Shore Bancshares, Inc. Reports 2025 First Quarter Results

• Improved Return on Average Assets ("ROAA") – The Company reported ROAA of 0.91% for the first quarter of 2025, compared to 0.86% for the fourth quarter of 2024 and 0.57% for the first quarter of 2024. Non-U.S. generally accepted accounting principles ("GAAP") ROAA⁽¹⁾ was 1.00% for the first quarter of 2025, compared to 0.94% for the fourth quarter of 2024 and first quarter of 2024.
• Increased Net Interest Income ("NII") and Net Interest Margin ("NIM") – NII for the first quarter of 2025 increased $2.0 million to $46.0 million from $44.0 million for the fourth quarter of 2024. NIM increased 21 basis points ("bps") to 3.24% during the first quarter of 2025 from 3.03% in the fourth quarter of 2024. Core NIM increased for the comparable periods from 2.85% to 3.02%. Excluding accretion interest, loan yields increased 17 bps and funding costs decreased 10 bps, for the comparable periods. Interest expense for the first quarter of 2025 decreased $2.4 million when compared to the fourth quarter of 2024. All products repriced at favorable rates, and were partially offset by the seasonal run off of municipal deposits. NII and NIM were $41.1 million and 3.08%, respectively, for the first quarter of 2024.
• Net Income growth – Net income for the first quarter of 2025 increased $482 thousand to $13.8 million from $13.3 million in the fourth quarter of 2024. Net income increased due primarily to higher net interest income, which was partially offset by lower non-interest income due to lower mortgage banking activity and the absence of the one-time gain on sale of other assets in the fourth quarter of 2024. Net income for the first quarter of 2024 was $8.2 million.
• Stable Asset Quality – Nonperforming assets to total assets were 0.31% for the first quarter of 2025, a decrease from 0.40% for the fourth quarter of 2024 and an increase from 0.28% for the first quarter of 2024. Classified assets to total assets were 0.36% in the first quarter of 2025, a decrease when compared to 0.45% for the fourth quarter of 2024 and an increase when compared to 0.26% for the first quarter of 2024. The allowance for credit losses ("ACL") was $58.0 million at March 31, 2025 compared to $57.9 million at December 31, 2024 and $57.3 million at March 31, 2024. The ACL as a percentage of loans remained flat at 1.21% at March 31, 2025, compared to December 31 and decreased compared to 1.23% at March 31, 2024.
• Improved Operating Leverage – The efficiency ratio for the first quarter of 2025 was 63.64% when compared to 64.21% in the fourth quarter of 2024 and 76.93% for the first quarter of 2024. The non-GAAP efficiency ratio⁽¹⁾, which excludes amortization, was 59.76% for the first quarter of 2025, compared to 60.28% for the fourth quarter of 2024 and 62.37% for the first quarter of 2024.

"Shore Bank had a good start to 2025 with record net interest income and stable expenses driving improvements in our net interest margin, return on assets and operating leverage," stated James ("Jimmy") M. Burke, President and Chief Executive Officer of Shore Bancshares. "Funding costs have trended lower and are expected to decline further as higher-cost seasonal municipal deposits roll off. Asset yields are expected to continue to increase as loans and securities reprice higher. We remain committed to disciplined expense management to drive sustained improvements in operating efficiency.

"We are also pleased to welcome Charlie Cullum to our executive leadership team as Chief Financial Officer," continued Mr. Burke. "His extensive experience and financial expertise will be a valuable asset to our organization. We also extend our sincere appreciation to Todd Capitani for his outstanding service, exceptional leadership, and unwavering commitment over the years. We wish him the best in his well-earned retirement and future pursuits."

Balance Sheet Review

Total assets were $6.18 billion at March 31, 2025, a decrease of $54.2 million, or 0.9%, when compared to $6.23 billion at December 31, 2024. The aggregate decrease was primarily due to the decrease of cash and cash equivalents of $70.8 million and investments held to maturity of $11.5 million, partially offset by an increase of investment securities available for sale of $29.9 million. 

The Company's tangible common equity ratio at March 31, 2025 was 7.46%, compared to 7.17% at December 31, 2024. The Company's Tier 1 and Total Risk-Based Capital Ratios at March 31, 2025 were 10.37% and 12.52%, respectively. The Bank's Tier 1 and Total Risk-Based Capital Ratios at March 31, 2025 were 11.09% and 12.33%, respectively. Non-owner occupied commercial real estate ("CRE") loans as a percentage of the Bank's Tier 1 Capital + ACL at March 31, 2025 and December 31, 2024 were $2.12 billion or 357.37%, and $2.08 billion or 359.52%, respectively. Non-owner occupied construction loans as a percentage of the Bank's Tier 1 Capital + ACL at March 31, 2025 and December 31, 2024 were $365.7 million or 61.69%, and $336.0 million or 57.99%, respectively.

