Shore Bancshares Reports First Quarter 2023 Financial Results

EASTON, Md., April 27, 2023 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company" or "Shore Bancshares") reported net income of $6.457 million or $0.32 per diluted common share for the first quarter of 2023, compared to net income of $8.407 million or $0.42 per diluted common share for the fourth quarter of 2022, and net income of $5.613 million or $0.28 per diluted common share for the first quarter of 2022. Net income, excluding merger-related expenses, for the first quarter of 2023 was $6.959 million or $0.35 per diluted common share, compared to net income, excluding merger-related expenses, of $9.123 million or $0.46 per diluted common share for the fourth quarter of 2022 and net income, excluding merger-related expenses, of $6.156 million or $0.31 per diluted common share for the first quarter 2022. On December 14, 2022, the Company and The Community Financial Corporation ("TCFC") announced that they had entered into a merger agreement pursuant to which TCFC will be merged with and into the Company.  The Company anticipates additional merger-related expenses due to the pending TCFC acquisition.

When comparing net income, excluding merger-related expenses, for the first quarter of 2023 to the fourth quarter of 2022, net income decreased $2.2 million due to decreases in net interest income of $1.3 million and noninterest income of $528 thousand, coupled with increases in noninterest expense of $169 thousand and provision for credit losses of $763 thousand. When comparing net income, excluding merger-related expenses, for the first quarter of 2023 to the first quarter of 2022, net income increased $803 thousand primarily due to an increase in net interest income of $3.2 million partially offset by a decrease in noninterest income of $712 thousand, coupled with increases in both noninterest expense of $600 thousand and provision for credit losses of $613 thousand. 

"We are pleased to report our first quarter 2023 earnings and financial results" said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer. "This quarter brought intense scrutiny of all banks and their liquidity position due to the recent failures of Silicon Valley Bank and Signature Bank in March. Considering these events, monitoring liquidity and deposit outflow was the primary focus of our cash management teams while we continued to fund loan growth. We are pleased to report that total deposits decreased less than 1.0% since the end of 2022. We experienced normal seasonality in our deposit outflows, specifically from our municipal deposit customers, which typically trend down during the first quarter of each year. We transitioned existing deposits to our insured cash sweep ("ICS") program during the first quarter, which not only helped alleviate deposit outflows but generated inflows from new and existing customers. We continue to monitor our liquidity position closely by evaluating our percentage of uninsured deposits and our access to additional liquidity through Federal Home Loan Bank ("FHLB") borrowings and other traditional sources of liquidity. We continue to make progress with the pending merger with TCFC.  We have now received all bank regulatory approvals and expect to complete the merger on or about July 1^st."

Balance Sheet Review
Total assets were $3.554 billion at March 31, 2023, an increase of $76.4 million, or 2.2%, when compared to $3.477 billion at December 31, 2022. This increase was primarily due to an increase in loans held for investment of $112.6 million, or 4.4%, partially offset by a decrease in cash and cash equivalents of $17.8 million and an increase in allowance for credit losses of $11.8 million primarily due to a Day 1 CECL adjustment in connection with the Company's adoption of CECL.

Total borrowings were $174.7 million at March 31, 2023, an increase of $91.6 million, or 110.2%, when compared to $83.1 million at December 31, 2022.  Total borrowings at March 31, 2023 were comprised of $131.5 million of FHLB short-term advances and $43.2 million of subordinated debt.  There were no long-term FHLB borrowings at March 31, 2022.  This increase in total borrowings at March 31, 2023 when compared to December 31,2022 was primarily due to an increase of $91.5 million in FHLB short-term borrowings to manage liquidity and fund loan growth.

Total deposits decreased $15.2 million, or less than 1.0%, when compared to December 31, 2022. The primary reason for this decrease was a decrease in noninterest-bearing deposits of $53.3 million due to the seasonal outflow of municipal deposits.  Total interest-bearing deposits increased $38.1 million, primarily due to the transitioning of deposits into the Company's ICS program, which is an insured cash sweep program that provides customers with the ability to insure deposits over $250 thousand among other banks that participate in the ICS network and provides interest rates that track the federal funds rate.

Total stockholders' equity decreased $2.6 million, or less than 1.0%, when compared to December 31, 2022, primarily due to a Day 1 CECL adjustment of $8.3 million, partially offset by current year earnings and a decrease in unrealized losses on available for sale securities of $860 thousand. At March 31, 2023, the ratio of total equity to total assets was 10.18% and the ratio of total tangible equity to total tangible assets was 8.41% compared to 10.48% and 8.67% at the end of 2022, respectively.

