Shore Bancshares Reports Second Quarter and First-Half Financial Results

Jul 28th, 2022 16:15 EST

EASTON, Md., July 28, 2022 /PRNewswire/ — Shore Bancshares, Inc. (NASDAQ: SHBI) (the “Company”) reported net income of $7.499 million or $0.38 per diluted common share for the second quarter of 2022, compared to net income of $5.613 million or $0.28 per diluted common share for the first quarter of 2022, and net income of $4.031 million or $0.34 per diluted common share for the second quarter of 2021. Net income for the first half of 2022 was $13.112 million or $0.66 per diluted common share, compared to net income for the first half of 2021 of $8.028 million or $0.68 per diluted common share. Net income, excluding merger related expenses for the second quarter of 2022 was $7.674 million or $0.39 per diluted common share, compared to net income, excluding merger related expenses of $6.156 million or $0.31 per diluted common share for the first quarter of 2022 and net income, excluding merger related expenses of $4.311 million or $0.37 per diluted common share for the second quarter 2021.

When comparing net income, excluding merger related expenses, for the second quarter of 2022 to the first quarter of 2022 net income increased $1.5 million due to an increase in net interest income of $2.2 million. When comparing net income, excluding merger related expenses, for the second quarter of 2022 to the second quarter of 2021, net income increased $3.3 million primarily due to increases in net interest income of $10.5 million and noninterest income of $2.9 million.  These improvements to income in the second quarter of 2022 were partially offset by an increase in noninterest expenses of $9.4 million primarily as a result of the acquisition of Severn Bank (“Severn”) in November of 2021.  

“We are pleased to announce our second quarter financial results,” said Lloyd L. “Scott” Beatty, Jr., President and Chief Executive Officer.  “We continue to see strong loan demand and opportunities for growth within our various markets.  With minimal merger expenses in the second quarter due to a shift from integration to operation, we noted positive trends in our ROA, efficiency ratio, and tangible book value.  Our outlook for the remainder of 2022 is a very positive one, as we continue to maintain our commitment and focus on core earnings and enhanced returns for our shareholders.”

Balance Sheet Review

Total assets were $3.443 billion at June 30, 2022, a $17.6 million, or less than 1.0%, decrease when compared to $3.460 billion at the end of 2021. This decrease was due to a decline in interest bearing deposits with other banks of $182.2 million, or 32.1%, partially offset by increases in loans held for investment of $145.4 million, or 6.9%, and investment securities held to maturity of $54.4 million, or 13.4%. The positive organic loan growth for loans held for investment was due to strong loan demand, specifically within our commercial real estate, residential real estate and consumer loan portfolios, partially offset by paydowns in the commercial loan portfolio.  As of June 30, 2022, the Company had 37 Paycheck Protection Program (“PPP’) loans totaling $1.7 million that were outstanding.

Total deposits decreased $11.9 million, or less than 1%, when compared to December 31, 2021. The decrease in total deposits was primarily due to decreases in money market and savings accounts of $79.7 million, $38.4 million in noninterest-bearing deposits and $12.0 million in time deposits offset by an increase in interest bearing checking accounts of $118.1 million.    

Total stockholders’ equity increased $2.1 million, or less than 1%, when compared to December 31, 2021, primarily due to current year earnings, partially offset by an increase in unrealized losses of $6.7 million (net of tax) on available for sale securities which are recorded in accumulated other comprehensive income (loss). At June 30, 2022, the ratio of total equity to total assets was 10.25% and the ratio of total tangible equity to total tangible assets was 8.39% compared to 10.14% and 8.25% at the end of 2021.

Review of Quarterly Financial Results

Net interest income was $24.6 million for the second quarter of 2022, compared to $22.4 million for the first quarter of 2022 and $14.1 million for the second quarter of 2021. The increase in net interest income when compared to the first quarter of 2022 was primarily due to increases in interest and fees on loans of $1.4 million, interest on deposits with other banks of $572 thousand and interest on investment securities of $407 thousand, partially offset by an increase in expense on interest-bearing deposits of $153 thousand. The improvement in interest and fees on loans was due to an increase in the average balance of loans of $81.4 million, or 3.8%. Accretion income from loans acquired from Severn increased over first quarter by $265 thousand. The increase in interest on deposits with other banks was primarily due to the recent increases to the fed funds rate.  The increase in interest on taxable investment securities was driven by an increase in the rates of 26bps and an increase in the average balance within these securities of $15.2 million, or 2.9%, resulting from additional purchases of held to maturity securities during second quarter of 2022. The increase in deposits with other banks and investment securities was primarily due to excess liquidity.   

The increase in net interest income when compared to the second quarter of 2021 was primarily due to increases in interest and fees on loans of $9.1 million, interest on taxable investment securities of $1.3 million and interest on deposits with other banks of $771 thousand, partially offset by increases in expenses on interest-bearing deposits of $455 thousand and long-term borrowings of $171 thousand, all of which were significantly impacted by the acquisition of Severn in the fourth quarter of 2021.  Excluding the merger related impact to the balance sheet, organic loan growth and excess liquidity resulted in an improved overall yield on total earning assets, while maintaining lower cost of funding on core deposits.

The Company’s net interest margin increased to 3.10% for the second quarter of 2022 from 2.78% for the first quarter of 2022 and 2.91% for the second quarter of 2021. The increase in net interest margin when compared to the first quarter of 2022 and second quarter of 2021 was primarily due to higher average loan balances, accretion income from purchased loans and higher rates paid on lower yielding assets. Excess liquidity continues to compress the overall net interest margin. Absent excess liquidity of $200 million, we estimate our margin for the second quarter of 2022 would have been 3.31%.

