Shore Bancshares Reports Third Quarter and Nine-Month Financial Results

EASTON, Md., Oct. 27, 2022 /PRNewswire/ --Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company") reported net income of $9.658 million or $0.49 per diluted common share for the third quarter of 2022, compared to net income of $7.499 million or $0.38 per diluted common share for the second quarter of 2022, and net income of $4.616 million or $0.39 per diluted common share for the third quarter of 2021. Net income for the first nine months of 2022 was $22.769 million or $1.15 per diluted common share, compared to net income for the first nine months of 2021 of $12.645 million or $1.08 per diluted common share. Net income, excluding merger related expenses, for the third quarter of 2022 was $9.774 million or $0.49 per diluted common share, compared to net income, excluding merger related expenses, of $7.674 million or $0.39 per diluted common share for the second quarter of 2022 and net income, excluding merger related expenses, of $5.013 million or $0.43 per diluted common share for the third quarter 2021. Net income, excluding merger related expenses, for the first nine months of 2022 was $23.617 million or $1.19 per diluted common share compared to net income for the first nine months of 2021 of $13.322 million or $1.13 per diluted common share.

When comparing net income, excluding merger related expenses, for the third quarter of 2022 to the second quarter of 2022, net income increased $2.1 million due to an increase in net interest income of $2.7 million and a decrease in noninterest expense of $1.1 million partially offset by a decrease in noninterest income of $489 thousand. When comparing net income, excluding merger related expenses, for the third quarter of 2022 to the third quarter of 2021, net income increased $4.8 million primarily due to increases in net interest income of $11.7 million and noninterest income of $2.4 million offset by increases in noninterest expense of $7.3 million primarily as a result of the acquisition of Severn Bank ("Severn") in November of 2021.

"We are excited to announce our third 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. During the third quarter we experienced significant loan growth of 6.0%. We are beginning to see a more normalized expense base since the merger in the fourth quarter of 2021. 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 $3.447 billion at September 30, 2022, a $13.3 million, or less than 1.0%, decrease when compared to $3.460 billion at the end of 2021. During this time period, the Company also shifted its asset mix by redeploying cash and cash equivalents into higher yielding assets which consisted of loans and investment securities. As of September 30, 2022, the Company had 9 Paycheck Protection Program ("PPP') loans totaling $291 thousand that were outstanding.

Total deposits decreased $10.9 million, or less than 1%, when compared to December 31, 2021. The decrease in total deposits was due to decreases in money market and savings accounts of $72.4 million, noninterest-bearing deposits of $33.7 million and time deposits of $30.6 million, partially offset by an increase in interest bearing checking accounts of $125.8 million.

Total stockholders' equity increased $6.5 million, or 1.9%, when compared to December 31, 2021, primarily due to current year earnings, partially offset by an increase in unrealized losses on available for sale securities of $9.8 million. At September 30, 2022, the ratio of total equity to total assets was 10.36% and the ratio of total tangible equity to total tangible assets was 8.52% compared to 10.14% and 8.25% at the end of 2021.

Review of Quarterly Financial Results

Net interest income was $27.3 million for the third quarter of 2022, compared to $24.6 million for the second quarter of 2022 and $15.6 million for the third quarter of 2021. The increase in net interest income when compared to the second quarter of 2022 was primarily due to increases in interest and fees on loans of $2.5 million, interest on investment securities of $794 thousand and interest with other banks of $640 thousand, partially offset by an increase in expense on interest-bearing deposits of $1.1 million. The improvement in interest and fees on loans was due to an increase in the average balance of loans of $110.1 million, or 5.0%, coupled with an increase in yields of 18bps. The increase in interest on deposits with other banks was primarily due to the recent increases to the fed funds rate in July and August. The increase in interest on taxable investment securities was driven by an increase in the rates of 31bps and an increase in the average balance within these securities of $72.1 million, or 13.2%.

The increase in net interest income when compared to the third quarter of 2021 was primarily due to increases in interest and fees on loans of $10.4 million, interest on taxable investment securities of $1.9 million and interest on deposits with other banks of $1.4 million, partially offset by expense increases in interest-bearing deposits of $1.6 million and long-term borrowings of $341 thousand, all of which were significantly impacted by the acquisition of Severn in the fourth quarter of 2021.

The Company's net interest margin increased to 3.38% for the third quarter of 2022 from 3.10% for the second quarter of 2022 and 2.99% for the third quarter of 2021. The increase in net interest margin when compared to the second quarter of 2022 was primarily due to a shift from interest-bearing deposits with other banks to higher yielding loans and investment securities, partially offset by higher rates paid on interest-bearing deposits. The increase in net interest margin compared to the third quarter of 2021 was due to significantly higher volume as well as improved yields on all earning assets.

The provision for credit losses was $675 thousand for the three months ended September 30, 2022. The comparable amounts were $200 thousand and $290 thousand for the three months ended June 30, 2022 and September 30, 2021, respectively. The increase in the provision for credit losses during the third quarter of 2022 as compared to the prior quarters was primarily a result of significant loan growth in the third quarter of 2022. Net recoveries for the third quarter of 2022 were $119 thousand, compared to net recoveries of $573 thousand for the second quarter of 2022 and net recoveries of $147 thousand for the third quarter of 2021. The ratio of the allowance for credit losses to period-end loans, excluding PPP loans and acquired loans, was 0.84% at September 30, 2022, compared to 0.89% at June 30, 2022 and 1.10% at September 30, 2021. The decline in the percentage of the allowance from the second quarter of 2022 was primarily due to lower pandemic related qualitative reserves. The decline in the percentage of the allowance from the third quarter of 2021 was primarily the result of lower historical loss experience as well as lower pandemic related qualitative reserves.