Review of Quarterly Financial Results
Net interest income was $25.7 million for the first quarter of 2023, compared to $26.9 million for the fourth quarter of 2022 and $22.4 million for the first quarter of 2022. The decrease in net interest income when compared to the fourth quarter of 2022 was primarily due to increases in rates paid on interest-bearing liabilities. These interest-bearing liabilities included increases in interest-bearing deposits of 52bps and FHLB short-term borrowings of 98bps, partially offset by increases in yields on loans of 34bps. The increase in the rate paid on interest-bearing deposits was primarily the result of the transitioning of $17 million of existing lower rate deposits into the Company's ICS program which has interest rates that track the federal funds rate.  The average balances of interest-bearing deposits and FHLB short-term borrowings increased $12.4 million, or less than 1.0% and $106.6 million, or 1,442% respectively.  The increase in FHLB short-term borrowings was primarily utilized to manage the Company's liquidity needs and fund loan growth. Net interest income increased when compared to the first quarter of 2022 due to an increase in the average balance of loans of $475.9 million, or 22.3%, and an increase in the average balance of investment securities of $123.2 million, or 23.1%, coupled with an increase in yields of 59bps and 100bps, respectively, resulting in $10.8 million of additional income. When comparing the first quarter of 2023 and 2022 on the liability side of the balance sheet, average interest bearing liabilities increased $122.0 million, or 5.6%. This increase was attributed to an increase in the average balance of interest-bearing deposits of $20.5 million and FHLB short-term borrowings of $114.0 million at higher rates.

The Company's net interest margin decreased to 3.18% for the first quarter of 2023 from 3.35% for the fourth quarter of 2022 and increased compared to 2.76% for the first quarter of 2022. The decrease in the net interest margin when compared to the fourth quarter of 2022 was primarily due to the increase in the average balance of FHLB short -term borrowings of $106.6 million and an increased rate of 98bps, resulting in an additional $1.3 million in interest expense. The increase in net interest margin when compared to the first quarter of 2022 was primarily due to significantly higher volume of interest earning assets as well as improved yields on such interest earning assets.

The provision for credit losses was $1.2 million for the three months ended March 31, 2023. The comparable amounts were $450 thousand and $600 thousand for the three months ended December 31, 2022, and March 31, 2022, respectively. The increase in the provision for credit losses during the first quarter of 2023 as compared to the prior quarters was primarily a result of new loan growth of $112.6 million. Net charge offs for the first quarter of 2023 were $20 thousand, compared to net charge offs of $84 thousand for the fourth quarter of 2022 and net recoveries of $166 thousand for the first quarter of 2022.

At March 31, 2023 and December 31, 2022, nonperforming assets were $2.7 million and $3.9 million, respectively. The balance of nonperforming assets decreased primarily due to a decrease in loans 90 days past due still accruing of $1.2 million, or 66.8%. When comparing the first quarter of 2023 to the first quarter of 2022, nonperforming assets decreased $1.2 million, or 30.6%, primarily due to decreases in nonaccrual loans of 954 thousand, or 33.5%, and other real estate owned of $382 thousand, or 68.1%. 

Total noninterest income for the first quarter of 2023 decreased $528 thousand, or 9.0%, when compared to the fourth quarter of 2022 and decreased $712 thousand, or 11.8%, when compared to the first quarter of 2022. The decrease compared to the fourth quarter of 2022 was primarily due to decreases in revenue associated with the mortgage division of $590 thousand, and in-service charges on deposit accounts of $133 thousand.  The decrease in noninterest income when compared to the first quarter of 2022 was primarily due to decreases in revenue associated with the mortgage division of $890 thousand, revenue from Mid-Maryland Title Company, Inc. of $186 thousand and service charges on deposit accounts of $146 thousand partially offset by increases in interchange credits of $174 thousand, and other fees on bank services of $336 thousand.  Declines in noninterest income from the mortgage division are primarily attributable to the general rise in interest rates that continue to put pressure on the mortgage market, resulting in declines in home loan sales and home loan refinances.

Total noninterest expense, excluding merger related expenses, for the first quarter of 2023 increased $169 thousand, or less than 1.0%, when compared to the fourth quarter of 2022 and increased $600 thousand, or 3.1%, when compared to the first quarter of 2022. The increase in noninterest expense when compared to the fourth quarter of 2022 was primarily due to increases in employee benefits and legal and professional fees primarily offset by decreases in salaries due increase in deferred salaries based on loan originations in the fourth quarter of 2022. The increase from the first quarter of 2022 was primarily due to increases in other noninterest expenses, employee related benefits, data processing, legal and professional fees and furniture and equipment expense partially offset by decreases in salary expense.