The provision for credit losses was $200 thousand for the three months ended June 30, 2022.  The comparable amounts were $600 thousand and $650 thousand for the three months ended March 31, 2022 and June 30, 2021, respectively. The decrease in the provision for credit losses during the second quarter of 2022 as compared to the prior quarters was primarily attributed to significant net recoveries.  Net recoveries for the second quarter of 2022 were $573 thousand, compared to net recoveries of $166 thousand for the first quarter of 2022 and net recoveries of $125 thousand for the second quarter 2021.  The ratio of the allowance for credit losses to period-end loans, excluding PPP loans and acquired loans, was 0.89% at June 30, 2022, compared to 0.92% at March 31, 2022 and 1.12% at June 30, 2021. The decline in the percentage of the allowance from the first quarter of 2022 was primarily due to decreased historical loss experience.  The decline in the percentage of the allowance from the second quarter of 2021 was primarily the result of improved credit quality, including lower historical loss experience as well as lower pandemic related qualitative reserves.

At June 30, 2022 and March 31, 2022, nonperforming assets were $4.0 million and $3.9 million respectively. The balance of nonperforming assets increased primarily due to an increase in loans 90 days past due still accruing of $671 thousand, or 146.2%, partially offset by a decrease in other real estate owned (“OREO”) of $364 thousand, or 64.9%, and nonaccrual loans of $155 thousand, or 5.4%.  Accruing troubled debt restructuring (“TDRs”) decreased $110 thousand, or 2.2%,  at June 30, 2022 compared to March 31, 2022.  When comparing the second quarter of 2022 to the second quarter of 2021, nonperforming assets decreased $882 thousand, or 18.0%, primarily due to decreases in nonaccrual loans of $1.3 million, or 31.8%, offset by an increase in loans 90 days past due still accruing of $378 thousand, or 50.3%. Accruing TDRs decreased $1.4 million, or 22.8%. The ratio of nonperforming assets and accruing TDRs to total assets was 0.26%, 0.25% and 0.53% at June 30, 2022, March 31, 2022 and June 30, 2021, respectively.  In addition, the ratio of accruing TDRs to total loans at June 30, 2022 was 0.22% compared to 0.23% at March 31, 2022 and 0.43% at June 30, 2021.

Total noninterest income for the second quarter of 2022 decreased $213 thousand, or 3.5%, when compared to the first quarter of 2022 and increased $2.9 million, or 100.9%, when compared to the second quarter of 2021. The decrease compared to the first quarter of 2022 was primarily due to a decrease in revenue associated with the mortgage division of $771 thousand, or 41.3%, and partially offset by increases in interchange credits of $215 thousand, Mid-MD Title Company (“Mid-MD Title”) revenue of $103 thousand and service charges on deposit accounts of $79 thousand.  The increase in noninterest income when compared to the second quarter of 2021 was largely impacted by the addition of Severn in the fourth quarter of 2021 which included mortgage-banking revenue of $1.1 million and Mid-MD Title revenue of $426 thousand and also contributed to the increase in service charges on deposit accounts of $755 thousand and interchange fees of $217 thousand.

Total noninterest expense, excluding merger related expenses, for the second quarter of 2022 increased $251 thousand or 1.2%, when compared to the first quarter of 2022 and increased $9.4 million, or 89.1%, when compared to the second quarter of 2021. The increase in noninterest expense when compared to the first quarter of 2022 was primarily due to increases in fee and loan servicing expenses as well as derivatives expense.  The increase from the second quarter of 2021 was primarily due to increases in salaries and wages, employee related benefits, occupancy expense, data processing, amortization of intangible assets and legal and professional fees, which were all significantly impacted by adding Severn and its operations.  

Review of Six-Month Financial Results

Net interest income for the first six months of 2022 was $47.0 million, an increase of $19.1 million, or 68.6%, when compared to the first six months of 2021.  The increase in net interest income was primarily due to an increase in total interest income of $20.1 million, or 65.2%, specifically interest and fees on loans of $16.8 million, or 58.4%. The improvement of interest and fees on loans was primarily due to the increase in the average balance of $740.5 million, or 51.1%, coupled with accretion income from the acquired loans of $1.5 million for the first six months of 2022.  Taxable investment securities and interest on deposits with other banks increased $2.4 million and $978 thousand, respectively, partially offset by an increase in total interest expense of $974 thousand. The increase in interest expense was the result of an increase in the average balance of interest bearing deposits of $860.6 million, or 68.1%, despite the rates paid on these deposits declining 9bps.  Interest on long term borrowings increased by $346 thousand due to long-term advances with FHLB and junior subordinated debt acquired as part of the Severn acquisition.   

The provision for credit losses for the six months ended June 30, 2022 and 2021 was $800 thousand and $1.1 million, respectively. The decrease in provision for credit losses was the result of significant recoveries in the first six months of 2022 of $739 thousand compared to $125 thousand for the first six months of 2021. The ratio of the allowance to total loans decreased from 1.02% at June 30, 2021, to 0.68% at June 30, 2022. Excluding PPP loans and acquired loans, the ratio of the allowance for credit losses to period-end loans was 0.89% at June 30, 2022, lower than the 1.12% at June 30, 2021, primarily due to improved credit quality, lower historical loss experience, and reduced pandemic related qualitative factors.

Total noninterest income for the six months ended June 30, 2022 increased $6.4 million, or 117.6%, when compared to the same period in 2021. The increase in noninterest income primarily consisted of revenue associated with the mortgage division of $3.0 million, service charges on deposit accounts of $1.4 million, revenue from Mid-Maryland Title of $749 thousand and other noninterest income of $803 thousand. The increase in other noninterest income was primarily due to increases in rental income of $666 thousand and other loan fee income of $232 thousand partially offset by losses of $88 thousand related to market value adjustments of equity securities.

