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Shore Bancshares Reports 2022 Financial Results

Shore Bancshares Reports 2022 Financial Results
PR Newswire
EASTON, Md., Jan. 26, 2023

EASTON, Md., Jan. 26, 2023 /PRNewswire/ — Shore Bancshares, Inc. (NASDAQ – SHBI) (the “Company”) reported net income of $8.407 million or $0.42 per diluted comm…

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Shore Bancshares Reports 2022 Financial Results

PR Newswire

EASTON, Md., Jan. 26, 2023 /PRNewswire/ -- Shore Bancshares, Inc. (NASDAQ - SHBI) (the "Company") reported net income of $8.407 million or $0.42 per diluted common share for the fourth quarter of 2022, compared to net income of $9.658 million or $0.49 per diluted common share for the third quarter of 2022, and net income of $2.723 million or $0.16 per diluted common share for the fourth quarter of 2021. Net income for the fiscal year of 2022 was $31.177 million or $1.57 per diluted common share, compared to net income for the fiscal year of 2021 of $15.368 million or $1.17 per diluted common share. Net income, excluding merger related expenses, for the fourth quarter of 2022 was $9.123 million or $0.46 per diluted common share, compared to net income, excluding merger related expenses, of $9.774 million or $0.49 per diluted common share for the third quarter of 2022 and net income, excluding merger related expenses, of $7.914 million or $0.46 per diluted common share for the fourth quarter 2021. Net income, excluding merger related expenses, for the fiscal year of 2022 was $32.728 million or $1.65 per diluted common share compared to net income for the fiscal year of 2021 of $21.237 million or $1.62 per diluted common share. On December 14, 2022, the Company and The Community Financial Corporation ("TCFC") announced that they had entered into a merger agreement pursuant to which TCFC will be merged with and into the Company. The Company anticipates additional merger-related expenses due to the pending TCFC acquisition.

When comparing net income, excluding merger related expenses, for the fourth quarter of 2022 to the third quarter of 2022, net income decreased $651 thousand due to a decrease in net interest income of $372 thousand and an increase in noninterest expense of $1.3 million partially offset by an increase in noninterest income of $518 thousand and a decrease in provision for credit losses of $225 thousand. When comparing net income, excluding merger related expenses, for the fourth quarter of 2022 to the fourth quarter of 2021, net income increased $1.2 million primarily due to increases in net interest income of $6.3 million and noninterest income of $733 thousand offset by increases in noninterest expense of $4.2 million due to the acquisition of Severn Bank ("Severn") in November of 2021.

"We are pleased to report our fourth quarter earnings and fiscal year 2022 financial results," said Lloyd L. "Scott" Beatty, Jr., President and Chief Executive Officer. "In 2022, we experienced significant loan growth of just over 20% and successful integration of Severn. With the recent announcement of our pending merger with TCFC, we expect the future of the combined organizations to be very promising given our ability to help customers with higher loan limits, make greater investments in technology and increased career opportunities for employees."

Balance Sheet Review

Total assets were $3.477 billion at December 31, 2022, a $17.1 million, or less than 1.0%, increase when compared to $3.460 billion at the end of 2021. During 2022, the Company shifted its asset mix by deploying cash and cash equivalents into higher yielding assets which consisted of loans and investment securities. As of December 31, 2022, the Company had 4 Paycheck Protection Program ("PPP') loans totaling $187 thousand that were outstanding.

Total deposits decreased $16.5 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 $85.7 million, noninterest-bearing deposits of $65.5 million and time deposits of $35.2 million, partially offset by an increase in interest bearing checking accounts of $170.0 million.

Total stockholders' equity increased $13.6 million, or 3.9%, 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 $9.1 million. At December 31, 2022, the ratio of total equity to total assets was 10.48% and the ratio of total tangible equity to total tangible assets was 8.67% compared to 10.14% and 8.25% at the end of 2021, respectively.