Shore Bancshares Information

Shore Bancshares is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland's Eastern Shore. It 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: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; 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; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; 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; 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; 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)
(Dollars in thousands, except per share data)
		For the Three Months Ended
		March 31,
		2023			2022			Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	25,664		$	22,430		14.4
Provision for credit losses			1,213			600		102.2
Noninterest income			5,334			6,046		(11.8)
Noninterest expense			20,893			20,332		2.8
Income before income taxes			8,892			7,544		17.9
Income tax expense			2,435			1,931		26.1
Net income		$	6,457		$	5,613		15.0
Return on average assets			0.75	%		0.65	%	10
Return on average assets excluding amortization of intangibles and merger related expenses - Non-GAAP (2)			0.84			0.76		8
Return on average equity			7.25			6.45		80
Return on average tangible equity - Non-GAAP (1), (2)			10.09			9.40		69
Net interest margin			3.18			2.76		42
Efficiency ratio - GAAP			67.40			71.40		(400)
Efficiency ratio - Non-GAAP (1), (2)			63.67			66.93		(326)
PER SHARE DATA
Basic and diluted net income per common share		$	0.32		$	0.28		14.3
Dividends paid per common share		$	0.12		$	0.12		—
Book value per common share at period end			18.17			17.73		2.5
Tangible book value per common share at period end - Non- GAAP (1)			14.74			14.19		3.9
Market value at period end			14.28			20.48		(30.3)
Market range:
High			18.15			21.41		(15.2)
Low			14.00			19.34		(27.6)
AVERAGE BALANCE SHEET DATA
Loans		$	2,611,644		$	2,135,734		22.3
Investment securities			654,193			531,017		23.2
Earning assets			3,279,686			3,253,549		0.8
Assets			3,506,336			3,477,481		0.8
Deposits			2,968,448			3,044,213		(2.5)
Stockholders' equity			361,174			353,011		2.3
CREDIT QUALITY DATA
Net chargeoffs/(recoveries)		$	20		$	(166)		112.0
Nonaccrual loans		$	1,894		$	2,848		(33.5)
Loans 90 days past due and still accruing			611			459		33.1
Other real estate owned			179			561		(68.1)
Total nonperforming assets			2,684			3,868		(30.6)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets			10.18	%		10.07	%	11
Period-end tangible equity to tangible assets - Non-GAAP (1)			8.41			8.22		19
Annualized net (recoveries) to average loans			—			(0.03)		3
Allowance for credit losses as a percent of:
Period-end loans (3)			1.07			0.67		40
Period-end loans (4)			1.07			0.92		15
Nonaccrual loans			1,502.85			516.50		98,635
Nonperforming assets			1,060.51			380.30		68,021
As a percent of total loans:
Nonaccrual loans			0.07			0.13		(6)
As a percent of total loans+other real estate owned:
Nonperforming assets			0.10			0.18		(8)
As a percent of total assets:
Nonaccrual loans			0.05			0.08		(3)
Nonperforming assets			0.08			0.11		(3)

 

(1)	See the reconciliation table that begins on page 13.
(2)	This ratio excludes merger related expenses (Non-GAAP) on page 4.
(3)	As of March 31, 2023 and March 31, 2022, these ratios include all loans held for investment, including PPP loans of $167 thousand and $14.9 million, respectively.
(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 Balance Sheets (Unaudited)
(In thousands, except per share data)
											March 31, 2023		March 31, 2023
			March 31,			December 31,		March 31,			compared to		compared to
			2023			2022		2022			December 31, 2022		March 31, 2022
ASSETS
Cash and due from banks		$	23,863		$	37,661		$	16,206		(36.6)	%	47.2	%
Interest-bearing deposits with other banks			13,846			17,838			554,770		(22.4)		(97.5)
Cash and cash equivalents			37,709			55,499			570,976		(32.1)		(93.4)
Investment securities available for sale (at fair value)			81,525			83,587			106,695		(2.5)		(23.6)
Investment securities held to maturity (at amortized cost)			549,096			559,455			407,138		(1.9)		34.9
Equity securities, at fair value			1,258			1,233			1,305		2.0		(3.6)
Restricted securities			15,067			11,169			9,894		34.9		52.3
Loans held for sale, at fair value			3,514			4,248			12,906		(17.3)		(72.8)
Loans held for investment			2,668,681			2,556,107			2,181,106		4.4		22.4
Less: allowance for credit losses			(28,464)			(16,643)			(14,710)		71.0		(93.5)
Loans, net			2,640,217			2,539,464			2,166,396		4.0		21.9
Premises and equipment, net			50,516			51,488			52,049		(1.9)		(2.9)
Goodwill			63,266			63,266			63,281		—		(0.0)
Other intangible assets, net			5,106			5,547			7,018		(8.0)		(27.2)
Other real estate owned, net			179			197			561		(9.1)		(68.1)
Mortgage servicing rights, at fair value			5,310			5,275			5,113		0.7		3.9
Right of use assets, net			9,344			9,629			10,180		(3.0)		(8.2)
Cash surrender value on life insurance			59,711			59,218			58,186		0.8		2.6
Other assets			31,876			28,001			22,799		13.8		39.8
Total assets		$	3,553,694		$	3,477,276		$	3,494,497		2.2		1.7
LIABILITIES
Noninterest-bearing deposits		$	808,679		$	862,015		$	876,415		(6.2)		(7.7)
Interest-bearing deposits			2,185,883			2,147,769			2,192,080		1.8		(0.3)
Total deposits			2,994,562			3,009,784			3,068,495		(0.5)		(2.4)
Advances from FHLB - short-term			131,500			40,000			—		228.8		—
Advances from FHLB - long-term			—			—			10,094		—		(100.0)
Subordinated debt			43,150			43,072			42,840		0.2		0.7
Total borrowings			174,650			83,072			52,934		110.2		229.9
Lease liabilities			9,642			9,908			10,397		(2.7)		(7.3)
Accrued expenses and other liabilities			13,202			10,227			10,807		29.1		22.2
Total liabilities			3,192,056			3,112,991			3,142,633		5.5		5.4
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized 35,000,000 shares			199			199			198		—		0.5
Additional paid in capital			201,736			201,494			200,640		0.1		0.5
Retained earnings			167,864			171,613			153,198		(2.2)		9.6
Accumulated other comprehensive loss			(8,161)			(9,021)			(2,172)		9.5		(275.7)
Total stockholders' equity			361,638			364,285			351,864		(0.7)		2.8
Total liabilities and stockholders' equity		$	3,553,694		$	3,477,276		$	3,494,497		4.8		5.2
Period-end common shares outstanding			19,898			19,865			19,843		0.2		0.3
Book value per common share		$	18.17		$	18.34		$	17.73		(0.9)		2.5