CRE loans at March 31, 2025 were $2.54 billion compared to $2.56 billion at December 31, 2024. The following table provides the stratification of the classes of CRE loans at March 31, 2025.

The Bank's office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $501.5 million, or 10.5% of total loans at March 31, 2025. The Bank's office CRE loan portfolio included medical tenants of $136.8 million, or 27.3% of the total office CRE loan portfolio, at March 31, 2025. The Bank's office CRE loan portfolio also included government or government contractor tenants of $54.6 million, or 10.9% of the total office CRE loan portfolio for the same period. At March 31, 2025, the average loan debt-service coverage ratio was 1.8x and the average LTV was 49.00%.

There were 493 loans in the office CRE portfolio with an average loan size of $1.0 million and median loan size of $388 thousand. LTV estimates for the office CRE portfolio at March 31, 2025 are summarized below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination.

The Bank had 18 office CRE loans with balances greater than $5.0 million, totaling $163.6 million at March 31, 2025, compared to 18 office CRE loans totaling $164.5 million at December 31, 2024. The decrease in this portfolio segment was the result of normal amortization. Of the office CRE portfolio balance, 74.3% was secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97.1% was secured by properties with five stories or less. Of the office CRE loans, $2.2 million were classified as special mention or substandard at March 31, 2025. The Bank did not have any charge-offs related to the office CRE portfolio during 2025.

At March 31, 2025 and December 31, 2024, nonperforming assets were $18.9 million, or 0.3% of total assets, and $24.8 million, or 0.4% of total assets, respectively. The balance of nonperforming assets decreased $5.9 million, primarily due to a commercial real estate nonaccrual loan and a decrease in repossessed marine assets of $886 thousand. When comparing March 31, 2025 to March 31, 2024, nonperforming assets increased $2.5 million, primarily due to an increase in nonaccrual loans of $2.6 million and an increase in repossessed marine loans of $584 thousand.

Total deposits decreased $68.0 million, or 1.2%, to $5.46 billion at March 31, 2025 when compared to December 31, 2024. The decrease in total deposits was primarily due to a decrease in interest-bearing checking deposits of $125.6 million, partially offset by an increase in time deposits of $60.8 million. The decrease in interest-bearing deposits was primarily driven by seasonal municipal run-offs of deposits. The yield on interest-bearing deposits was 2.94% at March 31, 2025 compared to 3.12% at December 31, 2024.

Total funding, which includes customer deposits, Federal Home Loan Bank ("FHLB") advances and brokered deposits was $5.51 billion at March 31, 2025, compared to $5.58 billion at December 31, 2024. The Bank had a $50.0 million FHLB advance at March 31, 2025 and December 31, 2024. The advance consisted of an 18-month Bermuda Convertible note of $50.0 million. The Bank had zero brokered deposits at March 31, 2025 and December 31, 2024. Total reciprocal deposits were $1.46 billion at March 31, 2025 and $1.65 billion at December 31, 2024. 

The Bank's uninsured deposits were $940.6 million, or 17.2% of total deposits, at March 31, 2025. The Bank's uninsured deposits, excluding deposits secured with pledged collateral, were $775.6 million, or 14.2%, for same period. At March 31, 2025, the Bank had approximately $1.35 billion of available liquidity, including $389.0 million in cash and cash equivalents, $959.5 million in secured borrowing capacity at the FHLB and other correspondent banks and $95.0 million in unsecured lines of credit.

Total stockholders' equity increased $11.4 million, or 2.1%, when compared to December 31, 2024, primarily due to current year earnings and a decrease in accumulated other comprehensive losses, partially offset by cash dividends paid. As of March 31, 2025, the ratio of total equity to total assets was 8.94% and the ratio of total tangible equity to total tangible assets⁽²⁾ was 7.46%, compared to 8.68% and 7.17%, respectively, at December 31, 2024.

Review of Quarterly Financial Results 

Net interest income was $46.0 million for the first quarter of 2025, compared to $44.0 million for the fourth quarter of 2024 and $41.1 million for the first quarter of 2024. The increase in net interest income when compared to the fourth quarter of 2024 was primarily due to an increase in interest income on loans of $219 thousand, an increase in interest on investment securities of $168 thousand and a decrease in interest expense on deposits of $2.3 million, partially offset by a decrease in interest on deposits at other banks of $728 thousand. The increase in net interest income of $4.9 million when compared to the first quarter of 2024 was primarily due to an increase in interest on deposits at other banks of $2.4 million, an increase in interest and fees on loans of $1.9 million and an increase in interest on investment securities of $582 thousand.