Review of Quarterly Financial Results

Net interest income was $26.9 million for the fourth quarter of 2022, compared to $27.3 million for the third quarter of 2022 and $20.6 million for the fourth quarter of 2021. The decrease in net interest income when compared to the third quarter of 2022 was primarily due to increases in interest expense on interest-bearing deposits of $2.0 million. In addition, the decrease in the average balance on deposits with other banks of $187.3 million resulted in a decrease in interest income of $802 thousand, partially offset by an increase in interest and fees on loans of $1.7 million and interest on investment securities of $759 thousand. The improvement in interest and fees on loans was due to an increase in the average balance of loans of $140.0 million, or 6.0%. The decrease in interest on deposits at other banks was due to the utilization of cash to fund loan growth with higher yields. The increase in interest on taxable investment securities was driven by an increase in the rates of 33bps and an increase in the average balance within these securities of $43.1 million, or 7.0%.

The increase in net interest income when compared to the fourth quarter of 2021 was primarily due to increases in interest and fees on loans of $7.1 million, interest on taxable investment securities of $2.3 million and interest on deposits with other banks of $495 thousand, partially offset by expense increases in interest-bearing deposits of $3.3 million, short term borrowings of $69 thousand and long-term borrowings of $228 thousand.

The Company's net interest margin decreased to 3.35% for the fourth quarter of 2022 from 3.38% for the third quarter of 2022 and increased compared to 2.87% for the fourth quarter of 2021. The decrease in net interest margin when compared to the third quarter of 2022 was primarily due to higher rates paid on interest bearing deposits and borrowings partially offset by higher yields on earning assets. The increase in net interest margin compared to the fourth quarter of 2021 was due to significantly higher volume as well as improved yields on all earning assets.

The provision for credit losses was $450 thousand for the three months ended December 31, 2022. The comparable amounts were $675 thousand and $(1.7) million for the three months ended September 30, 2022, and December 31, 2021, respectively. The decrease in the provision for credit losses during the fourth quarter of 2022 as compared to the prior quarters was primarily a result of eliminating pandemic related qualitative reserves in the fourth quarter of 2022. Net charge offs for the fourth quarter of 2022 were $84 thousand, compared to net recoveries of $119 thousand for the third quarter of 2022 and net recoveries of $142 thousand for the fourth quarter of 2021. The ratio of the allowance for credit losses to period-end loans, excluding PPP loans and acquired loans, was 0.78% at December 31, 2022, compared to 0.84% at September 30, 2022, and 0.96% at December 31, 2021. The decline in the percentage of the allowance from the third quarter of 2022 was primarily due to eliminating pandemic related qualitative reserves. The decline in the percentage of the allowance from the fourth quarter of 2021 was primarily the result of lower historical loss experience as well as eliminating pandemic related qualitative reserves.

At December 31, 2022 and September 30, 2022, nonperforming assets were $4.0 million and $2.8 million, respectively. The balance of nonperforming assets increased primarily due to an increase in loans 90 days past due still accruing of $1.2 million at December 31, 2022 compared to September 30, 2022. When comparing the fourth quarter of 2022 to the fourth quarter of 2021, nonperforming assets increased $902 thousand, or 29.6%, primarily due to increases in loans 90 days past due and still accruing of $1.3 million, or 262.4% which was a result of growth and timing of matured loans. Accruing TDRs decreased $1.3 million, or 22.3%, compared to the fourth quarter of 2021. The ratio of nonperforming assets and accruing TDRs to total assets at December 31, 2022, and September 30, 2022 was 0.24% and 0.21% respectively, and was 0.25% at December 31, 2021. In addition, the ratio of accruing TDRs to total loans at December 31, 2022 was 0.17% compared to 0.19% at September 30, 2022 and 0.27% at December 31, 2021.

Total noninterest income for the fourth quarter of 2022 increased $518 thousand, or 9.7%, when compared to the third quarter of 2022 and increased $733 thousand, or 14.3%, when compared to the fourth quarter of 2021. The increase compared to the third quarter of 2022 was primarily due to increases in revenue associated with the mortgage division of $887 thousand, or 130.4%, partially offset by decreases in other banking fees of $206 thousand, or 6.5% and service charges on deposit accounts of $163 thousand, or 10.8%. The increase in noninterest income when compared to the fourth quarter of 2021 was primarily due to increases in revenue associated with the mortgage division of $619 thousand, or 65.3% and, service charges on deposit accounts of $112 thousand, or 9.1%.