At September 30, 2022 and June 30, 2022, nonperforming assets were $4.4 million and $4.0 million respectively. The balance of nonperforming assets increased primarily due to an increase in nonaccrual loans of $266 thousand, or 9.9%, and loans 90 days past due still accruing of $87 thousand, or 7.7%. Accruing troubled debt restructuring ("TDRs") decreased $436 thousand, or 8.9%, at September 30, 2022 compared to June 30, 2022. When comparing the third quarter of 2022 to the third quarter of 2021, nonperforming assets decreased $35 thousand, or less than 1%, primarily due to decreases in nonaccrual loans of $498 thousand, or 14.4%, partially offset by an increase in loans 90 days past due still accruing of $469 thousand, or 62.7%. Accruing TDRs decreased $1.3 million, or 22.5%, compared to the third quarter of 2021. The ratio of nonperforming assets and accruing TDRs to total assets at both September 30, 2022, and June 30, 2022 was 0.26% and was 0.44% at September 30, 2021. In addition, the ratio of accruing TDRs to total loans at September 30, 2022 was 0.19% compared to 0.22% at June 30, 2022 and 0.38% at September 30, 2021.

Total noninterest income for the third quarter of 2022 decreased $489 thousand, or 8.4%, when compared to the second quarter of 2022 and increased $2.4 million, or 83.7%, when compared to the third quarter of 2021. The decrease compared to the second quarter of 2022 was primarily due to decreases in revenue associated with the mortgage division of $416 thousand, or 38.0%, and other bank fee income of $133 thousand, or 7.7%, partially offset by an increase in service charges on deposit accounts of $71 thousand, or 4.9%. The increase in noninterest income when compared to the third quarter of 2021 was largely impacted by the addition of Severn in the fourth quarter of 2021 which contributed in part to increases in service charges on deposit accounts of $704 thousand. The Severn acquisition also added mortgage-banking revenue of $680 thousand and title revenue from Mid-MD Title of $397 thousand in the third quarter of 2022.

Total noninterest expense, excluding merger related expenses, for the third quarter of 2022 decreased $1.1 million or 5.5%, when compared to the second quarter of 2022 and increased $7.3 million, or 61.5%, when compared to the third quarter of 2021. The decrease in noninterest expense when compared to the second quarter of 2022 was primarily due to the increased deferrals of direct loan origination costs for salaries and employee benefits associated with the elevated level of loan originations during the quarter, as well as various cost saves related to the merger with Severn. The increase from the third 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 Nine-Month Financial Results

Net interest income for the first nine months of 2022 was $74.4 million, an increase of $30.9 million, or 71.0%, when compared to the first nine months of 2021. The increase in net interest income was primarily due to an increase in total interest income of $33.8 million, or 70.7%, specifically interest and fees on loans of $27.2 million, or 61.6%. The improvement of interest and fees on loans was primarily due to the increase in the average balance of $774.0 million, or 53.0%, coupled with accretion income from acquired loans of $2.1 million for the first nine months of 2022. Taxable investment securities and interest on deposits with other banks increased $4.2 million and $2.3 million, respectively, partially offset by an increase in total interest expense of $2.9 million, or 68.3%. The increase in interest expense was primarily the result of an increase in the average balance of interest-bearing deposits of $819.8 million, or 62.8%. Interest on long term borrowings increased by $688 thousand due to long-term advances with FHLB and junior subordinated debt acquired as part of the Severn acquisition. The long-term advances with FHLB will mature in October of 2022.

The provision for credit losses for the nine months ended September 30, 2022 and 2021 was $1.5 million and $1.4 million, respectively. The increase in provision for credit losses was the result of an increase in loans held for investment in the first nine months of 2022 of $283 million compared to $41 million for the first nine months of 2021. The ratio of the allowance to total loans decreased from 1.04% at September 30, 2021, to 0.68% at September 30, 2022. Excluding PPP loans and acquired loans, the ratio of the allowance for credit losses to period-end loans was 0.84% at September 30, 2022, lower than the 1.10% at September 30, 2021, primarily due to lower historical loss experience and reduced pandemic related qualitative factors.

Total noninterest income for the nine months ended September 30, 2022 increased $8.9 million, or 105.8%, when compared to the same period in 2021. The increase in noninterest income primarily consisted of revenue associated with the acquired mortgage division of $3.6 million, service charges on deposit accounts of $2.1 million, revenue from Mid-Maryland Title of $1.1 million and other noninterest income of $1.3 million. The increase in other noninterest income was primarily due to increases in rental fee income of $1.0 million and other loan fee income of $265 thousand.

