SHORE BANCSHARES INC
For the period ended Mar 31, 2025. Filed May 8, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 8, 2025
SHBI$22.45+0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001628280-24-046326
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-08.
0001628280-25-023712
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 193 previous paragraphs and 181 current paragraphs.
67 unchanged; 69 reworded; 43 added; 49 removed; 8 previous and 2 current paragraphs rearranged.
Tables are not compared: 29 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (43)
Current report
•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;
Current report
•the ability to develop and use technologies to provide products and services that will satisfy customer demands;
Current report
•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;
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•changes in U.S. trade policies, including the implementation of tariffs and other protectionist trade policies;
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•the impact of governmental efforts to restructure or adjust the U.S. financial regulatory system;
Current report
•climate change and other catastrophic events or disasters; and
Current report
The Company’s management reviews the adequacy of the ACL on loans on at least a quarterly basis. Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of the 2024 Annual Report for additional details concerning the determination of the ACL on loans.
Current report
First Quarter 2025 Highlights
Current report
•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. NIM, excluding net accretion income (“core NIM”) increased 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.
Current report
•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.
Current report
•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 59.25% 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.
Current report
(1) See the Reconciliation of GAAP and non-GAAP Measures tables.
Current report
The following table presents selected consolidated statement of operations data for each of the periods indicated.
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Rate and Volume Analysis
Current report
Total noninterest income for the first quarter of 2025 was $7.0 million, an increase of $436 thousand from $6.6 million for the first quarter of 2024. The increase was primarily due to an increase in mortgage banking activity, driven by increased mortgage servicing activity and lower prepayment rates.
Current report
Total noninterest expense of $33.7 million for the first quarter of 2025 decreased $3.0 million when compared to the first quarter of 2024 total noninterest expense of $36.7 million. The decrease in total noninterest expense from the first quarter of 2024 was primarily due to the absence of the fraud losses incurred in connection with 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.
Current report
Income Taxes
Current report
The Company reported income tax expense of $4.5 million and $2.4 million for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate for the first quarter of 2025 and 2024 was 24.6% and 22.8%, respectively.
Current report
LIQUIDITY
Current report
(1)The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to secure the line of credit.
Current report
CAPITAL RESOURCES
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The Company evaluates capital resources by the ability to maintain adequate regulatory capital ratios. The Company and the Bank annually update its strategic plan, which includes a three-year capital plan. In developing its plan, the Company considers the impact to capital of asset growth, loan concentrations, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.
Current report
In July 2013, federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with certain standards that were developed by Basel III and certain provisions of the Dodd-Frank Act. The final rule currently applies to all depository institutions and bank holding companies and savings and loan holding companies with total consolidated assets of more than $3 billion.
Current report
See Note 10 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information about the regulatory capital positions of the Bank and the Company.
Current report
•Interest and noninterest income for the three months ended March 31, 2025, were approximately $1.1 million and $241 thousand, respectively. Interest and noninterest income for the three months ended March 31, 2024, were approximately $1.0 and $293 thousand, respectively.
Current report
For information about risks relating to liquidity, see “Risk Factors – Risks Relating to Our Business” included in Part I, Item 1A. in the 2024 Annual Report.
Current report
CRE Loan Portfolio
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Office CRE Loan Portfolio
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Maturity of Loan Portfolio
Current report
The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at March 31, 2025. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
Current report
Asset Quality
Current report
The following table allocates the ACL by portfolio loan category as of the dates indicated. The allocation of the ACL to each category is not necessarily indicative of future losses and does not restrict the use of the ACL to absorb losses in any category.
Current report
(1) Percent of loans in each category to total portfolio loans.
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The following table presents the net charge-offs or recoveries by average loan portfolio category for the three months ended March 31, 2025 and 2024.
Current report
Classified Assets and Special Mention Assets
Current report
Classified assets decreased $6.1 million to $22.0 million, or 0.4% of total assets, at March 31, 2025, from $28.2 million, or 0.5% of total assets, at December 31, 2024. Classified assets are substandard loans, repossessed assets and OREO. The decrease was primarily due to decrease in substandard loans of $5.2 million and repossessed assets of $886 thousand. Management considers classified assets to be an important measure of asset quality. Decreases in classified and special mention loan categories were due to loans related to our marine lending portfolio and residential mortgages, all of which are diverse in origination date. The Company’s risk rating process for classified loans is an important input into the Company’s allowance methodology. Risk ratings are an important input into the Company’s ACL qualitative framework.