Total noninterest expense, excluding merger related expenses, for the fourth quarter of 2022 increased $1.3 million or 6.9%, when compared to the third quarter of 2022 and increased $4.2 million, or 26.1%, when compared to the fourth quarter of 2021. The increase in noninterest expense when compared to the third quarter of 2022 was primarily due to an increase in accruals on bonuses and group insurance in the fourth quarter. The increase from the fourth 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 and the addition of two new branches in 2022.

Review of 2022 Financial Results

Net interest income for 2022 was $101.3 million, an increase of $37.2 million, or 58.0%, when compared to 2021. The increase in net interest income was primarily due to an increase in total interest income of $43.7 million, or 62.2%, specifically interest and fees on loans of $34.3 million, or 53.0%. The improvement in interest and fees on loans was primarily due to the increase in the average balance of $725.2 million, or 46.2%, coupled with accretion income from acquired loans of $3.0 million for 2022. Taxable investment securities and interest on deposits with other banks increased $6.5 million and $2.8 million, respectively, partially offset by an increase in total interest expense of $6.5 million, or 107.7%. The increase in interest expense was primarily the result of an increase in the average balance of interest-bearing deposits of $684.5 million, or 47.5%. Interest on short term and long-term borrowings increased by $988 thousand due to short and long-term advances with the FHLB and junior subordinated debt acquired as part of the Severn acquisition. The long-term advances with the FHLB matured in October of 2022.

The provision for credit losses for 2022 and 2021 was $1.9 million and $(358) thousand, respectively. The increase in provision for credit losses was the result of an increase in loans held for investment in 2022 of $436.9 million. The ratio of the allowance to total loans decreased from 0.66% at December 31, 2021, to 0.65% at December 31, 2022. Excluding PPP loans and acquired loans, the ratio of the allowance for credit losses to period-end loans was 0.78% at December 31, 2022, lower than the 0.96% at December 31, 2021, primarily due to lower historical loss experience and the elimination of pandemic related qualitative factors.

Total noninterest income for 2022 increased $9.6 million, or 71.0%, when compared to the same period in 2021. The increase in noninterest income primarily consisted of revenue associated with the mortgage division of $4.3 million, service charges on deposit accounts of $2.3 million, revenue from Mid-Maryland Title of $1.1 million and other noninterest income of $1.2 million. The increase in other noninterest income was primarily due to increases in rental fee income of $1.3 million.

Total noninterest expense, excluding merger related expenses, for 2022 increased $29.9 million, or 62.0%, 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 and its operations and the addition of two new branches in 2022. In addition, during 2022 the Company recorded merger-related expenses of $1.2 million due to the acquisition of Severn and $935 thousand due to the pending merger with TCFC.

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 Year Ended




December 31, 


December 31, 




2022


2021


 Change


2022


2021


 Change


PROFITABILITY FOR THE PERIOD


















Net interest income


$

26,943


$

20,639


30.5

%

$

101,302


$

64,130


58.0

%

Provision for credit losses



450



(1,723)


126.1



1,925



(358)


637.7


Noninterest income



5,862



5,129


14.3



23,086



13,498


71.0


Noninterest expense



21,000



23,497


(10.6)



80,322



56,806


41.4


Income before income taxes



11,355



3,994


184.3



42,141



21,180


99.0


Income tax expense



2,948



1,271


131.9



10,964



5,812


88.6


Net income


$

8,407


$

2,723


208.7


$

31,177


$

15,368


102.9






































Return on average assets



0.97

%


0.36

%

61

bp


0.90

%


0.66

%

24

bp

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



1.09



1.07


2



0.99



0.95


4


Return on average equity



9.22



3.59


563



8.76



6.86


190


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



12.83



13.06


(23)



11.96



11.34


62


Net interest margin



3.35



2.87


48



3.15



2.94


21


Efficiency ratio - GAAP



64.01



91.19


(2,718)



64.57



73.18


(861)


Efficiency ratio - Non-GAAP (1), (2)



59.59



60.13


(54)



61.21



61.15


6




















PER SHARE DATA


















Basic and diluted net income per common share


$

0.42


$

0.16


167.1

%

$

1.57


$

1.17


34.1

%



















Dividends paid per common share


$

0.12


$

0.12



$

0.48


$

0.48



Book value per common share at period end



18.34



17.71


3.6










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



14.87



14.12


5.3










Market value at period end



17.43



20.85


(16.4)










Market range:


















High



20.85



23.19


(10.1)



21.41



23.19


(7.7)