 

Shore Bancshares, Inc.
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
		For the Three Months Ended
		March 31,
		2023			2022			% Change
INTEREST INCOME
Interest and fees on loans		$	30,828		$	22,085		39.6	%
Interest on investment securities:
Taxable			4,064			1,985		104.7
Tax-exempt			7			—		100.0
Interest on deposits with other banks			163			254		(35.8)
Total interest income			35,062			24,324		44.1
INTEREST EXPENSE
Interest on deposits			7,281			1,358		436.2
Interest on short-term borrowings			1,361			2		67,950.0
Interest on long-term borrowings			756			534		41.6
Total interest expense			9,398			1,894		396.2
NET INTEREST INCOME			25,664			22,430		14.4
Provision for credit losses			1,213			600		102.2
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			24,451			21,830		12.0
NONINTEREST INCOME
Service charges on deposit accounts			1,213			1,359		(10.7)
Trust and investment fee income			432			514		(16.0)
Gains on sales and calls of investment securities			—			—		—
Interchange credits			1,212			1,038		16.8
Mortgage-banking revenue			977			1,867		(47.7)
Title Company revenue			137			323		(57.6)
Other noninterest income			1,363			945		44.2
Total noninterest income			5,334			6,046		(11.8)
NONINTEREST EXPENSE
Salaries and wages			8,684			9,562		(9.2)
Employee benefits			2,921			2,662		9.7
Occupancy expense			1,619			1,567		3.3
Furniture and equipment expense			534			429		24.5
Data processing			1,798			1,607		11.9
Directors' fees			250			190		31.6
Amortization of intangible assets			441			517		(14.7)
FDIC insurance premium expense			371			343		8.2
Other real estate owned, net			(1)			(6)		83.3
Legal and professional fees			750			637		17.7
Merger related expenses			691			730		(5.3)
Other noninterest expenses			2,835			2,094		35.4
Total noninterest expense			20,893			20,332		2.8
Income before income taxes			8,892			7,544		17.9
Income tax expense			2,435			1,931		26.1
NET INCOME		$	6,457		$	5,613		15.0
Weighted average shares outstanding - basic and diluted			19,886			19,828		0.3
Basic and diluted net income per common share		$	0.32		$	0.28		14.3
Dividends paid per common share			0.12			0.12		—

 

Shore Bancshares, Inc.
Consolidated Average Balance Sheets (Unaudited)
(Dollars in thousands)
		For the Three Months Ended
		March 31,
		2023					2022
		Average			Yield/		Average			Yield/
		balance			rate		balance			rate
Earning assets
Loans (1), (2), (3)		$	2,611,644		4.79	%	$	2,135,734		4.20	%
Investment securities
Taxable			653,527		2.49			531,017		1.49
Tax-exempt (1)			666		5.41			—		—
Interest-bearing deposits			13,849		4.77			586,798		0.18
Total earning assets			3,279,686		4.34	%		3,253,549		3.01	%
Cash and due from banks			28,602					(15,253)
Other assets			228,054					253,424
Allowance for credit losses			(30,006)					(14,239)
Total assets		$	3,506,336				$	3,477,481
Interest-bearing liabilities
Demand deposits		$	694,894		1.89	%	$	589,737		0.16	%
Money market and savings deposits			1,004,553		0.96			1,075,791		0.23
Certificates of deposit $100,000 or more			241,436		1.81			286,587		0.40
Other time deposits			207,403		1.16			175,683		0.57
Interest-bearing deposits			2,148,286		1.37			2,127,798		0.26
Securities sold under retail repurchase
agreements and federal funds purchased			—		—			2,770		0.29
Advances from FHLB - short-term			113,972		4.84			—		—
Advances from FHLB - long-term			—		—			10,116		0.57
Subordinated debt			43,108		7.11			42,804		4.93
Total interest-bearing liabilities			2,305,366		1.65	%		2,183,488		0.35	%
Noninterest-bearing deposits			820,162					916,415
Accrued expenses and other liabilities			19,634					24,567
Stockholders' equity			361,174					353,011
Total liabilities and stockholders' equity		$	3,506,336				$	3,477,481
Net interest spread					2.69	%				2.66	%
Net interest margin					3.18	%				2.76	%
______________________