Current report
Off-Balance Sheet Credit Exposure Reserve
Current report
The Company’s reserve for off-balance sheet credit exposure was $1.5 million and $1.1 million at March 31, 2025 and December 31, 2024, respectively. The Company is monitoring line of credit usage and has not seen substantive increases in usage or expected usage. The
Current report
Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity.
Current report
The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $50.0 million at March 31, 2025 and December 31, 2024. The $50.0 million FHLB advance was for an initial term of 18-months at a rate of 4.79%. This advance has the option to be called by FHLB at any time and matures on November 7, 2025. At March 31, 2025 and December 31, 2024, the Company had no brokered deposits and securities sold under agreements to repurchase or overnight borrowings from correspondent banks.
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Removed paragraphs (49)
Previous report
•the Company’s ability to remediate the material weaknesses identified in the Company’s internal control over financial reporting;
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•the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures;
Previous report
•cybersecurity threats and the cost of defending against them;
Previous report
•the expected cost savings, synergies and other financial benefits from the acquisition of The Community Financial Corporation (“TCFC”) or any other acquisition the Company has made or may make might not be realized within the expected time frames or at all;
Previous report
•potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election;
Previous report
•climate change, including the enhanced regulatory, compliance, credit and reputational risks and costs; and
Previous report
Goodwill and Bargain Purchase Gain
Previous report
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Determining fair value is subjective, requiring the use of estimates, assumptions, and management judgment. Goodwill is tested at least annually for impairment, usually during the fourth quarter, or on an interim basis if circumstances dictate. Impairment testing requires a qualitative assessment and/or an independent valuation of the fair value of each of the Company’s reporting units compared to the carrying amount of its net assets, including goodwill. If the fair value of a reporting unit is less than book value, an impairment loss may be required to write down the related goodwill.
Previous report
A bargain purchase gain represents the excess of the fair value of net assets acquired over the cost of an acquisition. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgement. Bargain purchase gain is recorded as noninterest income in the period it was generated. An acquirer has a measurement period to finalize the accounting for a business combination which could adjust bargain purchase gain if material facts or circumstances arise.
Previous report
Loans Acquired in a Business Combination
Previous report
Acquired loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) purchased performing loans and are recorded at fair value on the date of acquisition.
Previous report
PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination. When determining fair value as of the date of acquisition, PCD loans are aggregated into pools based on common risk characteristics such as loan type, date of origination, and evidence of credit quality deterioration based on internal risk grades and past due and nonaccrual status. At the acquisition date, the ACL is determined and added to the fair value of the loan to determine the new amortized cost basis. The difference between the new amortized cost basis and the unpaid principal balance is either a noncredit discount or premium that will be amortized or accredited into the interest income over the remaining life of the loan. Disposals of loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the PCD loan portfolio at its carrying amount.
Previous report
The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. Purchased performing loans do not have a more-than-insignificant deterioration in credit quality since origination and have an ACL established in a manner that is consistent with the Company originated loans. The allowance for PCD loans is determined based upon the Company’s methodology for estimating the allowance under CECL, and is recorded as an adjustment to the acquired loan balance on the date of acquisition. Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records a reserve for credit losses based on the Company’s methodology for determining the allowance under CECL. The allowance for non-PCD loans is recorded through a charge to provision for credit losses in the period in which the loans were purchased or acquired.
Previous report
The Company and its subsidiaries file a consolidated federal income tax return. The Company accounts for income taxes using the liability method in accordance with required accounting guidance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent on the generation of a sufficient level of future taxable income, recoverable taxes paid in prior years and tax planning strategies. The Company evaluates all positive and negative evidence before determining if a valuation allowance is deemed necessary regarding the realization of deferred tax assets.
Previous report
The Company recognizes accrued interest and penalties as a component of tax expense.
Previous report
The provision for income taxes includes the impact of reserve provisions and changes in the reserves that are considered appropriate as well as the related net interest and penalties. In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities which may assert assessments against the Company. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of its provision for income taxes. The Company remains subject to examination for tax years ending on or after December 31, 2020.