Total noninterest expense, excluding merger related expenses, for the six months ended June 30, 2022 increased $18.5 million, or 87.9%, when compared to the same period in 2021. The increase was primarily the result of higher salaries, employee benefits, occupancy expense, other intangibles, data processing costs, other noninterest expenses, and FDIC insurance premiums due to significant increases in new and existing customers and the acquisition of Severn. In addition, as previously mentioned, during the first six months of 2022 the Company recorded merger-related expenses of $971 thousand due to the acquisition of Severn.  

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. Shore Bancshares engages in trust and wealth management services through Wye Financial Partners, a division of Shore United Bank. 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; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; 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

For the Six Months Ended

June 30, 

June 30, 

2022

2021

 Change

2022

2021

 Change

PROFITABILITY FOR THE PERIOD

Net interest income

$

24,618

$

14,103

74.6

%

$

47,048

$

27,902

68.6

%

Provision for credit losses

200

650

(69.2)

800

1,075

(25.6)

Noninterest income

5,833

2,903

100.9

11,879

5,460

117.6

Noninterest expense

20,094

10,876

84.8

40,426

21,375

89.1

Income before income taxes

10,157

5,480

85.3

17,701

10,912

62.2

Income tax expense

2,658

1,449

83.4

4,589

2,884

59.1

Net income

$

7,499

$

4,031

86.0

$

13,112

$

8,028

63.3

Return on average assets

0.88

%

0.78

%

10

bp

0.77

%

0.80

%

(3)

bp

Return on average assets excluding amortization of intangibles and merger related expenses – Non-GAAP (2)

0.94

0.86

8

0.85

0.84

1

Return on average equity

8.52

8.19

33

7.49

8.23

(74)

Return on average tangible equity – Non-GAAP (1), (2)

11.41

9.89

152

10.41

9.62

79

Net interest margin

3.10

2.91

19

2.94

2.96

(2)

Efficiency ratio – GAAP

65.99

63.95

204

68.60

64.07

453

Efficiency ratio – Non-GAAP (1), (2)

63.44

60.90

254

65.13

62.06

307

PER SHARE DATA

Basic and diluted net income per common share

$

0.38

$

0.34

11.8

%

$

0.66

$

0.68

(2.9)

%

Dividends paid per common share

$

0.12

$

0.12

$

0.24

$

0.24

Book value per common share at period end

17.77

16.91

5.1

Tangible book value per common share at period end – Non-GAAP (1)

14.26

15.29

(6.7)

Market value at period end

18.50

16.75

10.4

Market range:

High

21.21

18.01

17.8

21.41

18.10

18.3

Low

17.91

16.10

11.2

17.91

12.99

37.9

AVERAGE BALANCE SHEET DATA

Loans

$

2,217,139

$

1,444,684

53.5

%

$

2,188,236

$

1,447,767

51.1

%

Investment securities

546,252

286,121

90.9

538,676

257,130

109.5

Earning assets

3,189,926

1,949,509

63.6

3,233,136

1,908,945

69.4

Assets

3,419,168

2,061,214

65.9

3,448,165

2,018,818

70.8

Deposits

2,993,098

1,822,148

64.3

3,018,517

1,782,627

69.3

Stockholders’ equity

353,192

197,532

78.8

353,102

196,666

79.5

CREDIT QUALITY DATA

Net (recoveries) charge-offs

$

(573)

$

(125)

(358.4)

%

$

(739)

$

(125)

(491.2)

%

Nonaccrual loans

$

2,693

$

3,947

(31.8)

Loans 90 days past due and still accruing

1,130

752

50.3

Other real estate owned

197

203

(3.0)

Total nonperforming assets

4,020

4,902

(18.0)

Accruing troubled debt restructurings (TDRs)

4,894

6,338

(22.8)

Total nonperforming assets and accruing TDRs

$

8,914

$

11,240

(20.7)

CAPITAL AND CREDIT QUALITY RATIOS

Period-end equity to assets

10.25

%

9.37

%

88

bp

Period-end tangible equity to tangible assets – Non-GAAP (1)

8.39

8.55

(16)

Annualized net (recoveries) charge-offs to average loans

(0.10)

(0.03)

(7)

(0.07)

%

(0.03)

%

(4)

bp

Allowance for credit losses as a percent of:

Period-end loans (3)

0.68

1.02

(34)

Period-end loans (4)

0.89

1.12

(23)

Nonaccrual loans

574.94

382.27

193

Nonperforming assets

385.15

307.79

77

Accruing TDRs

316.37

238.06

78

Nonperforming assets and accruing TDRs

173.69

134.23

39

As a percent of total loans:

Nonaccrual loans

0.12

0.27

(15)

Accruing TDRs

0.22

0.43

(21)

Nonaccrual loans and accruing TDRs

0.34

0.70

(36)

As a percent of total loans+other real estate owned:

Nonperforming assets

0.18

0.33

(15)

Nonperforming assets and accruing TDRs

0.39

0.76

(37)

As a percent of total assets:

Nonaccrual loans

0.08

0.19

(11)

Nonperforming assets

0.12

0.23

(11)

Accruing TDRs

0.14

0.30

(16)

Nonperforming assets and accruing TDRs

0.26

0.53

(27)

____________________

(1)   See the reconciliation table that begins on page 14 of 15.

(2)   This ratio excludes merger related expenses (Non-GAAP).

(3)   As of June 30, 2022 and June 30, 2021, these ratios include all loans held for investment, including PPP loans of $1.7 million and $86.8 million, respectively.

