						361,174						361,623
Total liabilities and stockholders' equity		$        5,745,440						$        5,769,312						$        3,596,311						$        3,506,336						$        3,441,079
Net interest income				$       41,606						$       45,702						$       22,546						$       25,704						$       26,982
Net interest spread						2.34 %						2.61 %						2.04 %						2.68 %						3.04 %
Net interest margin						3.09 %						3.35 %						2.68 %						3.18 %						3.34 %
Cost of Funds						2.25 %						1.95 %						1.76 %						1.22 %						0.69 %
Cost of Deposits						2.17 %						1.84 %						1.37 %						0.99 %						0.60 %
Cost of Debt						8.00 %						6.00 %						5.56 %						5.47 %						6.07 %

(1)	All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.
(2)	Average loan balances include nonaccrual loans.
(3)	Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $4.8 million, $6.1 million, $0.3 million, $0.5 million and $0.6 million of accretion interest on loans for the three months ended December 31, 2023, September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 2022, respectively.
(4)	Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $(1.5) million, $(0.5) million, $41,000, $0.1 million and $0.2 million of amortization of deposits premium, and $(0.2) million, $(0.2) million, $(47,000), $(47,000) and $(47,000) of amortization of borrowing fair value adjustment for the three months ended December 31, 2023, September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 2022, respectively.

 

Shore Bancshares, Inc. Reconciliation of Generally Accepted Accounting Principles (GAAP) and Non-GAAP Measures (Unaudited)
												YTD		YTD
(In thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022		12/31/2023		12/31/2022
The following reconciles return on average equity and return on average tangible equity (Note 1):
Net (loss) income		$      10,490		$      (9,737)		$        4,018		$        6,457		$        8,407		$     11,228		$      31,177
Net (loss) income - annualized (A)		$      41,618		$    (38,632)		$      16,295		$      26,187		$      33,354		$     11,228		$      31,177
Net (loss) income		$      10,490		$      (9,737)		$        4,018		$        6,457		$        8,407		$     11,228		$      31,177
Add: Amortization of intangible assets, net of tax		1,876		1,741		317		320		341		4,254		1,471
Add: Merger Expenses, net of tax		435		9,828		872		502		716		11,637		1,553
Net income, excluding net amortization of intangible assets and merger related expenses		$      12,801		$        1,832		$        5,207		$        7,279		$        9,464		$     27,119		$      34,201
Net income, excluding net amortization of intangible assets and merger related expenses - annualized (B)		$      50,787		$        7,268		$      21,121		$      29,520		$      37,543		$     27,119		$      34,201
Return on average assets excluding net amortization of intangible assets and merger related expenses - Non-GAAP		0.88 %		0.01 %		0.59 %		0.84 %		1.09 %		0.58 %		1.09 %
Average stockholders' equity (C)		$    507,040		$    533,114		$    363,225		$    361,174		$    361,623		$   441,790		$    355,850
Less: Average goodwill and core deposit intangible		(112,752)		(115,604)		(68,172)		(68,607)		(69,077)		(91,471)		(69,845)
Average tangible equity (D)		$    394,288		$    417,510		$    295,053		$    292,567		$    292,546		$   350,319		$    286,005
Return on average equity (GAAP)  (A)/(C)		8.21 %		(7.25) %		4.49 %		7.25 %		9.22 %		2.54 %		8.76 %
Return on average tangible equity (Non-GAAP)  (B)/(D)		12.88 %		1.74 %		7.16 %		10.09 %		12.83 %		7.74 %		11.96 %
The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2):
Noninterest expense (E)		$      33,670		$      47,158		$      21,608		$      20,893		$      21,000		$   123,329		$      80,322
Less: Amortization of intangible assets		(2,595)		(2,634)		(435)		(441)		(460)		(6,105)		(1,988)
Less: Merger Expenses		(602)		(14,866)		(1,197)		(691)		(967)		(17,356)		(2,098)
Adjusted noninterest expense (F)		$      30,473		$      29,658		$      19,976		$      19,761		$      19,573		$     99,868		$      76,236
Net interest income (G)		$      41,525		$      45,622		$      22,494		$      25,664		$      26,943		$   135,307		$    101,302
Add: Taxable-equivalent adjustment		81		80		51		41		38		253		155
Taxable-equivalent net interest income (H)		$      41,606		$      45,702		$      22,545		$      25,705		$      26,981		$   135,560		$    101,457
Noninterest income (I)		$        7,548		$      14,984		$        5,294		$        5,334		$        5,862		$     33,159		$      23,086
Investment securities losses (gains)		—		2,166		—		—		—		2,166		—
Adjusted noninterest income (J)		$        7,548		$      17,150		$        5,294		$        5,334		$        5,862		$     35,325		$      23,086
Efficiency ratio (GAAP)  (E)/(G)+(I)		68.61 %		77.81 %		77.76 %		67.40 %		64.01 %		73.21 %		64.57 %
Efficiency ratio (Non-GAAP)  (F)/(H)+(J)		61.99 %		47.19 %		71.75 %		63.66 %		59.60 %		58.44 %		61.21 %