Low



17.04



17.50


(2.6)



17.04



12.99


31.2




















AVERAGE BALANCE SHEET DATA


















Loans


$

2,467,324


$

1,887,126


30.7

%

$

2,293,627


$

1,568,468


46.2

%

Investment securities



661,968



468,724


41.2



589,842



329,890


78.8


Earning assets



3,206,591



2,842,097


12.8



3,220,672



2,185,123


47.4


Assets



3,441,079



3,037,262


13.3



3,444,981



2,317,597


48.6


Deposits



3,006,734



2,547,151


18.0



3,014,109



2,015,624


49.5


Stockholders' equity



361,623



301,095


20.1



355,850



224,055


58.8




















CREDIT QUALITY DATA


















Net (recoveries) /chargeoffs


$

84


$

(142)


159.2

%

$

(774)


$

(414)


(87.0)

%



















Nonaccrual loans


$

1,908


$

2,004


(4.8)










Loans 90 days past due and still accruing



1,841



508


262.4










Other real estate owned



197



532


(63.0)










Total nonperforming assets



3,946



3,044


29.6










Accruing troubled debt restructurings (TDRs)



4,405



5,667


(22.3)










Total nonperforming assets and accruing TDRs


$

8,351


$

8,711


(4.1)














































CAPITAL AND CREDIT QUALITY RATIOS


















Period-end equity to assets



10.48

%


10.14

%

34

bp









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



8.67



8.25


42




























Annualized net (recoveries) to average loans



0.01



(0.03)


4



(0.03)

%


(0.03)

%

bp



















Allowance for credit losses as a percent of:


















Period-end loans (3)



0.65



0.66


(1)










Period-end loans (4)



0.78



0.96


(18)










Nonaccrual loans



872.27



695.81


17,646










Nonperforming assets



421.77



458.08


(3,631)










Accruing TDRs



377.82



246.06


13,176










Nonperforming assets and accruing TDRs



199.29



160.07


3,922




























As a percent of total loans:


















Nonaccrual loans



0.07



0.09


(2)










Accruing TDRs



0.17



0.27


(10)










Nonaccrual loans and accruing TDRs



0.25



0.36


(11)




























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


















Nonperforming assets



0.15



0.14


1










Nonperforming assets and accruing TDRs



0.33



0.41


(8)




























As a percent of total assets:


















Nonaccrual loans



0.05



0.06


(1)










Nonperforming assets



0.11



0.09


2










Accruing TDRs



0.13



0.16


(3)










Nonperforming assets and accruing TDRs



0.24



0.25


(1)










(1)

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

(2)

This ratio excludes merger related expenses (Non-GAAP) on page 5.

(3)

As of December 31, 2022 and December 31, 2021, these ratios include all loans held for investment, including PPP loans of $187 thousand and $27.6 million, respectively.

(4)

As of December 31, 2022 and December 31, 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)




















December 31, 2022




December 31, 



December 31, 



compared to



2022


2021



December 31, 2021

ASSETS










Cash and due from banks


$

37,661


$

16,919



122.6

Interest-bearing deposits with other banks



17,838



566,694



(96.9)

Cash and cash equivalents



55,499



583,613



(90.5)











Investment securities available for sale (at fair value)



83,587



116,982



(28.5)

Investment securities held to maturity (at amortized cost)



559,455



404,594



38.3

Equity securities, at fair value



1,233



1,372



(10.1)

Restricted securities



11,169



4,159



168.6











Loans held for sale, at fair value



4,248



37,749



(88.7)











Loans held for investment



2,556,107



2,119,175



20.6

Less: allowance for credit losses



(16,643)



(13,944)



19.4

Loans, net



2,539,464



2,105,231



20.6











Premises and equipment, net



51,488



51,624



(0.3)

Goodwill



63,266



63,421



(0.2)

Other intangible assets, net



5,547



7,535



(26.4)

Other real estate owned, net



197



532



(63.0)

Mortgage servicing rights, at fair value



5,275



4,087



29.1

Right of use assets, net



9,629



11,370



(15.3)

Cash surrender value on life insurance



59,218



47,935



23.5

Other assets



28,001



19,932



40.5

Total assets


$

3,477,276


$

3,460,136



0.5











LIABILITIES










Noninterest-bearing deposits


$

862,015


$

927,497



(7.1)