(4)   As of June 30, 2022 and June 30, 2021, these ratios exclude PPP loans, acquired loans, and the associated purchase discount mark on the acquired loans from both Severn and Northwest.

Shore Bancshares, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

June 30, 2022

June 30, 2022

June 30, 

December 31, 

June 30, 

compared to

compared to

2022

2021

2021

December 31, 2021

June 30, 2021

ASSETS

Cash and due from banks

$

18,473

$

16,919

$

18,275

9.2

%

1.1

%

Interest-bearing deposits with other banks

384,536

566,694

218,913

(32.1)

75.7

Cash and cash equivalents

403,009

583,613

237,188

(30.9)

69.9

Investment securities available for sale (at fair value)

94,689

116,982

113,957

(19.1)

(16.9)

Investment securities held to maturity (at amortized cost)

458,957

404,594

198,884

13.4

130.8

Equity securities, at fair value

1,271

1,372

1,384

(7.4)

(8.2)

Restricted securities

9,894

4,159

3,189

137.9

210.3

Loans held for sale, at fair value

7,306

37,749

(80.6)

Loans held for investment

2,264,579

2,119,175

1,472,429

6.9

53.8

Less: allowance for credit losses

(15,483)

(13,944)

(15,088)

11.0

(2.6)

Loans, net

2,249,096

2,105,231

1,457,341

6.8

54.3

Premises and equipment, net

52,244

51,624

25,313

1.2

106.4

Goodwill

63,281

63,421

17,518

(0.2)

261.2

Other intangible assets, net

6,506

7,535

1,473

(13.7)

341.7

Other real estate owned, net

197

532

203

(63.0)

(3.0)

Mortgage servicing rights, at fair value

5,228

4,087

27.9

Right of use assets, net

9,979

11,370

5,616

(12.2)

77.7

Cash surrender value on life insurance

58,437

47,935

41,672

21.9

40.2

Other assets

22,456

19,932

16,522

12.7

35.9

Total assets

$

3,442,550

$

3,460,136

$

2,120,260

(0.5)

62.4

LIABILITIES

Noninterest-bearing deposits

$

889,122

$

927,497

$

538,009

(4.1)

65.3

Interest-bearing deposits

2,125,209

2,098,739

1,342,573

1.3

58.3

Total deposits

3,014,331

3,026,236

1,880,582

(0.4)

60.3

Securities sold under retail repurchase agreements

4,143

2,907

(100.0)

(100.0)

Advances from FHLB – long-term

10,054

10,135

(0.8)

Subordinated debt

42,917

42,762

24,490

0.4

75.2

Total borrowings

52,971

57,040

27,397

Lease liabilities

10,216

11,567

5,757

(11.7)

77.5

Accrued expenses and other liabilities

12,255

14,600

7,842

(16.1)

56.3

Total liabilities

3,089,773

3,109,443

1,921,578

(0.6)

60.8

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

Common stock, par value $0.01; authorized 35,000,000 shares

198

198

118

67.8

Additional paid in capital

200,914

200,473

51,544

0.2

289.8

Retained earnings

158,316

149,966

146,414

5.6

8.1

Accumulated other comprehensive income (loss)

(6,651)

56

606

(11,976.8)

(1,197.5)

Total stockholders’ equity

352,777

350,693

198,682

0.6

77.6

Total liabilities and stockholders’ equity

$

3,442,550

$

3,460,136

$

2,120,260

(0.5)

62.4

Period-end common shares outstanding

19,850

19,808

11,752

0.2

68.9

Book value per common share

$

17.77

$

17.71

$

16.91

0.3

5.1

Shore Bancshares, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

2022

2021

% Change

2022

2021

% Change

INTEREST INCOME

Interest and fees on loans

$

23,452

$

14,381

63.1

%

$

45,537

$

28,747

58.4

%

Interest on investment securities:

Taxable

2,392

1,095

118.4

4,377

2,025

116.1

Interest on deposits with other banks

826

55

1,401.8

1,080

102

958.8

Total interest income

26,670

15,531

71.7

50,994

30,874

65.2

INTEREST EXPENSE

Interest on deposits

1,511

1,056

43.1

2,869

2,240

28.1

Interest on short-term borrowings

2

(100.0)

2

3

(33.3)

Interest on long-term borrowings

541

370

46.2

1,075

729

Total interest expense

2,052

1,428

43.7

3,946

2,972

32.8

NET INTEREST INCOME

24,618

14,103

74.6

47,048

27,902

68.6

Provision for credit losses

200

650

(69.2)

800

1,075

(25.6)

NET INTEREST INCOME AFTER PROVISION

FOR CREDIT LOSSES

24,418

13,453

81.5

46,248

26,827

72.4

NONINTEREST INCOME

Service charges on deposit accounts

1,438

683

110.5

2,797

1,357

106.1

Trust and investment fee income

447

475

(5.9)

961

882

9.0

Interchange credits

1,253

1,036

20.9

2,291

1,906

20.2

Mortgage-banking revenue

1,096

2,963

Title Company revenue

426

749

Other noninterest income

1,173

709

65.4

2,118

1,315

61.1

Total noninterest income

5,833

2,903

100.9

11,879

5,460

117.6

NONINTEREST EXPENSE

Salaries and wages

8,898

4,262

108.8

18,460

8,404

119.7

Employee benefits

2,269

1,493

52.0

4,931

3,337

47.8

Occupancy expense

1,485

770

92.9

3,052

1,584

92.7

Furniture and equipment expense

411

412

(0.2)