(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.

 

Shore Bancshares, Inc.
Financial Highlights By Quarter (Unaudited)
(Dollars in thousands, except per share data)
		1st Quarter			4th Quarter			3rd Quarter			2nd Quarter			1st Quarter			Q1 2023		Q1 2023
		2023			2022			2022			2022			2022			compared to		compared to
		Q1 2023			Q4 2022			Q3 2022			Q2 2022			Q1 2022			Q4 2022		Q1 2022
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	25,705		$	26,981		$	27,350		$	24,656		$	22,469		(4.7)	%	14.4	%
Less: Taxable-equivalent adjustment			40			38			35			38			39		5.3		2.6
Net interest income			25,664			26,943			27,315			24,618			22,430		(4.7)		14.4
Provision for credit losses			1,213			450			675			200			600		169.6		102.2
Noninterest income			5,334			5,862			5,344			5,833			6,046		(9.0)		(11.8)
Noninterest expense			20,893			21,000			18,899			20,094			20,332		(0.5)		2.8
Income before income taxes			8,892			11,355			13,085			10,157			7,544		(21.7)		17.9
Income tax expense			2,435			2,948			3,427			2,658			1,931		(17.4)		26.1
Net income		$	6,457		$	8,407		$	9,658		$	7,499		$	5,613		(23.2)		15.0
Return on average assets			0.75	%		0.97	%		1.11	%		0.88	%		0.65	%	(22)	bp	10	bp
Return on average assets excluding amortization of intangibles and merger related expenses - Non-GAAP (2)			0.84			1.09			1.17			0.94			0.76		(25)		8
Return on average equity			7.25			9.22			10.72			8.52			6.45		(197)		80
Return on average tangible equity - Non- GAAP (1)			10.09			12.83			13.98			11.41			9.40		(274)		69
Net interest margin			3.18			3.35			3.38			3.10			2.76		(17)		42
Efficiency ratio - GAAP			67.40			64.01			57.87			65.99			71.40		339		(400)
Efficiency ratio - Non-GAAP (1), (2)			63.67			59.59			55.79			63.44			66.93		408		(326)
PER SHARE DATA
Basic and diluted net income per common share		$	0.32		$	0.42		$	0.49		$	0.38		$	0.28		(23.8)	%	14.3	%
Dividends paid per common share			0.12			0.12			0.12			0.12			0.12		—		—
Book value per common share at period end			18.17			18.34			17.99			17.77			17.73		(0.9)		2.5
Tangible book value per common share at period end - Non-GAAP (1)			14.74			14.87			14.50			14.26			14.19		(0.9)		3.9
Market value at period end			14.28			17.43			17.32			18.50			20.48		(18.1)		(30.3)
Market range:
High			18.15			20.85			20.50			21.21			21.41		(12.9)		(15.2)
Low			14.00			17.04			17.29			17.91			19.34		(17.8)		(27.6)
AVERAGE BALANCE SHEET DATA
Loans		$	2,611,644		$	2,467,324		$	2,327,279		$	2,217,139		$	2,135,734		5.8	%	22.3	%
Investment securities			654,193			661,968			618,378			546,252			531,017		(1.2)		23.2
Earning assets			3,279,686			3,206,591			3,210,233			3,189,926			3,253,549		2.3		0.8
Assets			3,506,336			3,441,079			3,444,365			3,419,168			3,477,481		1.9		0.8
Deposits			2,968,448			3,006,734			3,012,658			2,993,098			3,044,213		(1.3)		(2.5)
Stockholders' equity			361,174			361,623			357,383			353,192			353,011		(0.1)		2.3
CREDIT QUALITY DATA
Net charge offs/(recoveries)		$	20		$	84		$	(119)		$	(573)		$	(166)		(76.2)	%	112.0	%
Nonaccrual loans		$	1,894		$	1,908		$	1,949		$	2,693		$	2,848		(0.7)		(33.5)
Loans 90 days past due and still accruing			611			1,841			644			803			459		(66.8)		33.1
Other real estate owned			179			197			197			197			561		(9.1)		(68.1)
Total nonperforming assets		$	2,684		$	3,946		$	2,790		$	3,693		$	3,868		(32.0)		(30.6)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets			10.18	%		10.48	%		10.36	%		10.25	%		10.07	%	(30)	bp	11	bp
Period-end tangible equity to tangible assets - Non-GAAP (1)			8.41			8.67			8.52			8.39			8.22		(26)		19
Annualized net (recoveries)  to average loans			—			0.01			(0.02)			(0.10)			(0.03)		(1)		3
Allowance for credit losses as a percent of:
Period-end loans (3)			1.07			0.65			0.68			0.68			0.67		42		40
Period-end loans (4)			1.07			0.78			0.84			0.89			0.92		29		15
Nonaccrual loans			1,502.85			872.27			835.15			574.94			516.50		63,058		98,635
Nonperforming assets			1,060.51			421.77			583.41			419.25			380.30		63,874		68,021
As a percent of total loans:
Nonaccrual loans			0.07			0.07			0.08			0.12			0.13		—		(6)
As a percent of total loans+other real estate owned:
Nonperforming assets			0.10			0.15			0.12			0.16			0.18		(5)		(8)
As a percent of total assets:
Nonaccrual loans			0.05			0.05			0.06			0.08			0.08		—		(3)
Nonperforming assets			0.08			0.11			0.08			0.11			0.11		(3)		(3)

