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Shore Bancshares Inc (SHBI) Reports Q3 2023 Net Loss of $6.4 Million Due to Merger Activity

  • Shore Bancshares Inc (NASDAQ:SHBI) reported a net loss of $6.4 million in Q3 2023, primarily due to one-time merger-related activity.

  • The company completed its merger with The Community Financial Corporation, resulting in a combined company with total assets exceeding $5.7 billion.

  • Despite the net loss, Shore Bancshares Inc (NASDAQ:SHBI) reported a significant increase in net interest margin and total deposits.

  • The company's allowance for credit losses increased to account for the merger.

Shore Bancshares Inc (NASDAQ:SHBI) released its earnings report for the third quarter and first nine months of 2023 on November 1, 2023. The company reported a net loss of $6.4 million or $0.19 per diluted common share for Q3 2023, compared to a net income of $4.0 million or $0.20 per diluted common share for Q2 2023, and a net income of $9.7 million or $0.49 per diluted common share for Q3 2022. The net income for the first nine months of 2023 was $4.1 million or $0.17 per diluted common share, compared to a net income of $22.8 million or $1.15 per diluted common share for the same period in 2022.

Merger Completion and Financial Highlights

The third quarter results include the successful completion of the merger with The Community Financial Corporation, resulting in a combined company with total assets exceeding $5.7 billion. The merger contributed approximately $2.4 billion in total assets, $1.8 billion in loans, and $2.1 billion in deposits.

Despite the net loss, Shore Bancshares Inc (NASDAQ:SHBI) reported a significant increase in its net interest margin (NIM), which rose to 3.35% in Q3 2023 from 2.68% in Q2 2023. The company also reported a 73.91% quarterly increase in total deposits to $5.1 billion and a 55.5% quarterly increase in non-interest bearing deposits to $1.2 billion at the end of September 2023.

Increased Allowance for Credit Losses

The company's allowance for credit losses (ACL) increased during Q3 2023 primarily to account for the merger. The ACL rose from $29.0 million and 1.05% of total loans at the end of June 2023 to $57.1 million and 1.24% of total loans at the end of September 2023. The company's provision for credit losses for Q3 2023 was $28.2 million, consisting of approximately $20.1 million related to the acquisition of The Community Financial Corporation's legacy loans, $7.3 million due to the change in ACL methodology on Shore Bancshares Inc (NASDAQ:SHBI)'s legacy loans, and $0.8 million related to third quarter activity.

CEO Commentary

The merger of Shore Bancshares with The Community Financial Corporation established a dominant community banking franchise that we believe can deliver exceptional financial services to the communities we serve, stated James (Jimmy) M. Burke, President and Chief Executive Officer of Shore Bancshares, Inc. We believe our increased scale, expanded products, and greater resources will drive growth and create long-term shareholder value. While merger-related expenses and accounting adjustments negatively impacted third quarter earnings, we are pleased with our core operating performance and the opportunities to further enhance our financial results."

Despite the net loss, the company remains optimistic about its future performance, citing the successful completion of its core system conversion in September 2023 and the implementation of several cost-saving initiatives expected to reduce expenses in future quarters.

Explore the complete 8-K earnings release (here) from Shore Bancshares Inc for further details.

This article first appeared on GuruFocus.

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