Total noninterest expense, excluding merger related expenses, for the nine months ended September 30, 2022 increased $25.8 million, or 79.6%, 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 nine months of 2022, the Company recorded merger-related expenses of $1.1 million 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 potential resurgence 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 Nine Months Ended
		September 30,		September 30,
		2022		2021		Change		2022		2021		Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	27,315		$	15,589		75.2	%	$	74,359		$	43,491		71.0	%
Provision for credit losses			675			290		132.8			1,475			1,365		8.1
Noninterest income			5,344			2,909		83.7			17,224			8,369		105.8
Noninterest expense			18,899			11,935		58.3			59,323			33,309		78.1
Income before income taxes			13,085			6,273		108.6			30,785			17,186		79.1
Income tax expense			3,427			1,657		106.8			8,016			4,541		76.5
Net income		$	9,658		$	4,616		109.2		$	22,769		$	12,645		80.1
Return on average assets			1.11	%		0.84	%	27	bp		0.88	%		0.81	%	7	bp
Return on average assets excluding amortization of intangibles and merger related expenses - Non-GAAP (2)			1.17			0.94		23			0.96			0.87		9
Return on average equity			10.72			9.12		160			8.59			8.53		6
Return on average tangible equity - Non- GAAP (1), (2)			13.98			11.12		286			11.63			10.15		148
Net interest margin			3.38			2.99		39			3.09			2.97		12
Efficiency ratio - GAAP			57.87			64.52		(665)			64.78			64.23		55
Efficiency ratio - Non-GAAP (1), (2)			55.79			60.93		(514)			61.80			61.66		14
PER SHARE DATA
Basic and diluted net income per common share		$	0.49		$	0.39		25.6	%	$	1.15		$	1.08		6.5	%
Dividends paid per common share		$	0.12		$	0.12		—		$	0.36		$	0.36		—
Book value per common share at period end			17.99			17.15		4.9
Tangible book value per common share at period end - Non-GAAP (1)			14.50			15.55		(6.8)
Market value at period end			17.32			17.73		(2.3)
Market range:
High			20.50			18.00		13.9			21.41			18.10		18.3
Low			17.29			16.35		5.7			17.29			12.99		33.1
AVERAGE BALANCE SHEET DATA
Loans		$	2,327,279		$	1,487,281		56.5	%	$	2,235,092		$	1,461,083		53.0	%
Investment securities			618,378			334,205		85.0			565,535			283,104		99.8
Earning assets			3,210,233			2,071,505		55.0			3,225,417			1,963,727		64.2
Assets			3,444,365			2,184,448		57.7			3,446,941			2,074,635		66.1
Deposits			3,012,658			1,943,225		55.0			3,016,594			1,836,748		64.2
Stockholders' equity			357,383			200,881		77.9			354,549			198,087		79.0
CREDIT QUALITY DATA
Net (recoveries)		$	(119)		$	(147)		19.0	%	$	(858)		$	(272)		(215.4)	%
Nonaccrual loans		$	2,959		$	3,457		(14.4)
Loans 90 days past due and still accruing			1,217			748		62.7
Other real estate owned			197			203		(3.0)
Total nonperforming assets			4,373			4,408		(0.8)
Accruing troubled debt restructurings (TDRs)			4,458			5,750		(22.5)
Total nonperforming assets and accruing TDRs		$	8,831		$	10,158		(13.1)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets			10.36	%		8.92	%	144	bp
Period-end tangible equity to tangible assets - Non-GAAP (1)			8.52			8.15		37
Annualized net (recoveries) to average loans			(0.02)			(0.04)		2			(0.05)	%		(0.02)	%	(3)	bp
Allowance for credit losses as a percent of:
Period-end loans (3)			0.68			1.04		(36)
Period-end loans (4)			0.84			1.10		(26)
Nonaccrual loans			550.08			449.09		10,099
Nonperforming assets			372.22			352.20		2,002
Accruing TDRs			365.12			270.00		9,512
Nonperforming assets and accruing TDRs			184.32			152.84		3,148
As a percent of total loans:
Nonaccrual loans			0.12			0.23		(11)
Accruing TDRs			0.19			0.38		(19)
Nonaccrual loans and accruing TDRs			0.31			0.62		(31)
As a percent of total loans+other real estate owned:
Nonperforming assets			0.18			0.29		(11)
Nonperforming assets and accruing TDRs			0.37			0.68		(31)
As a percent of total assets:
Nonaccrual loans			0.09			0.15		(6)
Nonperforming assets			0.13			0.19		(6)
Accruing TDRs			0.13			0.25		(12)
Nonperforming assets and accruing TDRs			0.26			0.44		(18)
____________________
(1) See the reconciliation table that begins on page 14 of 15.
(2) This ratio excludes merger related expenses (Non-GAAP).
(3) As of September 30, 2022 and September 30, 2021, these ratios include all loans held for investment, including PPP loans of $291 thousand and $41.5 million, respectively.
(4) As of September 30, 2022 and September 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)
											September 30, 2022		September 30, 2022
			September 30,			December 31,		September 30,		compared to		compared to
		2022		2021		2021		December 31, 2021		September 30, 2021
ASSETS
Cash and due from banks		$	33,814		$	16,919		$	18,440		99.9	%	83.4	%
Interest-bearing deposits with other banks			129,492			566,694			292,412		(77.1)		(55.7)
Cash and cash equivalents			163,306			583,613			310,852		(72.0)		(47.5)
Investment securities available for sale (at fair value)			86,347			116,982			105,125		(26.2)		(17.9)
Investment securities held to maturity (at amortized cost)			570,719			404,594			250,501		41.1		127.8
Equity securities, at fair value			1,222			1,372			1,384		(10.9)		(11.7)
Restricted securities			9,894			4,159			3,189		137.9		210.3
Loans held for sale, at fair value			8,342			37,749			-		(77.9)		-
Loans held for investment			2,401,883			2,119,175			1,494,897		13.3		60.7
Less: allowance for credit losses			(16,277)			(13,944)			(15,525)		16.7		(4.8)
Loans, net			2,385,606			2,105,231			1,479,372		13.3		61.3
Premises and equipment, net			52,252			51,624			27,011		1.2		93.4
Goodwill			63,281			63,421			17,518		(0.2)		261.2
Other intangible assets, net			6,007			7,535			1,365		(20.3)		340.1
Other real estate owned, net			197			532			203		(63.0)		(3.0)
Mortgage servicing rights, at fair value			5,321			4,087			—		30.2		—
Right of use assets, net			9,764			11,370			5,512		(14.1)		77.1
Cash surrender value on life insurance			58,768			47,935			41,949		22.6		40.1
Other assets			25,778			19,932			16,793		29.3		53.5
Total assets		$	3,446,804		$	3,460,136		$	2,260,774		(0.4)		52.5
LIABILITIES
Noninterest-bearing deposits		$	893,808		$	927,497		$	554,902		(3.6)		61.1
Interest-bearing deposits			2,121,504			2,098,739			1,463,163		1.1		45.0
Total deposits			3,015,312			3,026,236			2,018,065		(0.4)		49.4
Securities sold under retail repurchase agreements			—			4,143			3,501		(100.0)		(100.0)
Advances from FHLB - long-term			10,013			10,135			—		(1.2)		—
Subordinated debt			42,995			42,762			24,521		0.5		75.3
Total borrowings			53,008			57,040			28,022
Lease liabilities			10,023			11,567			5,686		(13.3)		76.3
Accrued expenses and other liabilities			11,240			14,600			7,394		(23.0)		52.0
Total liabilities			3,089,583			3,109,443			2,059,167		(0.6)		50.0
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized 35,000,000 shares			199			198			118		0.5		68.6
Additional paid in capital			201,213			200,473			51,641		0.4		289.6
Retained earnings			165,590			149,966			149,620		10.4		10.7
Accumulated other comprehensive (loss) income			(9,781)			56			228		(17,566.1)		(4,389.9)
Total stockholders' equity			357,221			350,693			201,607		1.9		77.2
Total liabilities and stockholders' equity		$	3,446,804		$	3,460,136		$	2,260,774		(0.4)		52.5
Period-end common shares outstanding			19,858			19,808			11,752		0.3		69.0
Book value per common share		$	17.99		$	17.71		$	17.15		1.6		4.9