_____________________________
(1)	See the reconciliation table that begins on page 13.
(2)	This ratio excludes merger related expenses (Non-GAAP) on page 9.
(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)
(In thousands, except per share data)
																	Q1 2023		Q1 2023
																	compared to		compared to
		Q1 2023			Q4 2022			Q3 2022			Q2 2022			Q1 2022			Q4 2022		Q1 2022
INTEREST INCOME
Interest and fees on loans		$	30,828		$	27,664		$	25,924		$	23,452		$	22,085		11.4	%	39.6	%
Interest on investment securities:
Taxable			4,064			3,945			3,186			2,392			1,985		3.0		104.7
Tax-exempt			7			6			—			—			—		16.7		100.0
Interest on deposits with other banks			163			664			1,466			826			254		(75.5)		(35.8)
Total interest income			35,062			32,279			30,576			26,670			24,324		8.6		44.1
INTEREST EXPENSE
Interest on deposits			7,281			4,554			2,561			1,511			1,358		59.9		436.2
Interest on short-term borrowings			1,361			72			—			—			2		1,790.3		67,950.0
Interest on long-term borrowings			756			710			700			541			534		6.5		41.6
Total interest expense			9,398			5,336			3,261			2,052			1,894		76.1		396.2
NET INTEREST INCOME			25,664			26,943			27,315			24,618			22,430		(4.7)		14.4
Provision for credit losses			1,213			450			675			200			600		169.6		102.2
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			24,451			26,493			26,640			24,418			21,830		(7.7)		12.0
NONINTEREST INCOME
Service charges on deposit accounts			1,213			1,346			1,509			1,438			1,359		(9.9)		(10.7)
Trust and investment fee income			432			401			421			447			514		7.7		(16.0)
Interchange credits			1,212			1,280			1,241			1,253			1,038		(5.3)		16.8
Mortgage-banking revenue			977			1,567			680			1,096			1,867		(37.7)		(47.7)
Title Company revenue			137			194			397			426			323		(29.4)		(57.6)
Other noninterest income			1,363			1,074			1,096			1,173			945		26.9		44.2
Total noninterest income			5,334			5,862			5,344			5,833			6,046		(9.0)		(11.8)
NONINTEREST EXPENSE
Salaries and wages			8,684			8,909			8,562			8,898			9,562		(2.5)		(9.2)
Employee benefits			2,921			2,786			2,191			2,269			2,662		4.8		9.7
Occupancy expense			1,619			1,694			1,496			1,485			1,567		(4.4)		3.3
Furniture and equipment expense			534			648			533			411			429		(17.6)		24.5
Data processing			1,798			1,856			1,759			1,668			1,607		(3.1)		11.9
Directors' fees			250			222			217			210			190		12.6		31.6
Amortization of intangible assets			441			460			499			511			517		(4.1)		(14.7)
FDIC insurance premium expense			371			315			339			429			343		17.8		8.2
Other real estate owned expenses, net			(1)			13			1			57			(6)		(107.7)		83.3
Legal and professional fees			750			636			756			811			637		17.9		17.7
Merger related expenses			691			967			159			241			730		(28.5)		(5.3)
Other noninterest expenses			2,835			2,494			2,387			3,104			2,094		13.7		35.4
Total noninterest expense			20,893			21,000			18,899			20,094			20,332		(0.5)		2.8
Income before income taxes			8,892			11,355			13,085			10,157			7,544		(21.7)		17.9
Income tax expense			2,435			2,948			3,427			2,658			1,931		(17.4)		26.1
NET INCOME		$	6,457		$	8,407		$	9,658		$	7,499		$	5,613		(23.2)		15.0
Weighted average shares outstanding - basic and diluted			19,886			19,862			19,852			19,847			19,828		0.1		0.3
Basic and diluted net income per common share		$	0.32		$	0.42		$	0.49		$	0.38		$	0.28		(23.8)		14.3