Previous report
Third Quarter and Nine Months Ended September 30, 2024 Highlights
Previous report
•Net Interest Income and Net Interest Margin- Third quarter 2024 net interest income increased $1.1 million to $43.3 million from $42.1 million in the second quarter of 2024. Net interest income increased due to modest loan growth, slightly higher accelerated accretion income, and loans and securities repricing at a faster pace than the Bank’s cost of funds. Net interest margin (“NIM”) increased six basis points (“bps”) to 3.17% for the third quarter of 2024, from 3.11% for the second quarter of 2024. Excluding net accretion interest income of $4.5 million and $3.8 million for the same time periods, NIM increased one bp to 2.84% for the third quarter of 2024, from 2.83% for the second quarter of 2024.
Previous report
•Operating Leverage -The third quarter of 2024 efficiency ratio was 67.49% when compared to 66.23% in the second quarter of 2024. The third quarter efficiency ratio was affected by one-time data processing expense related to the fraud incident in the first quarter of 2024. The third quarter of 2024 non-GAAP efficiency ratio was 62.10% when compared to 61.05% in the second quarter of 2024.
Previous report
•Deposits- Total deposits increased to$5.23 billion at September 30, 2024 from $5.15 billion at June 30, 2024. Average noninterest bearing deposits were $1.58 billion for thethird quarter of 2024 representing 30.55% of average funding, excluding subordinated debt, compared to 28.42% during thesecond quarter of 2024. The Bank’s use of wholesale funding, which includes Federal Home Loan Bank (“FHLB”) advances and brokered deposits, has been minimal in 2024. Wholesale funding increased from $44.5 million or 0.74% of assets at December 31, 2023 to $50.0 million or 0.84% of total assets at September 30, 2024. Sustained efforts to enhance the Bank’s deposit franchise are expected to continue to attract additional deposits in future quarters.
Previous report
The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. Tax-equivalent adjustments were made. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effects of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
Previous report
Total noninterest income for the third quarter of 2024 was $7.3 million, a decrease of $7.7 million from $15.0 million for the third quarter of 2023. The decrease was primarily due to lower trust and investment fee income of $1.1 million. and a one time third quarter 2023 bargain purchase gain of $8.8 million, partially offset by $2.2 million of losses on sale of investment securities, a direct result of the merger with TCFC in the third quarter of 2023.
Previous report
Total noninterest expense of $34.1 million for the third quarter of 2024 decreased $13.0 million when compared to the third quarter of 2023 total noninterest expense of $47.2 million. The decrease in total noninterest expense from the third quarter of 2023 was primarily due to one time merger related expenses that were incurred in 2023, partially offset by an increase in expenses due to the operation of a larger branch network and employee base due to the merger with TCFC, which significantly impacted almost all expense line items. In addition, despite the increased size, the Company has prudently reduced its staff by approximately 72 FTEs since the consummation of the merger.
Previous report
The Company reported income tax expense of $3.8 million for the third quarter of 2024, and income tax benefit of $5.0 million for the third quarter of 2023. The effective tax rate for the third quarter of 2024 and 2023 was 25.24% and (33.89%), respectively. The third quarter 2023 tax rate was impacted by a net pre-tax loss, nondeductible merger costs, and reassessment of deferred tax assets and liabilities at an estimated effective tax rate due to an adjustment to state apportionment.
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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
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Summary of Financial Results
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The Company reported net income for the nine months ended September 30, 2024 of $30.6 million or diluted earnings per share of $0.92 compared to net income of $738 thousand or diluted earnings per share of $0.03 for the nine months ended September 30, 2023. The Company’s ROAA, Non-GAAP ROAA, ROACE and ROATCE were 0.70%, 0.91%, 7.84% and 12.83% for the nine months ended September 30, 2024, respectively, compared to 0.02%, 0.49%, 0.24% and 6.27% for the nine months ended September 30, 2023, respectively.
Previous report
The increase to net income in the first nine months of 2024 compared to the same period in 2023 was primarily due to the merger with TCFC, which resulted in higher net interest income and a lower provision for credit losses, partially offset by higher noninterest expense, higher income tax expense and lower noninterest income. The increase in net interest income was impacted by higher average balances and yields earned on average earning assets, partially offset by higher average balances and rates paid on interest-bearing liabilities. The decrease in the provision for credit losses in 2024 was due to higher levels of reserves required by the Company’s CECL model related to the merger in 2023 and recognition of provision on acquired loans. Almost all noninterest expense line items in 2024 increased as a result of the merger and the expanded operations of the newly combined Company.