Shore Bancshares, Inc.
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
		For the Three Months Ended			For the Nine Months Ended
		September 30,		September 30,
		2022		2021		% Change		2022		2021		% Change
INTEREST INCOME
Interest and fees on loans		$	25,924		$	15,484		67.4	%	$	71,458		$	44,231		61.6	%
Interest on investment securities:
Taxable			3,186			1,318		141.7			7,562			3,343		126.2
Interest on deposits with other banks			1,466			97		1,411.3			2,546			199		1,179.4
Total interest income			30,576			16,899		80.9			81,566			47,773		70.7
INTEREST EXPENSE
Interest on deposits			2,561			949		169.9			5,429			3,189		70.2
Interest on short-term borrowings			—			2		(100.0)			2			5		(60.0)
Interest on long-term borrowings			700			359		95.0			1,776			1,088		—
Total interest expense			3,261			1,310		148.9			7,207			4,282		68.3
NET INTEREST INCOME			27,315			15,589		75.2			74,359			43,491		71.0
Provision for credit losses			675			290		132.8			1,475			1,365		8.1
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			26,640			15,299		74.1			72,884			42,126		73.0
NONINTEREST INCOME
Service charges on deposit accounts			1,509			805		87.5			4,306			2,162		99.2
Trust and investment fee income			421			477		(11.7)			1,383			1,359		1.8
Gains on sales and calls of investment securities			—			2		(100.0)			—			2		—
Interchange credits			1,241			1,016		22.1			3,532			2,922		20.9
Mortgage-banking revenue			680			—		—			3,643			—		—
Title Company revenue			397			—		—			1,146			—		—
Other noninterest income			1,096			609		80.0			3,214			1,924		67.0
Total noninterest income			5,344			2,909		83.7			17,224			8,369		105.8
NONINTEREST EXPENSE
Salaries and wages			8,562			5,091		68.2			27,022			13,495		100.2
Employee benefits			2,191			1,654		32.5			7,122			4,991		42.7
Occupancy expense			1,496			843		77.5			4,548			2,427		87.4
Furniture and equipment expense			533			449		18.7			1,370			1,168		17.3
Data processing			1,759			1,170		50.3			5,034			3,514		43.3
Directors' fees			217			147		47.6			617			450		37.1
Amortization of intangible assets			499			107		366.4			1,528			353		332.9
FDIC insurance premium expense			339			245		38.4			1,111			653		70.1
Other real estate owned, net			1			4		(75.0)			52			6		766.7
Legal and professional fees			756			428		76.6			2,204			1,592		38.4
Merger related expenses			159			538		(70.4)			1,130			915		23.5
Other noninterest expenses			2,387			1,259		89.6			7,585			3,745		102.5
Total noninterest expense			18,899			11,935		58.3			59,323			33,309		78.1
Income before income taxes			13,085			6,273		108.6			30,785			17,186		79.1
Income tax expense			3,427			1,657		106.8			8,016			4,541		76.5
NET INCOME		$	9,658		$	4,616		109.2		$	22,769		$	12,645		80.1
Weighted average shares outstanding - basic			19,852			11,752		68.9			19,842			11,750		68.9
Weighted average shares outstanding - diluted			19,852			11,752		68.9			19,842			11,750		68.9
Basic and diluted net income per common share		$	0.49		$	0.39		25.6		$	1.15		$	1.08		6.5
Dividends paid per common share			0.12			0.12		—			0.36			0.36		—