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)
(Dollars in thousands)
																											Average balance
																											Q1 2023		Q1 2023
																											compared to		compared to
		Q1 2023					Q4 2022					Q3 2022					Q2 2022					Q1 2022					Q4 2022		Q1 2022
		Average			Yield/		Average			Yield/		Average			Yield/		Average			Yield/		Average			Yield/
		balance			rate		balance			rate		balance			rate		balance			rate		balance			rate
Earning assets
Loans (1), (2), (3)		$	2,611,644		4.79	%	$	2,467,324		4.45	%	$	2,327,279		4.43	%	$	2,217,139		4.25	%	$	2,135,734		4.20	%	5.8	%	22.3	%
Investment securities
Taxable			653,527		2.49			661,519		2.39			618,378		2.06			546,252		1.75			531,017		1.49		(1.2)		23.1
Tax-exempt (1)			666		5.41			449		6.24			—		—			—		—			—		—		100.0		100.0
Interest-bearing deposits			13,849		4.77			77,299		3.40			264,576		2.20			426,535		0.78			586,798		0.18		(82.1)		(97.6)
Total earning assets			3,279,686		4.34	%		3,206,591		4.00	%		3,210,233		3.78	%		3,189,926		3.36	%		3,253,549		3.01	%	2.3		0.8
Cash and due from banks			28,602					29,358					31,724					26,162					(15,253)				(2.6)		(287.5)
Other assets			228,054					221,599					218,163					218,353					253,424				2.9		(10.0)
Allowance for credit losses			(30,006)					(16,469)					(15,755)					(15,273)					(14,239)				82.2		110.7
Total assets		$	3,506,336				$	3,441,079				$	3,444,365				$	3,419,168				$	3,477,481				1.9		0.8
Interest-bearing liabilities
Demand deposits		$	694,894		1.89	%	$	670,424		1.31	%	$	646,399		0.66	%	$	644,881		0.22	%	$	589,737		0.16	%	3.6		17.8
Money market and savings deposits			1,004,553		0.96			1,043,076		0.60			1,034,580		0.35			1,019,295		0.21			1,075,791		0.23		(3.7)		(6.6)
Certificates of deposit $100,000 or more			241,436		1.81			217,051		0.79			222,697		0.55			234,325		0.58			286,587		0.40		11.2		(15.8)
Other time deposits			207,403		1.16			205,293		0.62			215,014		0.51			221,714		0.54			175,683		0.57		1.0		18.1
Interest-bearing deposits			2,148,286		1.37			2,135,844		0.85			2,118,690		0.48			2,120,215		0.29			2,127,798		0.26		0.6		1.0
Securities sold under retail repurchase agreements
and federal funds purchased			—		—			—		—			—		—			—		—			2,770		0.29		—		(100.0)
Advances from FHLB - short-term			113,972		4.84			7,391		3.86			—		—			—		—			—		—		100.0		100.0
Advances from FHLB - long-term			—		—			653		(6.08)			10,035		0.63			10,075		0.60			10,116		0.57		(100.0)		(100.0)
Subordinated debt			43,108		7.11			43,031		6.64			42,953		6.33			42,876		4.93			42,804		4.93		0.2		0.7
Total interest-bearing liabilities			2,305,366		1.65	%		2,186,919		0.96	%		2,171,678		0.60	%		2,173,166		0.38	%		2,183,488		0.35	%	5.4		5.6
Noninterest-bearing deposits			820,162					870,890					893,968					872,883					916,415				(5.8)		(10.5)
Accrued expenses and other liabilities			19,634					21,647					21,336					19,927					24,567				(9.3)		(20.1)
Stockholders' equity			361,174					361,623					357,383					353,192					353,011				(0.1)		2.3
Total liabilities and stockholders' equity		$	3,506,336				$	3,441,079				$	3,444,365				$	3,419,168				$	3,477,481				1.9		0.8
Net interest spread					2.69	%				3.04	%				3.18	%				2.98	%				2.66	%
Net interest margin					3.18	%				3.35	%				3.38	%				3.10	%				2.76	%