Previous report
Net Interest Income
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As shown in the table below, tax-equivalent net interest income increased $32.8 million to $126.8 million for the nine months ended September 30, 2024, compared to $94.0 million for the nine months ended September 30, 2023. The increase in net interest income when compared to the prior period was primarily due to the increase in the average balance of loans of $1.40 billion, or 42.3%. The increase in interest income was partially offset by increased total interest expense of $43.2 million, or 87.9%, primarily due to increases in the cost of funds and in the average balance of interest-bearing deposits of $1.02 billion, or 38.1%, and an increase in net accretion interest of $5.5 million. All of the noted increases were significantly impacted by the merger.
Previous report
Average Balances and Yields
Previous report
The Company’s net interest margin remained flat at 3.12% for the nine months ended September 30, 2024 as compared to the same period in 2023, as more rapid increases in rates on interest-bearing liabilities were offset by lower increases in interest-earning asset yields and larger balances in noninterest-bearing deposits. The increases in the average balance and rates paid on interest-bearing deposits of $1.02 billion and 104 bps, respectively, were partially offset by increases in the average balance and yields earned on average earning assets of $1.40 billion and 64 bps, respectively. Additionally, margins were positively impacted as average balances of noninterest-bearing deposits increased $424.9 million, or 43.2%, from 25.9% of average funding for the nine months ended September 30, 2023 to 27.2% of average funding for the nine months ended September 30, 2024. Net accretion income impacted net interest margin by 29 bps and 21 bps for the nine months ended September 30, 2024 and 2023, respectively. Until the balance sheet restructuring in the third quarter of 2023, the net interest margin experienced compression due to the Company’s liability sensitive position, deposit rate pressures and significantly higher FHLB borrowing rates.
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Provision for Credit Losses and Allowance for Credit Losses
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Noninterest Income
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Total noninterest income of $22.3 for the nine months ended September 30, 2024 decreased $3.3 million, or 13.0%, when compared to the same period in 2023. The decrease was primarily due to lower trust and investment fee income of $1.1 million. The decrease was affected by one-time bargain purchase income of $8.8 million and $2.2 million of losses on sale of investment securities in the third quarter 2023, both a direct result of the merger with TCFC in the third quarter of 2023.
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Noninterest Expense
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Total noninterest expense of $104.3 for the nine months ended September 30, 2024 increased $14.6 million, or 16.3%, when compared to the same period in 2023. Almost all noninterest expense line items increased as a result of the merger with TCFC and the expanded operations of the newly combined Company and $4.7 million of credit card related fraud losses. There were no merger-related expenses for the nine months ended September 30, 2024, compared to $16.8 million for the nine months ended September 30, 2023. The Company continues to focus on streamlining processes to unlock operational efficiencies and reduce overall noninterest expenses.
Previous report
The Company reported income tax expense of $10.0 million for the nine months ended September 30, 2024, and income tax benefit of $1.1 million for the nine months ended September 30, 2023. The effective tax rate was 24.54% for the nine months ended September 30, 2024, and (329.12)% for the nine months ended September 30, 2023. The 2023 effective tax rate was impacted by nondeductible merger costs incurred.
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Loans
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Office CRE Portfolio
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Reworded paragraphs (69)
Previous wording
Item 2 – Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations.
Current wording
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Previous wording
•recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;
Current wording
•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;
Previous wording
•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;
Current wording
•results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses or to write-down assets;
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•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, including the war between Russian and Ukraine and the conflict in the Middle East, which could impact business and economic conditions in the United States and abroad.
Current wording
•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.
Previous wording
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) filed with SEC and available at the SEC’s Internet site (http://www.sec.gov).
Current wording
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”) filed with SEC and available at the SEC’s website (www.sec.gov).
Previous wording
The following MD&A is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 2023 Annual Report.
Current wording
The following management’s discussion and analysis of financial condition and results of operations is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 2024 Annual Report.
Previous wording
Shore Bancshares, Inc. is headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank, N.A. (the “Bank”). The Bank operates 40 full-service branches in Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County, Anne Arundel County, Charles County, St Mary's County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware, Fredericksburg City, Stafford County and Spotsylvania County in Virginia. The Company through Wye Financial Partners, a department of the Bank, provides full-service investment and insurance solutions through our broker/dealer, LPL Financial. The Bank also offers wealth management solutions such as corporate trustee services and trust administration through Wye Trust, a division of the Bank. The Company also engages in title work for real estate transactions through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.