Shore Bancshares, Inc.
Consolidated Average Balance Sheets (Unaudited)
(Dollars in thousands)
		For the Three Months Ended		For the Nine Months Ended
		September 30,		September 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)		$	2,327,279		4.43	%	$	1,487,281		4.14	%	$	2,235,092		4.28	%	$	1,461,083		4.06	%
Investment securities
Taxable			618,378		2.06			334,205		1.58			565,535		1.79			283,104		1.58
Interest-bearing deposits			264,576		2.20			250,019		0.15			424,790		0.80			219,540		0.12
Total earning assets			3,210,233		3.78	%		2,071,505		3.24	%		3,225,417		3.39	%		1,963,727		3.26	%
Cash and due from banks			31,724					19,453					14,383					18,536
Other assets			218,163					108,989					222,236					107,174
Allowance for credit losses			(15,755)					(15,499)					(15,095)					(14,802)
Total assets		$	3,444,365				$	2,184,448				$	3,446,941				$	2,074,635
Interest-bearing liabilities
Demand deposits		$	646,399		0.66	%	$	462,950		0.14	%	$	627,213		0.35	%	$	435,678		0.14	%
Money market and savings deposits			1,034,580		0.35			644,330		0.18			1,046,230		0.26			591,959		0.18
Certificates of deposit $100,000 or more			222,697		0.55			136,059		0.71			247,635		0.50			134,080		1.00
Other time deposits			215,014		0.51			142,777		0.68			204,283		0.54			143,832		0.89
Interest-bearing deposits			2,118,690		0.48			1,386,116		0.27			2,125,361		0.34			1,305,549		0.33
Securities sold under retail repurchase
agreements and federal funds purchased			—		—			2,718		0.29			913		0.29			2,695		0.25
Advances from FHLB - long-term			10,035		0.63			—		—			10,075		0.60			—		—
Subordinated debt			42,953		6.33			24,504		5.81			42,878		5.40			24,474		5.94
Total interest-bearing liabilities			2,171,678		0.60	%		1,413,338		0.37	%		2,179,227		0.44	%		1,332,718		0.43	%
Noninterest-bearing deposits			893,968					557,109					891,233					531,199
Accrued expenses and other liabilities			21,336					13,120					21,932					12,631
Stockholders' equity			357,383					200,881					354,549					198,087
Total liabilities and stockholders' equity		$	3,444,365				$	2,184,448				$	3,446,941				$	2,074,635
Net interest spread					3.18	%				2.87	%				2.95	%				2.83	%
Net interest margin					3.38	%				2.99	%				3.09	%				2.97	%
____________________
(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)
		3rd Quarter		2nd Quarter		1st Quarter		4th Quarter			3rd Quarter		Q3 2022		Q3 2022
		2022		2022		2022		2021			2021		compared to		compared to
		Q3 2022		Q2 2022		Q1 2022		Q4 2021			Q3 2021		Q2 2022		Q3 2021
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	27,350		$	24,656		$	22,469		$	20,652		$	15,623		10.9	%	75.1	%
Less: Taxable-equivalent adjustment			35			38			39			13			34		(7.9)		2.9
Net interest income			27,315			24,618			22,430			20,639			15,589		11.0		75.2
Provision for credit losses			675			200			600			(1,723)			290		237.5		132.8
Noninterest income			5,344			5,833			6,046			5,129			2,909		(8.4)		83.7
Noninterest expense			18,899			20,094			20,332			23,497			11,935		(5.9)		58.3
Income before income taxes			13,085			10,157			7,544			3,994			6,273		28.8		108.6
Income tax expense			3,427			2,658			1,931			1,271			1,657		28.9		106.8
Net income		$	9,658		$	7,499		$	5,613		$	2,723		$	4,616		28.8		109.2
Return on average assets			1.11	%		0.88	%		0.65	%		0.36	%		0.84	%	23	bp	27	bp
Return on average assets excluding amortization of intangibles and merger related expenses - Non- GAAP (2)			1.17			0.94			0.76			1.07			0.94		23		23
Return on average equity			10.72			8.52			6.45			3.59			9.12		220		160
Return on average tangible equity - Non- GAAP (1)			13.98			11.41			9.40			13.06			11.12		257		286
Net interest margin			3.38			3.10			2.78			2.87			2.99		28		39
Efficiency ratio - GAAP			57.87			65.99			71.40			91.19			64.52		(812)		(665)
Efficiency ratio - Non-GAAP (1), (2)			55.79			63.44			66.93			60.13			60.92		(765)		(513)
PER SHARE DATA
Basic and diluted net income per common share		$	0.49		$	0.38		$	0.28		$	0.16		$	0.39		28.9	%	25.6	%
Dividends paid per common share			0.12			0.12			0.12			0.12			0.12		—		—
Book value per common share at period end			17.99			17.77			17.73			17.71			17.15		1.2		4.9
Tangible book value per common share at period end - Non-GAAP (1)			14.50			14.26			14.19			14.12			15.55		1.7		(6.8)
Market value at period end			17.32			18.50			20.48			20.85			17.73		(6.4)		(2.3)
Market range:
High			20.50			21.21			21.41			23.19			18.00		(3.3)		13.9