840

719

16.8

Data processing

1,668

1,217

37.1

3,275

2,344

39.7

Directors’ fees

210

154

36.4

400

303

32.0

Amortization of intangible assets

511

120

325.8

1,028

246

317.9

FDIC insurance premium expense

429

223

92.4

772

408

89.2

Other real estate owned, net

57

1

5,600.0

51

2

2,450.0

Legal and professional fees

811

648

25.2

1,448

1,164

24.4

Merger related expenses

241

377

(36.1)

971

377

157.6

Other noninterest expenses

3,104

1,199

158.9

5,198

2,487

109.0

Total noninterest expense

20,094

10,876

84.8

40,426

21,375

89.1

Income before income taxes

10,157

5,480

85.3

17,701

10,912

62.2

Income tax expense

2,658

1,449

83.4

4,589

2,884

59.1

NET INCOME

$

7,499

$

4,031

86.0

$

13,112

$

8,028

63.3

Weighted average shares outstanding – basic

19,847

11,752

68.9

19,838

11,749

68.8

Weighted average shares outstanding – diluted

19,847

11,754

68.9

19,838

11,750

68.8

Basic and diluted net income per common share

$

0.38

$

0.34

11.8

$

0.66

$

0.68

(2.9)

Dividends paid per common share

0.12

0.12

0.24

0.24

Shore Bancshares, Inc.

Consolidated Average Balance Sheets (Unaudited)

(Dollars in thousands)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

2022

2021

2022

2021

Average

Yield/

Average

Yield/

Average

Yield/

Average

Yield/

balance

rate

balance

rate

balance

rate

balance

rate

Earning assets

Loans (1), (2), (3)

$

2,217,139

4.25

%

$

1,444,684

4.00

%

$

2,188,236

4.20

%

$

1,447,767

4.01

%

Investment securities

Taxable

546,252

1.75

286,121

1.53

538,676

1.64

257,130

1.59

Interest-bearing deposits

426,535

0.78

218,704

0.10

506,224

0.43

204,048

0.10

Total earning assets

3,189,926

3.36

%

1,949,509

3.20

%

3,233,136

3.19

%

1,908,945

3.27

%

Cash and due from banks

26,162

16,908

5,569

18,070

Other assets

218,353

109,457

224,219

106,251

Allowance for credit losses

(15,273)

(14,660)

(14,759)

(14,448)

Total assets

$

3,419,168

$

2,061,214

$

3,448,165

$

2,018,818

Interest-bearing liabilities

Demand deposits

$

644,881

0.22

%

$

405,473

0.13

%

$

617,461

0.19

%

$

421,816

0.14

%

Money market and savings deposits

1,019,295

0.21

605,202

0.17

1,048,634

0.22

565,341

0.17

Certificates of deposit $100,000 or more

234,325

0.58

135,376

1.04

260,312

0.48

133,073

1.14

Other time deposits

221,714

0.54

143,821

0.90

198,828

0.55

144,367

1.00

Interest-bearing deposits

2,120,215

0.29

1,289,872

0.33

2,125,235

0.27

1,264,597

0.36

Securities sold under retail repurchase

   agreements and federal funds purchased

3,123

0.26

1,377

0.29

2,683

0.23

Advances from FHLB – long-term

10,075

0.60

10,096

0.58

Subordinated debt

42,876

4.93

24,474

6.06

42,840

4.92

24,459

6.01

Total interest-bearing liabilities

2,173,166

0.38

%

1,317,469

0.43

%

2,179,548

0.37

%

1,291,739

0.46

%

Noninterest-bearing deposits

872,883

532,276

893,282

518,030

Accrued expenses and other liabilities

19,927

13,937

22,233

12,383

Stockholders’ equity

353,192

197,532

353,102

196,666

Total liabilities and stockholders’ equity

$

3,419,168

$

2,061,214

$

3,448,165

$

2,018,818

Net interest spread

2.98

%

2.77

%

2.82

%

2.81

%

Net interest margin

3.10

%

2.91

%

2.94

%

2.96

%

______________________

(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)

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

Q2 2022

Q2 2022

2022

2022

2021

2021

2021

compared to

compared to

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2022

Q2 2021

PROFITABILITY FOR THE PERIOD

Taxable-equivalent net interest income

$

24,656

$

22,469

$

20,652

$

15,623

$

14,141

9.7

%

74.4

%

Less: Taxable-equivalent adjustment

38

39

13

34

38

(2.6)

Net interest income

24,618

22,430

20,639

15,589

14,103

9.8

74.6

Provision for credit losses

200

600

(1,723)

290

650

(66.7)

(69.2)

Noninterest income

5,833

6,046

5,129

2,909

2,903

(3.5)

100.9

Noninterest expense

20,094

20,332

23,497

11,934

10,876

(1.2)

84.8

Income before income taxes

10,157

7,544

3,994

6,274

5,480

34.6

85.3

Income tax expense

2,658

1,931

1,271

1,657

1,449

37.6

83.4

Net income

$

7,499

$

5,613

$

2,723

$

4,617

$

4,031

33.6

86.0

Return on average assets

0.88

%

0.65

%

0.36

%

0.84

%

0.78

%

23

bp

10

bp

    Return on average assets excluding amortization of intangibles and merger related expenses – Non-GAAP (2)

0.94

0.76

1.07

0.94

0.86

18

8

Return on average equity

8.52

6.45

3.59

9.12

8.19

207

33

Return on average tangible equity – Non-GAAP (1)

11.41

9.40

13.06

11.12

9.89

201

152

Net interest margin

3.10

2.78

2.87

2.99

2.91

32

19

Efficiency ratio – GAAP

65.99

71.40

91.19

64.52

63.95

(541)

204

Efficiency ratio – Non-GAAP (1), (2)

63.44

66.93

60.13

60.92

60.90

(349)