_____________________________________
(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.

 

Shore Bancshares, Inc.
Reconciliation of Generally Accepted Accounting Principles (GAAP)
and Non-GAAP Measures (Unaudited)
(In thousands, except per share data)
																	YTD			YTD
		Q1 2023			Q4 2022			Q3 2022			Q2 2022			Q1 2022			3/31/2023			3/31/2022
The following reconciles return on average equity and return on average tangible equity (Note 1):
Net Income		$	6,457		$	8,407		$	9,658		$	7,499		$	5,613		$	6,457		$	5,613
Net Income - annualized (A)		$	26,187		$	33,354		$	38,317		$	30,078		$	22,764		$	26,187		$	22,764
Net income, excluding net amortization of intangible assets
and merger related expenses		$	7,279		$	9,463		$	10,144		$	8,054		$	6,541		$	7,279		$	6,541
Net income, excluding net amortization of intangible assets and merger related expenses - annualized (B)		$	29,520		$	37,543		$	40,245		$	32,305		$	26,527		$	29,520		$	26,527
Return on average assets excluding net amortization of intangible assets and merger related expenses - Non-GAAP			0.84	%		1.09	%		1.17	%		0.94	%		0.76	%		0.84	%		0.76	%
Average stockholders' equity (C)		$	361,174		$	361,623		$	357,383		$	353,192		$	353,011		$	361,174		$	353,011
Less:  Average goodwill and other intangible assets			(68,607)			(69,077)			(69,558)			(70,057)			(70,711)			(68,607)			(70,711)
Average tangible equity (D)		$	292,567		$	292,546		$	287,825		$	283,135		$	282,300		$	292,567		$	282,300
Return on average equity (GAAP)  (A)/(C)			7.25	%		9.22	%		10.72	%		8.52	%		6.45	%		7.25	%		6.45	%
Return on average tangible equity (Non-GAAP)  (B)/(D)			10.09	%		12.83	%		13.98	%		11.41	%		9.40	%		10.09	%		9.40	%
The following reconciles GAAP efficiency ratio and non- GAAP efficiency ratio (Note 2):
Noninterest expense (E)		$	20,893		$	21,000		$	18,899		$	20,094		$	20,332		$	20,893		$	20,332
Less:  Amortization of intangible assets			(441)			(460)			(499)			(511)			(517)			(441)			(517)
Merger Expenses			(691)			(967)			(159)			(241)			(730)			(691)			(730)
Adjusted noninterest expense (F)		$	19,761		$	19,573		$	18,241		$	19,342		$	19,085		$	19,761		$	19,085
Net interest income (G)		$	25,664		$	26,943		$	27,315		$	24,618		$	22,430		$	25,664		$	22,430
Add:  Taxable-equivalent adjustment			40			40			35			38			39			40			39
Taxable-equivalent net interest income (H)		$	25,704		$	26,983		$	27,350		$	24,656		$	22,469		$	25,704		$	22,469
Noninterest income (I)		$	5,334		$	5,862		$	5,344		$	5,833		$	6,046		$	5,334			6,046
Less:  Investment securities (gains)			—			—			—			—			—			—			—
Adjusted noninterest income (J)		$	5,334		$	5,862		$	5,344		$	5,833		$	6,046		$	5,334		$	6,046
Efficiency ratio (GAAP)  (E)/(G)+(I)			67.40	%		64.01	%		57.87	%		65.99	%		71.40	%		67.40	%		71.40	%
Efficiency ratio (Non-GAAP)  (F)/(H)+(J)			63.67	%		59.59	%		55.79	%		63.44	%		66.93	%		63.67	%		66.93	%
The following reconciles book value per common share and tangible book value per common share (Note 1):
Stockholders' equity (L)		$	361,638		$	364,285		$	357,221		$	352,777		$	351,864
Less:  Goodwill and other intangible assets			(68,372)			(68,813)			(69,288)			(69,787)			(70,299)
Tangible equity (M)		$	293,266		$	295,472		$	287,933		$	282,990		$	281,565
Shares outstanding (N)			19,898			19,865			19,858			19,850			19,843
Book value per common share (GAAP)  (L)/(N)		$	18.17		$	18.34		$	17.99		$	17.77		$	17.73
Tangible book value per common share (Non-GAAP) (M)/(N)		$	14.74		$	14.87		$	14.50		$	14.26		$	14.19
The following reconciles equity to assets and tangible equity to tangible assets (Note 1):
Stockholders' equity (O)		$	361,638		$	364,285		$	357,221		$	352,777		$	351,864
Less:  Goodwill and other intangible assets			(68,372)			(68,813)			(69,288)			(69,787)			(70,299)
Tangible equity (P)		$	293,266		$	295,472		$	287,933		$	282,990		$	281,565
Assets (Q)		$	3,553,694		$	3,477,276		$	3,446,804		$	3,442,550		$	3,494,497
Less:  Goodwill and other intangible assets			(68,372)			(68,813)			(69,288)			(69,787)			(70,299)
Tangible assets (R)		$	3,485,322		$	3,408,463		$	3,377,516		$	3,372,763		$	3,424,198
Period-end equity/assets (GAAP)  (O)/(Q)			10.18	%		10.48	%		10.36	%		10.25	%		10.07	%
Period-end tangible equity/tangible assets (Non-GAAP)  (P)/(R)			8.41	%		8.67	%		8.52	%		8.39	%		8.22	%

_____________________________________

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.