Interest-bearing deposits



2,147,769



2,098,739



2.3

Total deposits



3,009,784



3,026,236



(0.5)











Securities sold under retail repurchase agreements





4,143



(100.0)

Advances from FHLB - short-term



40,000





Advances from FHLB - long-term





10,135



(100.0)

Subordinated debt



43,072



42,762



0.7

Total borrowings



83,072



57,040














Lease liabilities



9,908



11,567



(14.3)

Accrued expenses and other liabilities



10,227



14,600



(30.0)

Total liabilities



3,112,991



3,109,443



0.1











COMMITMENTS AND CONTINGENCIES




















STOCKHOLDERS' EQUITY










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



199



198



0.5

Additional paid in capital



201,494



200,473



0.5

Retained earnings



171,613



149,966



14.4

Accumulated other comprehensive (loss) income



(9,021)



56



(16,208.9)

Total stockholders' equity



364,285



350,693



3.9

Total liabilities and stockholders' equity


$

3,477,276


$

3,460,136



0.5











Period-end common shares outstanding



19,865



19,808



0.3

Book value per common share


$

18.34


$

17.71



3.6

 

Shore Bancshares, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)






















For the Three Months Ended



For the Year Ended




December 31, 


December 31, 




2022


2021


% Change


2022


2021


% Change


INTEREST INCOME


















Interest and fees on loans


$

27,664


$

20,564


34.5

%

$

99,122


$

64,795


53.0

%

Interest on investment securities:


















Taxable



3,945



1,663


137.2



11,507



5,006


129.9


Tax-exempt



6




100.0



6




100.0


Interest on deposits with other banks



664



169


292.9



3,210



368


772.3


Total interest income



32,279



22,396


44.1



113,845



70,169


62.2




















INTEREST EXPENSE


















Interest on deposits



4,554



1,272


258.0



9,983



4,461


123.8


Interest on short-term borrowings



72



3


2,300.0



74



8


825.0


Interest on long-term borrowings



710



482


47.3



2,486



1,570


58.3


Total interest expense



5,336



1,757


203.7



12,543



6,039


107.7




















NET INTEREST INCOME



26,943



20,639


30.5



101,302



64,130


58.0


Provision for credit losses



450



(1,723)


126.1



1,925



(358)


637.7




















NET INTEREST INCOME AFTER PROVISION


















FOR CREDIT LOSSES



26,493



22,362


18.5



99,377



64,488


54.1




















NONINTEREST INCOME


















Service charges on deposit accounts



1,346



1,234


9.1



5,652



3,396


66.4


Trust and investment fee income



401



522


(23.2)



1,784



1,881


(5.2)


Gains on sales and calls of investment securities










2



Interchange credits



1,280



1,043


22.7



4,812



3,964


21.4


Mortgage-banking revenue



1,567



948


65.3



5,210



948


449.6


Title Company revenue



194



247


(21.5)



1,340



247


442.5


Other noninterest income



1,074



1,135


(5.4)



4,288



3,060


40.1


Total noninterest income



5,862



5,129


14.3



23,086



13,498


71.0




















NONINTEREST EXPENSE


















Salaries and wages



8,909



7,727


15.3



35,931



21,222


69.3


Employee benefits



2,786



2,271


22.7



9,908



7,262


36.4


Occupancy expense



1,694



1,263


34.1



6,242



3,690


69.2


Furniture and equipment expense



648



385


68.3



2,018



1,553


29.9


Data processing



1,856



1,487


24.8



6,890



5,001


37.8


Directors' fees



222



170


30.6



839



620


35.3


Amortization of intangible assets



460



381


20.7



1,988



734


170.8


FDIC insurance premium expense



315



362


(13.0)



1,426



1,015


40.5


Other real estate owned, net



13



(2)


750.0



65



4


1,525.0


Legal and professional fees



636



150


324.0



2,840



1,742


63.0


Merger related expenses



967



7,615


(87.3)



2,098



8,530


(75.4)


Other noninterest expenses



2,494



1,688


47.7



10,077



5,433


85.5


Total noninterest expense



21,000



23,497


(10.6)



80,322



56,806


41.4




















Income before income taxes



11,355



3,994


184.3



42,141



21,180


99.0


Income tax expense



2,948



1,271


131.9



10,964



5,812


88.6






































NET INCOME


$

8,407


$

2,723


208.7


$

31,177


$

15,368


102.9




















Weighted average shares outstanding - basic



19,862



17,180


15.6



19,847



13,119


51.3


Weighted average shares outstanding - diluted



19,862



17,180


15.6



19,847



13,119


51.3




















Basic and diluted net income per common share


$

0.42


$

0.16


167.1


$

1.57


$

1.17


34.1




















Dividends paid per common share



0.12



0.12




0.48



0.48



 

Shore Bancshares, Inc.