254

PER SHARE DATA

Basic and diluted net income per common share

$

0.38

$

0.28

$

0.16

$

0.39

$

0.34

35.7

%

11.8

%

Dividends paid per common share

0.12

0.12

0.12

0.12

0.12

Book value per common share at period end

17.77

17.73

17.71

17.15

16.91

0.2

5.1

Tangible book value per common share at period end – Non-GAAP (1)

14.26

14.19

14.12

15.55

15.29

0.5

(6.7)

Market value at period end

18.50

20.48

20.85

17.73

16.75

(9.7)

10.4

Market range:

High

21.21

21.41

23.19

18.00

18.01

(0.9)

17.8

Low

17.91

19.34

17.50

16.35

16.10

(7.4)

11.2

AVERAGE BALANCE SHEET DATA

Loans

$

2,217,139

$

2,135,734

$

1,887,126

$

1,487,281

$

1,444,684

3.8

%

53.5

%

Investment securities

546,252

531,017

468,724

334,205

286,121

2.9

90.9

Earning assets

3,189,926

3,253,549

2,842,097

2,071,505

1,949,509

(2.0)

63.6

Assets

3,419,168

3,477,481

3,037,262

2,184,448

2,061,214

(1.7)

65.9

Deposits

2,993,098

3,044,213

2,547,151

1,943,225

1,822,148

(1.7)

64.3

Stockholders’ equity

353,192

353,011

301,095

200,881

197,532

0.1

78.8

CREDIT QUALITY DATA

Net (recoveries) charge-offs

$

(573)

$

(166)

$

(142)

$

(147)

$

(125)

(245.2)

%

(358.4)

%

Nonaccrual loans

$

2,693

$

2,848

$

2,004

$

3,457

$

3,947

(5.4)

(31.8)

Loans 90 days past due and still accruing

1,130

459

508

748

752

146.2

50.3

Other real estate owned

197

561

532

203

203

(64.9)

(3.0)

Total nonperforming assets

$

4,020

$

3,868

$

3,044

$

4,408

$

4,902

3.9

(18.0)

Accruing troubled debt restructurings (TDRs)

$

4,894

$

5,004

$

5,667

$

5,750

$

6,338

(2.2)

(22.8)

Total nonperforming assets and accruing TDRs

$

8,914

$

8,872

$

8,711

$

10,158

$

11,240

0.5

(20.7)

CAPITAL AND CREDIT QUALITY RATIOS

Period-end equity to assets

10.25

%

10.07

%

10.14

%

8.92

%

9.37

%

18

bp

88

bp

Period-end tangible equity to tangible assets – Non-GAAP (1)

8.39

8.22

8.25

8.15

8.55

17

(16)

Annualized net (recoveries) charge-offs to average loans

(0.10)

(0.03)

(0.03)

(0.04)

(0.03)

(7)

(7)

Allowance for credit losses as a percent of:

Period-end loans (3)

0.68

0.67

0.66

1.04

1.02

1

(34)

Period-end loans (4)

0.89

0.92

0.93

1.10

1.12

(3)

(23)

Nonaccrual loans

574.94

516.50

695.81

449.09

382.27

5,844

193

Nonperforming assets

385.15

380.30

458.08

352.20

307.79

485

77

Accruing TDRs

316.37

293.96

246.06

270.00

238.06

2,241

78

Nonperforming assets and accruing TDRs

173.69

165.80

160.07

152.84

134.23

789

39

As a percent of total loans:

Nonaccrual loans

0.12

0.13

0.09

0.23

0.27

(1)

(15)

Accruing TDRs

0.22

0.23

0.27

0.38

0.43

(1)

(21)

Nonaccrual loans and accruing TDRs

0.34

0.36

0.36

0.62

0.70

(2)

(36)

As a percent of total loans+other real estate owned:

Nonperforming assets

0.18

0.18

0.14

0.29

0.33

(15)

Nonperforming assets and accruing TDRs

0.39

0.41

0.41

0.68

0.76

(2)

(37)

As a percent of total assets:

Nonaccrual loans

0.08

0.08

0.06

0.15

0.19

(11)

Nonperforming assets

0.12

0.11

0.09

0.19

0.23

1

(11)

Accruing TDRs

0.14

0.14

0.16

0.25

0.30

(16)

Nonperforming assets and accruing TDRs

0.26

0.25

0.25

0.44

0.53

1

(27)

__________________________

(1)     See the reconciliation table that begins on page 15.

(2)     This ratio excludes merger related expenses (Non-GAAP).

(3)     Includes all loans held for investment, including PPP loan balances for all periods shown.

(4)     For all periods shown, these ratios exclude PPP loans, acquired loans, and the associated purchase discount mark on the acquired loans from both Severn and Northwest.

Shore Bancshares, Inc.

Consolidated Statements of Income By Quarter (Unaudited)

(In thousands, except per share data)

Q2 2022

Q2 2022

compared to

compared to

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2022

Q2 2021

INTEREST INCOME

Interest and fees on loans

$

23,452

$

22,085

$

20,564

$

15,484

$

14,381

6.2

%

63.1

%

Interest on investment securities:

Taxable

2,392

1,985

1,663

1,318

1,095

20.5

118.4

Interest on deposits with other banks

826

254

169

97

55

225.2

1,401.8

Total interest income

26,670

24,324

22,396

16,899

15,531

9.6

71.7

INTEREST EXPENSE

Interest on deposits

1,511

1,358

1,272

949

1,056

11.3

43.1

Interest on short-term borrowings

2

3

2

2

(100.0)

(100.0)