Low			17.29			17.91			19.34			17.50			16.35		(3.5)		5.7
AVERAGE BALANCE SHEET DATA
Loans		$	2,327,279		$	2,217,139		$	2,135,734		$	1,887,126		$	1,487,281		5.0	%	56.5	%
Investment securities			618,378			546,252			531,017			468,724			334,205		13.2		85.0
Earning assets			3,210,233			3,189,926			3,253,549			2,842,097			2,071,505		0.6		55.0
Assets			3,444,365			3,419,168			3,477,481			3,037,262			2,184,448		0.7		57.7
Deposits			3,012,658			2,993,098			3,044,213			2,547,151			1,943,225		0.7		55.0
Stockholders' equity			357,383			353,192			353,011			301,095			200,881		1.2		77.9
CREDIT QUALITY DATA
Net (recoveries)		$	(119)		$	(573)		$	(166)		$	(142)		$	(147)		79.2	%	19.0	%
Nonaccrual loans		$	2,959		$	2,693		$	2,848		$	2,004		$	3,457		9.9		(14.4)
Loans 90 days past due and still accruing			1,217			1,130			459			508			748		7.7		62.7
Other real estate owned			197			197			561			532			203		—		(3.0)
Total nonperforming assets		$	4,373		$	4,020		$	3,868		$	3,044		$	4,408		8.8		(0.8)
Accruing troubled debt restructurings (TDRs)		$	4,458		$	4,894		$	5,004		$	5,667		$	5,750		(8.9)		(22.5)
Total nonperforming assets and accruing TDRs		$	8,831		$	8,914		$	8,872		$	8,711		$	10,158		(0.9)		(13.1)
CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets			10.36	%		10.25	%		10.07	%		10.14	%		8.92	%	11	bp	144	bp
Period-end tangible equity to tangible assets - Non-GAAP (1)			8.52			8.39			8.22			8.25			8.15		13		37
Annualized net (recoveries) to average loans			(0.02)			(0.10)			(0.03)			(0.03)			(0.04)		8		2
Allowance for credit losses as a percent of:
Period-end loans (3)			0.68			0.68			0.67			0.66			1.04		—		(36)
Period-end loans (4)			0.84			0.89			0.92			0.93			1.10		(5)		(26)
Nonaccrual loans			550.08			574.94			516.50			695.81			449.09		(2,486)		10,099
Nonperforming assets			372.22			385.15			380.30			458.08			352.20		(1,293)		2,002
Accruing TDRs			365.12			316.37			293.96			246.06			270.00		4,875		9,512
Nonperforming assets and accruing TDRs			184.32			173.69			165.80			160.07			152.84		1,063		3,148
As a percent of total loans:
Nonaccrual loans			0.12			0.12			0.13			0.09			0.23		—		(11)
Accruing TDRs			0.19			0.22			0.23			0.27			0.38		(3)		(19)
Nonaccrual loans and accruing TDRs			0.31			0.34			0.36			0.36			0.62		(3)		(31)
As a percent of total loans+other real estate owned:
Nonperforming assets			0.18			0.18			0.18			0.14			0.29		—		(11)
Nonperforming assets and accruing TDRs			0.37			0.39			0.41			0.41			0.68		(2)		(31)
As a percent of total assets:
Nonaccrual loans			0.09			0.08			0.08			0.06			0.15		1		(6)
Nonperforming assets			0.13			0.12			0.11			0.09			0.19		1		(6)
Accruing TDRs			0.13			0.14			0.14			0.16			0.25		(1)		(12)
Nonperforming assets and accruing TDRs			0.26			0.26			0.25			0.25			0.44		—		(18)
____________________
(1) See the reconciliation table that begins on page 14.
(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)
																	Q3 2022		Q3 2022
																	compared to		compared to
		Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2022		Q3 2021
INTEREST INCOME
Interest and fees on loans		$	25,924		$	23,452		$	22,085		$	20,564		$	15,484		10.5	%	67.4	%
Interest on investment securities:
Taxable			3,186			2,392			1,985			1,663			1,318		33.2		141.7
Interest on deposits with other banks			1,466			826			254			169			97		77.5		1,411.3
Total interest income			30,576			26,670			24,324			22,396			16,899		14.6		80.9
INTEREST EXPENSE
Interest on deposits			2,561			1,511			1,358			1,272			949		69.5		169.9
Interest on short-term borrowings			—			—			2			3			2		—		(100.0)
Interest on long-term borrowings			700			541			534			482			359		29.4		95.0
Total interest expense			3,261			2,052			1,894			1,757			1,310		58.9		148.9
NET INTEREST INCOME			27,315			24,618			22,430			20,639			15,589		11.0		75.2
Provision for credit losses			675			200			600			(1,723)			290		237.5		132.8
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			26,640			24,418			21,830			22,362			15,299		9.1		74.1
NONINTEREST INCOME
Service charges on deposit accounts			1,509			1,438			1,359			1,234			805		4.9		87.5
Trust and investment fee income			421			447			514			522			477		(5.8)		(11.7)
Gains on sales and calls of investment securities			—			—			—			—			2		—		(100.0)
Interchange credits			1,241			1,253			1,038			1,043			1,016		(1.0)		22.1
Mortgage-banking revenue			680			1,096			1,867			948			—		(38.0)		—