Current wording
Shore Bancshares, Inc. is headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank, N.A. (the “Bank”). The Bank currently operates 40 full-service branches in Anne Arundel County, Baltimore County, Charles County, Calvert County, St. Mary’s County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County and Worcester County in Maryland, Kent and Sussex County in Delaware, and in Accomack County, Stafford County, Spotsylvania County, and Fredericksburg city in Virginia. The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through our broker/dealer, LPL Financial. The Company, through Wye Trust, a division of the Bank, offers wealth management, corporate trustee services and trust administration to customers within our market areas and nationwide. The Company offers title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc. (the “Title Company”), which engages in residential and commercial real estate settlement activities and offers title insurance policies, title search and lien satisfaction services. The Title Company ceased conducting real estate closings effective March 31, 2025. Operations will continue for as long as necessary to ensure that work in progress is adequately addressed. Upon successful completion of outstanding matters, the Title Company will complete any regulatory filings necessary to discontinue the business and dissolve the corporation.
Previous wording
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Current wording
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Previous wording
The most significant accounting policies that the Company follows are presented in Note 1 to the Notes to Consolidated Financial Statement included in the 2023 Annual Report. These policies, along with the disclosures presented in the notes to the financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the allowance for credit losses (“ACL”) on loans, goodwill and bargain purchase gain, loans acquired in a business combination and income taxes are critical accounting policies. These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.
Current wording
The most significant accounting policies that we follow are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of the 2024 Annual Report. These policies, along with the disclosures presented in the notes to consolidated financial statements and in this management’s discussion and analysis of financial condition and results of operations, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy for the allowance for credit losses (“ACL”) on loans is a critical accounting policy. This policy is considered critical because it relates to an accounting area that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.
Previous wording
The Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost. The ACL represents management’s best estimate of expected lifetime credit losses within the Company's loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off. Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances. The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans and the related provision for credit losses, can materially affect financial results. Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for loans in the portfolio.
Current wording
The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off. Loan losses are charged against the allowance when management’s assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using a cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances. The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans and the related provision for credit losses can materially affect financial results. Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for loans in the portfolio.
Previous wording
The determination of the appropriate level of ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions including unforeseen events, changes in asset-specific risk characteristics, and other economic factors both within and outside the Company's control, may indicate the need for an increase or decrease in the ACL on loans. While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent such that improvement in one factor may offset deterioration in others.
Current wording
The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside the Company’s control, may indicate the need for an increase or decrease in the ACL on loans. While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
Previous wording
The Company’s net income for the third quarter of 2024 was $11.2 million or $0.34 per diluted common share, which was equal to the second quarter of 2024. The Company had a net loss of $9.7 million or $(0.29) per diluted common share for the third quarter of 2023, as a result of the merger with TCFC. Net income for the first nine months of 2024 was $30.6 million or $0.92 per diluted common share, compared to net income for the first nine months of 2023 of $738 thousand or $0.03 per diluted common share.
Current wording
The Company’s net income for the first quarter of 2025 was $13.8 million, or $0.41 per diluted common share, compared to $13.3 million, or $0.40 per diluted common share, for the fourth quarter of 2024. The Company had net income of $8.2 million, or $0.25 per diluted common share, for the first quarter of 2024.
Previous wording
•Return on Average Assets (“ROAA”) - The Company reported ROAA of 0.77% for the third quarter of 2024, which was equal to reported ROAA for the second quarter of 2024. Non-GAAP ROAA, which excludes fraud expense, core deposit intangible amortization, and merger-related expenses, was 0.90% for the third quarter of 2024, compared to 0.91% for the second quarter of 2024.
Current wording
•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 1.02% for the first quarter of 2025, compared to 0.94% for the fourth quarter of 2024 and first quarter of 2024.
Previous wording
•Asset Quality - Allowance for credit losses (“ACL”) was $58.7 million at September 30, 2024, compared to $58.5 million at June 30, 2024. The third quarter of 2024 ACL as a percentage of loans remained stable at 1.24% from the second quarter of 2024. Nonperforming assets to total assets were 0.27% for the third quarter of 2024 compared to 0.29% for the second quarter of 2024 and 0.23% for the fourth quarter of 2023. Classified assets to total assets increased to 0.39% in the third quarter of 2024 compared to 0.33% for the second quarter of 2024 and 0.25% for the fourth quarter of 2023.
Current wording
•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, 2024 and decreased compared to 1.23% at March 31, 2024.