Interest on long-term borrowings

541

534

482

359

370

1.3

46.2

Total interest expense

2,052

1,894

1,757

1,310

1,428

8.3

43.7

NET INTEREST INCOME

24,618

22,430

20,639

15,589

14,103

9.8

74.6

Provision for credit losses

200

600

(1,723)

290

650

(66.7)

(69.2)

NET INTEREST INCOME AFTER PROVISION

FOR CREDIT LOSSES

24,418

21,830

22,362

15,299

13,453

11.9

81.5

NONINTEREST INCOME

Service charges on deposit accounts

1,438

1,359

1,234

805

683

5.8

110.5

Trust and investment fee income

447

514

522

477

475

(13.0)

(5.9)

Gains on sales and calls of investment securities

2

Interchange credits

1,253

1,038

1,043

1,016

1,036

20.7

20.9

Mortgage-banking revenue

1,096

1,867

948

(41.3)

Title Company revenue

426

323

247

31.9

Other noninterest income

1,173

945

1,135

609

709

24.1

65.4

Total noninterest income

5,833

6,046

5,129

2,909

2,903

(3.5)

100.9

NONINTEREST EXPENSE

Salaries and wages

8,898

9,562

7,727

5,091

4,262

(6.9)

108.8

Employee benefits

2,269

2,662

2,271

1,654

1,493

(14.8)

52.0

Occupancy expense

1,485

1,567

1,263

843

770

(5.2)

92.9

Furniture and equipment expense

411

429

385

449

412

(4.2)

(0.2)

Data processing

1,668

1,607

1,487

1,170

1,217

3.8

37.1

Directors’ fees

210

190

170

147

154

10.5

36.4

Amortization of intangible assets

511

517

381

107

120

(1.2)

325.8

FDIC insurance premium expense

429

343

362

245

223

25.1

92.4

Other real estate owned expenses, net

57

(6)

(2)

4

1

1,050.0

5,600.0

Legal and professional fees

811

637

150

428

648

27.3

25.2

Merger related expenses

241

730

7,615

538

377

(67.0)

(36.1)

Other noninterest expenses

3,104

2,094

1,688

1,258

1,199

48.2

158.9

Total noninterest expense

20,094

20,332

23,497

11,934

10,876

(1.2)

84.8

Income before income taxes

10,157

7,544

3,994

6,274

5,480

34.6

85.3

Income tax expense

2,658

1,931

1,271

1,657

1,449

37.6

83.4

NET INCOME

$

7,499

$

5,613

$

2,723

$

4,617

$

4,031

33.6

86.0

Weighted average shares outstanding – basic

19,847

19,828

17,180

11,752

11,752

0.1

68.9

Weighted average shares outstanding – diluted

19,847

19,828

17,180

11,752

11,754

0.1

68.9

Basic and diluted net income per common share

$

0.38

$

0.28

$

0.16

$

0.39

$

0.34

35.7

11.8

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)

(Dollars in thousands)

Average balance

Q2 2022

Q2 2022

compared to

compared to

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2022

Q2 2021

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)

$

2,217,139

4.25

%

$

2,135,734

4.20

%

$

1,887,126

4.33

%

$

1,487,281

4.14

%

$

1,444,684

4.00

%

3.8

%

53.5

%

Investment securities

Taxable

546,252

1.75

531,017

1.49

468,724

1.42

334,205

1.58

286,121

1.53

2.9

90.9

Interest-bearing deposits

426,535

0.78

586,798

0.18

486,247

0.14

250,019

0.15

218,704

0.10

(27.3)

95.0

Total earning assets

3,189,926

3.36

%

3,253,549

3.01

%

2,842,097

3.11

%

2,071,505

3.24

%

1,949,509

3.20

%

(2.0)

63.6

Cash and due from banks

26,162

(15,253)

22,625

19,453

16,908

(271.5)

54.7

Other assets

218,353

253,424

188,399

108,989

109,457

(13.8)

99.5

Allowance for credit losses

(15,273)

(14,239)

(15,859)

(15,499)

(14,660)

7.3

4.2

Total assets

$

3,419,168

$

3,477,481

$

3,037,262

$

2,184,448

$

2,061,214

(1.7)

65.9

Interest-bearing liabilities

Demand deposits

$

644,881

0.22

%

$

589,737

0.16

%

$

494,081

0.14

%

$

462,950

0.14

%

$

405,473

0.13

%

9.4

59.0

Money market and savings deposits

1,019,295

0.21

1,075,791

0.23

1,001,115

0.26

644,330

0.18

605,202

0.17

(5.3)

68.4

Certificates of deposit $100,000 or more

234,325

0.58

286,587

0.40

174,268

0.49

136,059

0.71

135,376

1.04

(18.2)

73.1

Other time deposits

221,714

0.54

175,683

0.57

173,975

0.50

142,777

0.68

143,821

0.90

26.2

54.2

Interest-bearing deposits

2,120,215

0.29

2,127,798

0.26

1,843,439

0.27

1,386,116

0.27

1,289,872

0.33

(0.4)

64.4

Securities sold under retail repurchase agreements

    and federal funds purchased

2,770

0.29

3,972

0.30

2,718

0.29

3,123

0.26

(100.0)

(100.0)

Advances from FHLB – long-term

10,075

0.60

10,116

0.57

6,630

2.21

(0.4)

100.0

Subordinated debt

42,876

4.93

42,804

4.93

36,589

5.12

24,504

5.81

24,474

6.06

0.2

75.2

Total interest-bearing liabilities

2,173,166

0.38

%

2,183,488

0.35

%

1,890,630

0.37

%

1,413,338

0.37

%

1,317,469

0.43

%

(0.5)

65.0

Noninterest-bearing deposits

872,883

916,415

703,712

557,109

532,276

(4.8)