Title Company revenue			397			426			323			247			—		(6.8)		—
Other noninterest income			1,096			1,173			945			1,135			609		(6.6)		80.0
Total noninterest income			5,344			5,833			6,046			5,129			2,909		(8.4)		83.7
NONINTEREST EXPENSE
Salaries and wages			8,562			8,898			9,562			7,727			5,091		(3.8)		68.2
Employee benefits			2,191			2,269			2,662			2,271			1,654		(3.4)		32.5
Occupancy expense			1,496			1,485			1,567			1,263			843		0.7		77.5
Furniture and equipment expense			533			411			429			385			449		29.7		18.7
Data processing			1,759			1,668			1,607			1,487			1,170		5.5		50.3
Directors' fees			217			210			190			170			147		3.3		47.6
Amortization of intangible assets			499			511			517			381			107		(2.3)		366.4
FDIC insurance premium expense			339			429			343			362			245		(21.0)		38.4
Other real estate owned expenses, net			1			57			(6)			(2)			4		(98.2)		(75.0)
Legal and professional fees			756			811			637			150			428		(6.8)		76.6
Merger related expenses			159			241			730			7,615			538		(34.0)		(70.4)
Other noninterest expenses			2,387			3,104			2,094			1,688			1,259		(23.1)		89.6
Total noninterest expense			18,899			20,094			20,332			23,497			11,935		(5.9)		58.3
Income before income taxes			13,085			10,157			7,544			3,994			6,273		28.8		108.6
Income tax expense			3,427			2,658			1,931			1,271			1,657		28.9		106.8
NET INCOME		$	9,658		$	7,499		$	5,613		$	2,723		$	4,616		28.8		109.2
Weighted average shares outstanding - basic			19,852			19,847			19,828			17,180			11,752		0.0		68.9
Weighted average shares outstanding - diluted			19,852			19,847			19,828			17,180			11,752		0.0		68.9
Basic and diluted net income per common share		$	0.49		$	0.38		$	0.28		$	0.16		$	0.39		28.9		25.6
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
																											Q3 2022		Q3 2022
																											compared to		compared to
		Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2022		Q3 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)		$	2,327,279		4.43	%	$	2,217,139		4.25	%	$	2,135,734		4.20	%	$	1,887,126		4.33	%	$	1,487,281		4.14	%	5.0	%	56.5	%
Investment securities
Taxable			618,378		2.06			546,252		1.75			531,017		1.49			468,724		1.42			334,205		1.58		13.2		85.0
Interest-bearing deposits			264,576		2.20			426,535		0.78			586,798		0.18			486,247		0.14			250,019		0.15		(38.0)		5.8
Total earning assets			3,210,233		3.78	%		3,189,926		3.36	%		3,253,549		3.01	%		2,842,097		3.11	%		2,071,505		3.24	%	0.6		55.0
Cash and due from banks			31,724					26,162					(15,253)					22,625					19,453				21.3		63.1
Other assets			218,163					218,353					253,424					188,399					108,989				(0.1)		100.2
Allowance for credit losses			(15,755)					(15,273)					(14,239)					(15,859)					(15,499)				3.2		1.7
Total assets		$	3,444,365				$	3,419,168				$	3,477,481				$	3,037,262				$	2,184,448				0.7		57.7
Interest-bearing liabilities
Demand deposits		$	646,399		0.66	%	$	644,881		0.22	%	$	589,737		0.16	%	$	494,081		0.14	%	$	462,950		0.14	%	0.2		39.6
Money market and savings deposits			1,034,580		0.35			1,019,295		0.21			1,075,791		0.23			1,001,115		0.26			644,330		0.18		1.5		60.6
Certificates of deposit $100,000 or more			222,697		0.55			234,325		0.58			286,587		0.40			174,268		0.49			136,059		0.71		(5.0)		63.7
Other time deposits			215,014		0.51			221,714		0.54			175,683		0.57			173,975		0.50			142,777		0.68		(3.0)		50.6
Interest-bearing deposits			2,118,690		0.48			2,120,215		0.29			2,127,798		0.26			1,843,439		0.27			1,386,116		0.27		(0.1)		52.9
Securities sold under retail repurchase agreements
and federal funds purchased			—		—			—		—			2,770		0.29			3,972		0.30			2,718		0.29		—		(100.0)
Advances from FHLB - short-term			—		—			—		—			—		—			—		—			—		—		—		—
Advances from FHLB - long-term			10,035		0.63			10,075		0.60			10,116		0.57			6,630		2.21			—		—		(0.4)		100.0
Subordinated debt			42,953		6.33			42,876		4.93			42,804		4.93			36,589		5.12			24,504		5.81		0.2		75.3
Total interest-bearing liabilities			2,171,678		0.60	%		2,173,166		0.38	%		2,183,488		0.35	%		1,890,630		0.37	%		1,413,338		0.37	%	(0.1)		53.7
Noninterest-bearing deposits			893,968					872,883					916,415					703,712					557,109				2.4		60.5
Accrued expenses and other liabilities			21,336					19,927					24,567					141,825					13,120				7.1		62.6
Stockholders' equity			357,383					353,192					353,011					301,095					200,881				1.2		77.9