Previous wording
A comparison of the results of operations for the three and nine months ended September 30, 2024 and September 30, 2023 is presented below.
Current wording
A comparison of the results of operations for the three months ended March 31, 2025 and 2024 is presented below.
Previous wording
The Company reported net income for the three months ended September 30, 2024 of $11.2 million or $0.34 diluted earnings per common share compared to a net loss of $9.7 million or diluted earnings per common share of $(0.29) for the three months ended September 30, 2023. The Company’s ROAA, ROACE and ROATCE were 0.77%, 8.41% and 12.37%, respectively, for the three months ended September 30, 2024, compared to (0.67)%, (7.25)% and 1.74%, respectively, for the three months ended September 30, 2023.
Current wording
The Company reported net income for the three months ended March 31, 2025 of $13.8 million, or $0.41 diluted earnings per common share, compared to $8.2 million, or diluted earnings per common share of $0.25, for the three months ended March 31, 2024. The Company’s ROAA, ROACE and ROATCE were 0.91%, 10.20% and 14.05%, respectively, for the three months ended March 31, 2025, compared to 0.57%, 6.38% and 13.39%, respectively, for the three months ended March 31, 2024.
Previous wording
Tax-equivalent net interest income is net interest income adjusted for the tax-favored status of income from certain loans and investments. As shown in the table below, tax-equivalent net interest income was $43.3 million for the third quarter of 2024 and $45.7 million for the third quarter of 2023. The decrease in tax-equivalent net interest income was primarily due to an increase in interest on deposits, a decrease in interest on deposits with other banks and an increase in interest on long-term borrowings, partially offset by an increase in interest and fees on loans, all significantly impacted by the merger with TCFC in the third quarter of 2023.
Current wording
Tax-equivalent NII is NII adjusted for the tax-favored status of income from certain loans and investments. As shown in the table below, tax-equivalent NII was $46.1 million for the first quarter of 2025 and $41.2 million for the first quarter of 2024. The increase was primarily due to increases in interest and fees on loans of$1.9 million, interest on deposits at other banks of$2.4 million and interest on investment securities of $582 thousand.
Previous wording
The following tables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the nine months ended September 30, 2024 and 2023.
Current wording
The following table presents the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the three months ended March 31, 2025 and 2024.
Previous wording
(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $5.0 million and $6.1 million of accretion interest on loans for the three months ended September 30, 2024 and 2023, respectively.
Current wording
(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $3.7 million and $4.2 million of accretion interest on loans for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $287 thousand and $484 thousand of amortization of deposits premium, and $232 thousand and $232 thousand of amortization of borrowing fair value adjustment for the three months ended September 30, 2024 and 2023, respectively.
Current wording
(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $334 thousand and $367 thousand of amortization of deposits premium, and $232 thousand and $220 thousand of amortization of borrowing fair value adjustment for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
The following table presents changes in volume and rate related to interest income and interest expense for the periods indicated.
Current wording
The following table presents changes in interest income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.
Previous wording
Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities.
Current wording
Fluctuations in NII can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities.
Previous wording
Net interest income was $43.3 million for the third quarter of 2024, compared to $45.6 million for the third quarter of 2023. The decrease was primarily due to an increase in interest on deposits of $5.4 million, a decrease in interest on deposits with other banks of $649 thousand and an increase in interest on long-term borrowings of $618 thousand. These changes were partially offset by an increase in interest and fees on loans of $4.3 million.
Current wording
NII was $46.0 million for the first quarter of 2025, compared to $41.1 million for the first quarter of 2024. The increase was primarily due to increases in interest and fees on loans of$1.9 million, interest on deposits at other banks of$2.4 million and interest on investment securities of $582 thousand.
Previous wording
The Company’s NIM decreased to 3.17% for the third quarter of 2024 from 3.35% for the third quarter of 2023. Comparing the third quarter of 2024 to the third quarter of 2023, the Company’s interest-earning asset yields increased 23 basis points to 5.47% from 5.24%, while the cost of funds repriced at a faster pace resulting in an increase of 43 basis points to 2.38% from 1.95% for the same period.
Current wording
The Company’s NIM increased to 3.24% for the first quarter of 2025 from 3.08% for the first quarter of 2024. Comparing the first quarter of 2025 to the first quarter of 2024, the Company’s interest-earning asset yields remained flat at 5.35% while the cost of funds repriced at a faster pace resulting in a decrease of 11 basis points to 2.20% from 2.31% for the same period.