64.0

Accrued expenses and other liabilities

19,927

24,567

141,825

13,120

13,937

(18.9)

43.0

Stockholders’ equity

353,192

353,011

301,095

200,881

197,532

0.1

78.8

Total liabilities and stockholders’ equity

$

3,419,168

$

3,477,481

$

3,037,262

$

2,184,448

$

2,061,214

(1.7)

65.9

Net interest spread

2.98

%

2.66

%

2.74

%

2.87

%

2.77

%

Net interest margin

3.10

%

2.78

%

2.87

%

2.99

%

2.91

%

_______________

(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

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

6/30/2022

6/30/2021

The following reconciles return on average equity and return on average tangible equity (Note 1):

Net Income

$

7,499

$

5,613

$

2,723

$

4,617

$

4,031

$

13,112

$

8,028

Net Income – annualized (A)

$

30,078

$

22,764

$

10,803

$

18,317

$

16,168

$

26,441

$

16,144

Net income, excluding net amortization of intangible assets

    and merger related expenses

$

8,054

$

6,541

$

8,176

$

5,098

$

4,402

$

14,593

$

8,493

Net income, excluding net amortization of intangible assets and merger related expenses – annualized (B)

$

32,305

$

26,527

$

32,437

$

20,226

$

17,656

$

29,428

$

17,079

Return on average assets excluding net amortization of intangible assets and merger related expenses – Non-GAAP

0.94

%

0.76

%

1.07

%

0.94

%

0.86

%

0.85

%

0.84

%

Average stockholders’ equity (C)

$

353,192

$

353,011

$

301,095

$

200,881

$

197,532

$

353,102

$

196,666

Less:  Average goodwill and other intangible assets

(70,057)

(70,711)

(52,692)

(18,942)

(19,053)

(70,382)

(19,115)

Average tangible equity (D)

$

283,135

$

282,300

$

248,403

$

181,939

$

178,479

$

282,720

$

177,551

Return on average equity (GAAP)  (A)/(C)

8.52

%

6.45

%

3.59

%

9.12

%

8.19

%

7.49

%

8.21

%

Return on average tangible equity (Non-GAAP)  (B)/(D)

11.41

%

9.40

%

13.06

%

11.12

%

9.89

%

10.41

%

9.62

%

The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2):

Noninterest expense (E)

$

20,094

$

20,332

$

23,497

$

11,934

$

10,876

$

40,426

$

21,375

Less:  Amortization of intangible assets

(511)

(517)

(381)

(107)

(120)

(1,028)

(246)

           Merger Expenses

(241)

(730)

(7,615)

(538)

(377)

(971)

(377)

Adjusted noninterest expense (F)

$

19,342

$

19,085

$

15,501

$

11,289

$

10,379

$

38,427

$

20,752

Net interest income (G)

24,618

22,430

20,639

15,589

14,103

47,048

27,902

Add:  Taxable-equivalent adjustment

38

39

13

34

38

77

74

Taxable-equivalent net interest income (H)

$

24,656

$

22,469

$

20,652

$

15,623

$

14,141

$

47,125

$

27,976

Noninterest income (I)

$

5,833

$

6,046

$

5,129

$

2,909

$

2,903

$

11,879

5,460

Less:  Investment securities (gains)

(2)

Adjusted noninterest income (J)

$

5,833

$

6,046

$

5,129

$

2,907

$

2,903

$

11,879

$

5,460

Efficiency ratio (GAAP)  (E)/(G)+(I)

65.99

%

71.40

%

91.19

%

64.52

%

63.95

%

68.60

%

64.07

%

Efficiency ratio (Non-GAAP)  (F)/(H)+(J)

63.44

%

66.93

%

60.13

%

60.92

%

60.90

%

65.13

%

62.06

%

The following reconciles book value per common share and tangible book value per common share (Note 1):

Stockholders’ equity (L)

$

352,777

$

351,864

$

350,693

$

201,607

$

198,682

Less:  Goodwill and other intangible assets

(69,787)

(70,299)

(70,956)

(18,883)

(18,991)

Tangible equity (M)

$

282,990

$

281,565

$

279,737

$

182,724

$

179,691

Shares outstanding (N)

19,850

19,843

19,808

11,752

11,752

Book value per common share (GAAP)  (L)/(N)

$

17.77

$

17.73

$

17.71

$

17.15

$

16.91

Tangible book value per common share (Non-GAAP) (M)/(N)

$

14.26

$

14.19

$

14.12

$

15.55

$

15.29

The following reconciles equity to assets and tangible equity to tangible assets (Note 1):

Stockholders’ equity (O)

$

352,777

$

351,864

$

350,693

$

201,607

$

198,682

Less:  Goodwill and other intangible assets

(69,787)

(70,299)

(70,956)

(18,883)

(18,991)

Tangible equity (P)

$

282,990

$

281,565

$

279,737

$

182,724

$

179,691

Assets (Q)

$

3,442,550

$

3,494,497

$

3,460,136

$

2,260,774

$

2,120,260

Less:  Goodwill and other intangible assets

(69,787)

(70,299)

(70,956)

(18,883)

(18,991)

Tangible assets (R)

$

3,372,763

$

3,424,198

$

3,389,180

$

2,241,891

$

2,101,269

Period-end equity/assets (GAAP)  (O)/(Q)

10.25

%

10.07

%

10.14

%

8.92

%

9.37

%

Period-end tangible equity/tangible assets (Non-GAAP)  (P)/(R)

8.39

%

8.22

%

8.25

%

8.15

%

8.55

%

________________________

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.

SOURCE Shore Bancshares, Inc.

Link to Source

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