The Company's NIM increased to 3.24% for the first quarter of 2025 from 3.03% for the fourth quarter of 2024, primarily due to higher core interest income. Core NIM increased for the comparable periods from 2.85% to 3.02%. Excluding accretion interest, loan yields increased 17 bps and funding costs decreased 10 bps, for the comparable periods. Interest expense for the first quarter of 2025 decreased $2.4 million when compared to the fourth quarter of 2024. All products repriced at favorable rates, and were partially offset by the seasonal run off of municipal deposits. The Company's NIM increased to 3.24% for the first quarter of 2025 from 3.08% for the first quarter of 2024. The Company's interest-earning asset yields increased to 5.35% for the first quarter of 2025 from 5.32% for the first quarter of 2024, while the cost of funds decreased 11 bps to 2.20% from 2.31% for the same periods.

The provision for credit losses was $1.0 million for the three months ended March 31, 2025. The comparable amounts were $780 thousand for the three months ended December 31, 2024 and $407 thousand for the three months ended March 31, 2024. The increase in the provision for credit losses for the first quarter of 2025 compared to the fourth quarter of 2024 was due higher reserves related to growth in the construction to permanent loan portfolio partially offset by improved economic outlook. Coverage ratios remained flat at 1.21% at March 31, 2025 from December 31, 2024, and decreased from 1.23% at March 31, 2024. Net charge-offs decreased to $554 thousand for the first quarter of 2025 compared $1.3 million for the fourth quarter of 2024 and $565 thousand for the first quarter of 2024.

Total noninterest income for the first quarter of 2025 was $7.0 million, a decrease of $1.9 million from $8.9 million for the fourth quarter of 2024, and an increase of $436 thousand from $6.6 million for the first quarter of 2024. When comparing the first quarter of 2025 to the fourth quarter of 2024, the decrease in noninterest income was primarily due to lower other noninterest income of $847 thousand resulting from the absence of the gain on sale of other assets held for sale recognized in the fourth quarter of 2024 and a decrease in mortgage banking revenue of $531 thousand, driven by decreased mortgage servicing activity primarily related to prepayments. When comparing the first quarter of 2025 to the first quarter of 2024, the increase in noninterest income was primarily due to an increase in mortgage banking activity, driven by increased mortgage servicing activity and lower prepayment rates.

Total noninterest expense of $33.7 million for the first quarter of 2025 decreased $196 thousand compared to the fourth quarter of 2024 expense of $33.9 million, and decreased $3.0 million compared to the first quarter of 2024 expense of $36.7 million. The decrease from the fourth quarter of 2024 was primarily due to lower salaries and employee benefit expenses. The decrease from the first quarter of 2024 was primarily due to the absence of the losses related to the credit card fraud incident in the first quarter of 2024, partially offset by higher salaries and benefits expense and software and data processing costs.

The efficiency ratio for the first quarter of 2025 when compared to the fourth quarter of 2024 and the first quarter of 2024 was 63.64%, 64.21% and 76.93%, respectively. Non-GAAP efficiency ratios⁽³⁾ for the same periods were 59.76%, 60.28% and 62.37%, respectively. The net operating expense ratio, which is noninterest expense less noninterest income divided by average assets, for the first quarter of 2025 was 1.77%, compared to 1.62% and 2.10% for the fourth quarter of 2024 and the first quarter of 2024, respectively. The non-GAAP net operating expense ratio⁽¹⁾, which excludes core deposit intangible amortization and non-recurring activity, was 1.65% for the first quarter of 2025, compared to 1.50% and 1.62% for the fourth quarter of 2024 and the first quarter of 2024, respectively.

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 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: general economic conditions, (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation and supply chain issues), whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products, our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans; 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; the ability to effectively manage the information technology systems, including third-party vendors, cyber or data privacy incidents or other failures, disruptions or security breaches, and risk related to the development and use of artificial intelligence; the ability to develop and use technologies to provide products and services that will satisfy customer demands; results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses or to write-down assets; changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, which could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; our liquidity requirements could be adversely affected by changes in our assets and liabilities; our ability to prudently manage our growth and execute our strategy; impairment of our goodwill and intangible assets; competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; 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; the growth and profitability of noninterest or fee income being less than expected; the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; the effect of any change in federal government enforcement of federal laws affecting the cannabis industry; the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the U.S. Securities and Exchange Commission (the "SEC"), the Public Company Accounting Oversight Board and other regulatory agencies; changes in U.S. trade policies, including the implementation of tariffs and other protectionist trade policies; the impact of governmental efforts to restructure or adjust the U.S. financial regulatory system; 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 the debt ceiling and the federal budget; the impact of recent or future changes in Federal Deposit Insurance Corporation (the "FDIC") insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; he effect of fiscal and governmental policies of the U.S. federal government; climate change and other catastrophic events or disasters; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and other factors that may affect our future results. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2024 Annual Report on Form 10-K filed with the SEC and available at the SEC's Internet site (https://www.sec.gov).

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.