Total liabilities and stockholders' equity		$	3,444,365				$	3,419,168				$	3,477,481				$	3,037,262				$	2,184,448				0.7		57.7
Net interest spread					3.18	%				2.98	%				2.66	%				2.74	%				2.87	%
Net interest margin					3.38	%				3.10	%				2.78	%				2.87	%				2.99	%
____________________
(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
		Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021		9/30/2022		9/30/2021
The following reconciles return on average equity and return on average tangible equity (Note 1):
Net Income		$	9,658		$	7,499		$	5,613		$	2,723		$	4,616		$	22,769		$	12,645
Net Income - annualized (A)		$	38,317		$	30,078		$	22,764		$	10,803		$	18,313		$	30,442		$	16,906
Net income, excluding net amortization of intangible assets
and merger related expenses		$	10,144		$	8,054		$	6,541		$	8,176		$	5,097		$	24,736		$	13,591
Net income, excluding net amortization of intangible assets and merger related expenses - annualized (B)		$	40,245		$	32,305		$	26,527		$	32,437		$	20,222		$	33,072		$	18,171
Return on average assets excluding net amortization of intangible assets and merger related expenses - Non-GAAP			1.17	%		0.94	%		0.76	%		1.07	%		0.94	%		0.96	%		0.87	%
Average stockholders' equity (C)		$	357,383		$	353,192		$	353,011		$	301,095		$	200,881		$	354,549		$	198,087
Less: Average goodwill and other intangible assets			(69,558)			(70,057)			(70,711)			(52,692)			(18,942)			(70,104)			(19,057)
Average tangible equity (D)		$	287,825		$	283,135		$	282,300		$	248,403		$	181,939		$	284,445		$	179,030
Return on average equity (GAAP) (A)/(C)			10.72	%		8.52	%		6.45	%		3.59	%		9.12	%		8.59	%		8.53	%
Return on average tangible equity (Non-GAAP) (B)/(D)			13.98	%		11.41	%		9.40	%		13.06	%		11.12	%		11.63	%		10.15	%
The following reconciles GAAP efficiency ratio and non- GAAP efficiency ratio (Note 2):
Noninterest expense (E)		$	18,899		$	20,094		$	20,332		$	23,497		$	11,935		$	59,323		$	33,309
Less: Amortization of intangible assets			(499)			(511)			(517)			(381)			(107)			(1,528)			(353)
Merger Expenses			(159)			(241)			(730)			(7,615)			(538)			(1,130)			(915)
Adjusted noninterest expense (F)		$	18,241		$	19,342		$	19,085		$	15,501		$	11,290		$	56,665		$	32,041
Net interest income (G)			27,315			24,618			22,430			20,639			15,589			74,359			43,491
Add: Taxable-equivalent adjustment			35			38			39			13			34			112			108
Taxable-equivalent net interest income (H)		$	27,350		$	24,656		$	22,469		$	20,652		$	15,623		$	74,471		$	43,599
Noninterest income (I)		$	5,344		$	5,833		$	6,046		$	5,129		$	2,909		$	17,224			8,369
Less: Investment securities (gains)			—			—			—			—			(2)			—			(2)
Adjusted noninterest income (J)		$	5,344		$	5,833		$	6,046		$	5,129		$	2,907		$	17,224		$	8,367
Efficiency ratio (GAAP) (E)/(G)+(I)			57.87	%		65.99	%		71.40	%		91.19	%		64.52	%		64.78	%		64.23	%
Efficiency ratio (Non-GAAP) (F)/(H)+(J)			55.79	%		63.44	%		66.93	%		60.13	%		60.93	%		61.80	%		61.66	%
The following reconciles book value per common share and tangible book value per common share (Note 1):
Stockholders' equity (L)		$	357,221		$	352,777		$	351,864		$	350,693		$	201,607
Less: Goodwill and other intangible assets			(69,288)			(69,787)			(70,299)			(70,956)			(18,883)
Tangible equity (M)		$	287,933		$	282,990		$	281,565		$	279,737		$	182,724
Shares outstanding (N)			19,858			19,850			19,843			19,808			11,752
Book value per common share (GAAP) (L)/(N)		$	17.99		$	17.77		$	17.73		$	17.71		$	17.15
Tangible book value per common share (Non-GAAP) (M)/(N)		$	14.50		$	14.26		$	14.19		$	14.12		$	15.55
The following reconciles equity to assets and tangible equity to tangible assets (Note 1):
Stockholders' equity (O)		$	357,221		$	352,777		$	351,864		$	350,693		$	201,607
Less: Goodwill and other intangible assets			(69,288)			(69,787)			(70,299)			(70,956)			(18,883)
Tangible equity (P)		$	287,933		$	282,990		$	281,565		$	279,737		$	182,724
Assets (Q)		$	3,446,804		$	3,442,550		$	3,494,497		$	3,460,136		$	2,260,774
Less: Goodwill and other intangible assets			(69,288)			(69,787)			(70,299)			(70,956)			(18,883)
Tangible assets (R)		$	3,377,516		$	3,372,763		$	3,424,198		$	3,389,180		$	2,241,891
Period-end equity/assets (GAAP) (O)/(Q)			10.36	%		10.25	%		10.07	%		10.14	%		8.92	%
Period-end tangible equity/tangible assets (Non-GAAP) (P)/(R)			8.52	%		8.39	%		8.22	%		8.25	%		8.15	%
____________________
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.