Previous wording
Provision for Credit Losses (“PCL”) and Allowance for Credit Losses
Current wording
Provision for Credit Losses (“PCL”) and ACL
Previous wording
See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A.
Current wording
See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this management’s discussion and analysis of financial condition and results of operations.
Previous wording
The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.
Current wording
The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent upon the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.
Previous wording
Liquidity is provided by access to funding sources, which include core depositors and brokered deposits. Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB of Atlanta. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.
Current wording
Liquidity is provided by access to funding sources, which include core deposits and brokered deposits. Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.
Previous wording
We derive liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets. As seen in the Consolidated Statements of Cash Flows, the net decrease in cash and cash equivalents was $188.8 million for the first nine months of 2024 compared to an increase of $53.2 million for the first nine months of 2023. The decrease in cash and cash equivalents in the first nine months of 2024 was mainly due to the decrease of $474.8 million in interest-bearing deposits, partially offset by an increase of $313.4 million in noninterest-bearing deposits.
Current wording
We derive liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets. As seen in the consolidated statements of cash flows, the net decrease in cash and cash equivalents was $70.8 million for the first three months of 2025, compared to a net decrease of $257.9 million for the first three months of 2024. The decrease in cash and cash equivalents in the first three months of 2025 was mainly due to the decrease of $70.5 million in interest-bearing deposits, partially offset by an increase of $2.2 million in noninterest-bearing deposits.
Previous wording
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets. At September 30, 2024, the Bank had approximately $1.12 billion of available liquidity including: $183.6 million in cash and cash equivalents, $321.2 million in unpledged securities, $742.4 million in secured borrowing capacity at the FHLB of Atlanta offset by FHLB advances and letter of credit of $50.0 million and $81.1 million, respectively. The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash. Through the FHLB of Atlanta, the Bank had available lendable collateral of approximately $742.4 million and $745.1 million at September 30, 2024 and December 31, 2023, respectively. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta.
Current wording
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets. At March 31, 2025, the Bank had approximately $1.35 billion of available liquidity, including $389.0 million in cash and cash equivalents, $319.0 million in unpledged securities, $729.5 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $39.1 million, respectively. The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash. Through the FHLB, the Bank had available lendable collateral of approximately $729.5 million and $743.6 million at March 31, 2025 and December 31, 2024, respectively. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta. The following table presents the Company’s liquidity in use and liquidity available as of March 31, 2025.
Previous wording
For information on risks relating to liquidity, see Item 1A. “Risk Factors - Liquidity Risk,” as presented in the Company's 2023 Annual Report.
Current wording
For information about risks relating to liquidity, see “Risk Factors – Risks Relating to Our Business” included in Part I, Item 1A. in the 2024 Annual Report.
Previous wording
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%. The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio. The Bank was deemed “well capitalized” under applicable regulatory capital requirements at September 30, 2024.
Current wording
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1 (“CET1”), Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%. The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio. The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at March 31, 2025.
Previous wording
The Bank and Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. The following tables present the applicable capital ratios for the Company and the Bank as of September 30, 2024 and December 31, 2023.
Current wording
As of March 31, 2025, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations. The following tables present the applicable capital ratios for the Company and the Bank as of March 31, 2025 and December 31, 2024.
Previous wording
The Company provides banking services to customers who do business in the cannabis industry. While the Company is providing banking services to customers that are engaged in the growing, processing, and sales of cannabis in a manner that complies with applicable state law, such customers engaged in those activities currently violate Federal laws. The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers. While we are not aware of any instance of a federally-insured financial institution being subject to such aiding and abetting liability, the strict enforcement of Federal laws regarding cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the Federal government, including imprisonment and fines. There is an uncertainty of the potential impact to the Company’s Consolidated Financial Statements if the Federal government takes actions against the Company. As of September 30, 2024, the Company had not accrued an amount for the potential impact of any such actions.
Current wording
The Company provides banking services to customers who do business in the cannabis industry. Prior to the second quarter of 2022, the Company restricted these businesses to include only those in the medical-use cannabis industry in the State of Maryland. During the second quarter of 2022, the Company expanded its cannabis banking program to include both medical and adult-use licensees in other states, with an initial offering of the Company’s existing Maryland customers with multi-state operations. While the Company is providing banking services to customers that are engaged in growing, processing, and sales of both medical and adult-use cannabis in a manner that complies with applicable state law, such customers engaged in those activities currently violate federal law. The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers. While we are not aware of any instance of a federally-insured financial institution being subject to such aiding and abetting liability, the strict enforcement of federal laws regarding cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the federal government, including imprisonment and fines. There is an uncertainty of the potential impact to the Company’s consolidated financial statements if the federal government takes actions against the Company. As of March 31, 2025, the Company has not accrued an amount for the potential impact of any such actions.