 

Shore Bancshares, Inc. Reconciliation of Generally Accepted Accounting Principles (GAAP) and Non-GAAP Measures (Unaudited) - Continued
(In thousands, except per share data)		Q4 2023		Q3 2023		Q2 2023		Q1 2023		Q4 2022
The following reconciles book value per common share and tangible book value per common share (Note 1):
Stockholders' equity (K)		$           511,135		$           501,578		$           363,140		$           361,638		$           364,285
Less: Goodwill and core deposit intangible		(111,356)		(113,951)		(67,937)		(68,372)		(68,813)
Tangible equity (L)		$           399,779		$           387,627		$           295,203		$           293,266		$           295,472
Shares outstanding (M)		33,162		33,136		19,907		19,898		19,865
Book value per common share (GAAP)  (K)/(M)		$               15.41		$               15.14		$               18.24		$               18.17		$               18.34
Tangible book value per common share (Non-GAAP) (L)/(M)		$               12.06		$               11.70		$               14.83		$               14.74		$               14.87
The following reconciles equity to assets and tangible equity to tangible assets (Note 1):
Stockholders' equity (N)		$           511,135		$           501,578		$           363,140		$           361,638		$           364,285
Less: Goodwill and core deposit intangible		(111,356)		(113,951)		(67,937)		(68,372)		(68,813)
Tangible equity (O)		$           399,779		$           387,627		$           295,203		$           293,266		$           295,472
Assets (P)		$        6,010,918		$        5,705,372		$        3,641,631		$        3,553,694		$        3,477,276
Less: Goodwill and core deposit intangible		(111,356)		(113,951)		(67,937)		(68,372)		(68,813)
Tangible assets (Q)		$        5,899,562		$        5,591,421		$        3,573,694		$        3,485,322		$        3,408,463
Period-end equity/assets (GAAP)  (N)/(P)		8.50 %		8.79 %		9.97 %		10.18 %		10.48 %
Period-end tangible equity/tangible assets (Non-GAAP)  (O)/(Q)		6.78 %		6.93 %		8.26 %		8.41 %		8.67 %

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.

 

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SOURCE Shore Bancshares, Inc.

FAQ

What was Shore Bancshares, Inc.'s net income for Q4 2023?

Shore Bancshares, Inc. reported net income of $10.5 million for the fourth quarter of 2023.

What was the total deposit amount for Shore Bancshares, Inc. at the end of Q4 2023?

The total deposits for Shore Bancshares, Inc. increased to $5.4 billion at the end of Q4 2023.

What was the impact of the merger with The Community Financial Corporation on Shore Bancshares, Inc.?

The merger added $2.4 billion in assets and expanded the Bank's footprint into fast-growing regions.

What was the reason behind the decrease in net interest margin for Shore Bancshares, Inc.?

The net interest margin decreased to 3.09% due to significant deposit growth and less net accretion income.

What was the percentage change in NIM for Shore Bancshares, Inc. from Q3 2023 to Q4 2023?

The NIM decreased nine basis points to 2.87% for the fourth quarter of 2023 from 2.96% for the third quarter of 2023.