Consolidated Average Balance Sheets (Unaudited)

(Dollars in thousands)

 


























For the Three Months Ended


For the Year Ended




December 31, 


December 31, 




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)


$

2,467,324


4.45

%

$

1,887,126


4.33

%

$

2,293,627


4.33

%

$

1,568,468


4.14

%

Investment securities






















Taxable



661,519


2.39



468,724


1.42



589,729


1.95



329,890


1.52


Tax-exempt (1)



449


6.24






113


6.19





Interest-bearing deposits



77,299


3.40



486,247


0.14



337,203


0.95



286,765


0.13


Total earning assets



3,206,591


4.00

%


2,842,097


3.11

%


3,220,672


3.54

%


2,185,123


3.21

%

Cash and due from banks



29,358





22,625





18,158





19,838




Other assets



221,599





188,399





221,592





127,704




Allowance for credit losses



(16,469)





(15,859)





(15,441)





(15,068)




Total assets


$

3,441,079




$

3,037,262




$

3,444,981




$

2,317,597
















































Interest-bearing liabilities






















Demand deposits


$

670,424


1.31

%

$

494,081


0.14

%

$

638,105


0.61

%

$

450,399


0.14

%

Money market and savings deposits



1,043,076


0.60



1,001,115


0.26



1,043,032


0.35



695,056


0.21


Certificates of deposit $100,000 or more



217,051


0.79



174,268


0.49



239,927


0.57



144,209


0.84


Other time deposits



205,293


0.62



173,975


0.50



204,536


0.56



151,429


0.78


Interest-bearing deposits



2,135,844


0.85



1,843,439


0.27



2,125,600


0.47



1,441,093


0.31


Securities sold under retail repurchase






















   agreements and federal funds purchased






3,972


0.30



683


0.29



3,017


0.27


Advances from FHLB - short-term



7,391


3.86






1,863


3.86





Advances from FHLB - long-term



653


(6.08)



6,630


2.21



7,701


0.45



1,671


0.60


Subordinated debt



43,031


6.64



36,589


5.12



42,917


5.71



27,528


5.67


Total interest-bearing liabilities



2,186,919


0.96

%


1,890,630


0.37

%


2,178,764


0.57

%


1,473,309


0.41

%

Noninterest-bearing deposits



870,890





703,712





888,509





574,531




Accrued expenses and other liabilities



21,647





141,825





21,858





45,702




Stockholders' equity



361,623





301,095





355,850





224,055




Total liabilities and stockholders' equity


$

3,441,079




$

3,037,262




$

3,444,981




$

2,317,597


























Net interest spread





3.04

%




2.74

%




2.97

%




2.80

%

Net interest margin





3.35

%




2.87

%




3.15

%




2.94

%



(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)

























4th Quarter


3rd Quarter


2nd Quarter


1st Quarter


4th Quarter


Q4 2022


Q4 2022




2022


2022


2022


2022


2021


compared to


compared to




Q4 2022


Q3 2022


Q2 2022


Q1 2022


Q4 2021


Q3 2022


Q4 2021


PROFITABILITY FOR THE PERIOD





















Taxable-equivalent net interest income


$

26,981


$

27,350


$

24,656


$

22,469


$

20,652


(1.3)

%

30.6

%

Less: Taxable-equivalent adjustment



40



35



38



39



13


14.3


207.7


Net interest income



26,943



27,315



24,618



22,430



20,639


(1.4)


30.5


Provision for credit losses



450



675



200



600



(1,723)


(33.3)


126.1


Noninterest income



5,862



5,344



5,833



6,046



5,129


9.7


14.3


Noninterest expense



21,000



18,899



20,094



20,332



23,497


11.1


(10.6)