Previous wording
Following is a summary of the level of business activities with our cannabis industry customers:
Current wording
The following is a summary of the level of business activities with our cannabis customers:
Previous wording
•Deposit and loan balances at September 30, 2024 were approximately $134.0 million, or 2.6% of total deposits, and $75.1 million, or 1.6% of total gross loans, respectively.
Current wording
•Deposit and loan balances at March 31, 2025 were approximately $175.9 million, or 3.2% of total deposits, and $83.0 million, or 1.7% of total gross loans, respectively. Deposit and loan balances at December 31, 2024 were approximately $151.4 million, or 2.7% of total deposits, and $82.6 million, or 1.7% of total gross loans, respectively.
Previous wording
Total assets were $5.92 billion at September 30, 2024, a decrease of $93.2 million, or 1.6%, when compared to $6.01 billion at December 31, 2023. The aggregate decrease was primarily due to decreases in cash and cash equivalents of $188.8 million and investment securities held to maturity (“HTM”) of $28.6 million partially offset by an increase in investment securities available for sale (“AFS”) of $22.8 million and loans held for investment of $92.9 million. The ratios of the ACL on loans to total loans were 1.24% and 1.24% at September 30, 2024 and December 31, 2023, respectively.
Current wording
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 decreases in cash and cash equivalents of $70.8 million and held to maturity (“HTM”) securities of $11.5 million, partially offset by increases in available for sale (“AFS”) securities of $29.9 million and loans held for investment of $5.5 million. The ratio of the ACL as a percentage of loans was 1.21% and 1.21% at March 31, 2025 and December 31, 2024, respectively.
Previous wording
Cash and cash equivalents totaled $183.6 million at September 30, 2024, compared to $372.4 million at December 31, 2023. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.
Current wording
Cash and cash equivalents totaled $389.0 million at March 31, 2025, compared to $459.9 million at December 31, 2024. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.
Previous wording
The investment portfolio includes debt and equity securities. Securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity. At September 30, 2024, 21.6% of the portfolio of debt securities was classified as AFS and 78.4% was classified as HTM, compared to 17.7% and 82.3% respectively, at December 31, 2023. See Note 3 – “Investment Securities”, in the Notes to Consolidated Financial Statements for additional details on the composition of our investment portfolio.
Current wording
The investment portfolio includes debt and equity securities. Debt securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity. At March 31, 2025, 27.6% of the portfolio of debt securities was classified as AFS and 72.4% was classified as HTM, compared to 23.7% and 76.3% respectively, at December 31, 2024. See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1. of this Quarterly Report on Form 10-Q for additional details on the composition of our investment portfolio.
Previous wording
Investment securities, including restricted stock and equity securities, totaled $644.2 million at September 30, 2024, a $3.2 million, or 0.5%, decrease compared to $647.4 million at December 31, 2023.
Current wording
Investment securities, including restricted stock and equity securities, totaled $675.1 million at March 31, 2025, an $18.7 million or 2.9% increase, compared to $656.4 million at December 31, 2024.
Showing the first 40 of 69 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Current report — wording carried from elsewhere
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of CET1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%. The Bank is also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.
Rearranged previous paragraphs (8)
Previous report — wording carried elsewhere
(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.
Previous report — wording carried elsewhere
(2) Average loan balances include nonaccrual loans.
Previous report — wording carried elsewhere
(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $13.7 million and $7.0 million of accretion interest on loans for the nine months ended September 30, 2024 and 2023, respectively.
Previous report — wording carried elsewhere
(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $1.1 million and $308 thousand of amortization of deposits premium, and $695 thousand and $325 thousand of amortization of borrowing fair value adjustment for the nine months ended September 30, 2024 and 2023, respectively.
Previous report — wording carried elsewhere
The following table presents changes in volume and rate related to interest income and interest expense for the periods indicated.
Previous report — wording carried elsewhere
See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A.
Previous report — wording carried elsewhere
(1)Excludes loans held for sale.
Previous report — wording carried elsewhere
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)