Income before income taxes



11,355



13,085



10,157



7,544



3,994


(13.2)


184.3


Income tax expense



2,948



3,427



2,658



1,931



1,271


(14.0)


131.9


Net income


$

8,407


$

9,658


$

7,499


$

5,613


$

2,723


(13.0)


208.7























Return on average assets



0.97

%


1.11

%


0.88

%


0.65

%


0.36

%

(14)

bp

61

bp

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



1.09



1.17



0.94



0.76



1.07


(8)


2


Return on average equity



9.22



10.72



8.52



6.45



3.59


(150)


563


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



12.83



13.98



11.41



9.40



13.06


(115)


(23)


Net interest margin



3.35



3.38



3.10



2.78



2.87


(3)


48


Efficiency ratio - GAAP



64.01



57.87



65.99



71.40



91.19


614


(2,718)


Efficiency ratio - Non-GAAP (1), (2)



59.59



55.79



63.44



66.93



60.13


380


(54)























PER SHARE DATA





















Basic and diluted net income per common share


$

0.42


$

0.49


$

0.38


$

0.28


$

0.16


(13.6)

%

164.5

%






















Dividends paid per common share



0.12



0.12



0.12



0.12



0.12




Book value per common share at period end



18.34



17.99



17.77



17.73



17.71


1.9


3.6


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



14.87



14.50



14.26



14.19



14.12


2.6


5.3


Market value at period end



17.43



17.32



18.50



20.48



20.85


0.6


(16.4)


Market range:





















High



20.85



20.50



21.21



21.41



23.19


1.7


(10.1)


Low



17.04



17.29



17.91



19.34



17.50


(1.4)


(2.6)























AVERAGE BALANCE SHEET DATA





















Loans


$

2,467,324


$

2,327,279


$

2,217,139


$

2,135,734


$

1,887,126


6.0

%

30.7

%

Investment securities



661,968



618,378



546,252



531,017



468,724


7.0


41.2


Earning assets



3,206,591



3,210,233



3,189,926



3,253,549



2,842,097


(0.1)


12.8


Assets



3,441,079



3,444,365



3,419,168



3,477,481



3,037,262


(0.1)


13.3


Deposits



3,006,734



3,012,658



2,993,098



3,044,213



2,547,151


(0.2)


18.0


Stockholders' equity



361,623



357,383



353,192



353,011



301,095


1.2


20.1























CREDIT QUALITY DATA





















Net (recoveries) / chargeoffs


$

84


$

(119)


$

(573)


$

(166)


$

(142)


170.6

%

159.2

%






















Nonaccrual loans


$

1,908


$

1,949


$

2,693


$

2,848


$

2,004


(2.1)


(4.8)


Loans 90 days past due and still accruing



1,841



644



803



459



508


185.9


262.4


Other real estate owned



197



197



197



561



532



(63.0)


Total nonperforming assets


$

3,946


$

2,790


$

3,693


$

3,868


$

3,044


41.4


29.6























Accruing troubled debt restructurings (TDRs)


$

4,405


$

4,458


$

4,894


$

5,004


$

5,667


(1.2)


(22.3)























Total nonperforming assets and accruing TDRs


$

8,351


$

7,248


$

8,587


$

8,872


$

8,711


15.2


(4.1)























CAPITAL AND CREDIT QUALITY RATIOS





















Period-end equity to assets



10.48

%


10.36

%


10.25

%


10.07

%


10.14

%

12

bp

34

bp

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



8.67



8.52



8.39



8.22



8.25


15


42























Annualized net (recoveries)  to average loans



0.01



(0.02)



(0.10)



(0.03)



(0.03)


3


4























Allowance for credit losses as a percent of:





















Period-end loans (3)



0.65



0.68



0.68



0.67



0.66


(3)


(1)


Period-end loans (4)



0.78



0.84



0.89



0.92



0.96


(6)


(18)


Nonaccrual loans



872.27



835.15



574.94



516.50



695.81


3,712


17,646


Nonperforming assets



421.77



583.41



419.25



380.30



458.08


(16,164)


(3,631)


Accruing TDRs



377.82



365.12



316.37



293.96



246.06


1,270


13,176


Nonperforming assets and accruing TDRs



199.29



224.57



180.31



165.80



160.07


(2,528)


3,922























As a percent of total loans:





















Nonaccrual loans



0.07



0.08



0.12



0.13



0.09


(1)


(2)


Accruing TDRs



0.17



0.19



0.22



0.23



0.27


(2)


(10)


Nonaccrual loans and accruing TDRs



0.25



0.27



0.34



0.36



0.36


(2)


(11)























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





















Nonperforming assets



0.15



0.12



0.16



0.18



0.14


3


1


Nonperforming assets and accruing TDRs



0.33



0.30



0.38



0.41



0.41


3


(8)























As a percent of total assets:





















Nonaccrual loans



0.05



0.06



0.08



0.08



0.06


(1)


(1)


Nonperforming assets



0.11



0.08



0.11



0.11



0.09


3


2


Accruing TDRs



0.13



0.13



0.14



0.14



0.16



(3)


Nonperforming assets and accruing TDRs



0.24



0.21



0.25



0.25



0.25


3


(1)




(1)

See the reconciliation table that begins on page 14.

(2)

This ratio excludes merger related expenses (Non-GAAP) on page 10.

(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)








































Q4 2022


Q4 2022



















compared to


compared to




Q4 2022


Q3 2022


Q2 2022


Q1 2022


Q4 2021


Q3 2022


Q4 2021


INTEREST INCOME





















Interest and fees on loans


$

27,664


$

25,924


$

23,452


$

22,085


$

20,564


6.7

%

34.5

%

Interest on investment securities:





















Taxable



3,945



3,186



2,392



1,985



1,663


23.8


137.2


           Tax-exempt



6










100.0


100.0


Interest on deposits with other banks



664



1,466



826



254



169


(54.7)


292.9


Total interest income



32,279



30,576



26,670



24,324



22,396


5.6


44.1























INTEREST EXPENSE





















Interest on deposits



4,554



2,561



1,511



1,358



1,272


77.8


258.0


Interest on short-term borrowings



72







2



3


100.0


2,300.0


Interest on long-term borrowings



710



700



541



534



482


1.4


47.3


Total interest expense



5,336



3,261



2,052



1,894



1,757


63.6


203.7























NET INTEREST INCOME



26,943



27,315



24,618



22,430



20,639


(1.4)


30.5


Provision for credit losses



450



675



200



600



(1,723)


(33.3)


126.1























NET INTEREST INCOME AFTER PROVISION





















FOR CREDIT LOSSES



26,493



26,640



24,418



21,830



22,362


(0.6)


18.5























NONINTEREST INCOME





















Service charges on deposit accounts



1,346



1,509



1,438



1,359



1,234


(10.8)


9.1


Trust and investment fee income



401



421



447



514



522


(4.8)


(23.2)


Interchange credits



1,280



1,241



1,253



1,038



1,043


3.1


22.7


Mortgage-banking revenue



1,567



680



1,096



1,867



948


130.4


65.3


Title Company revenue



194



397



426



323



247


(51.1)


(21.5)


Other noninterest income



1,074



1,096



1,173



945



1,135


(2.0)


(5.4)


Total noninterest income



5,862



5,344



5,833



6,046



5,129


9.7


14.3























NONINTEREST EXPENSE





















Salaries and wages



8,909



8,562



8,898



9,562



7,727


4.1


15.3


Employee benefits



2,786



2,191



2,269



2,662



2,271


27.2


22.7


Occupancy expense



1,694



1,496



1,485



1,567



1,263


13.2


34.1


Furniture and equipment expense



648



533



411



429



385


21.6


68.3


Data processing



1,856



1,759



1,668



1,607



1,487


5.5


24.8


Directors' fees



222



217



210



190



170


2.3


30.6


Amortization of intangible assets



460



499



511



517



381


(7.8)


20.7


FDIC insurance premium expense



315



339



429



343



362


(7.1)


(13.0)


Other real estate owned expenses, net



13



1



57



(6)



(2)


1,200.0


750.0


Legal and professional fees



636



756



811



637



150


(15.9)


324.0


Merger related expenses



967



159



241



730



7,615


508.2


(87.3)


Other noninterest expenses



2,494



2,387



3,104



2,094



1,688


4.5


47.7


Total noninterest expense



21,000



18,899



20,094



20,332



23,497


11.1


(10.6)























Income before income taxes



11,355



13,085



10,157



7,544



3,994


(13.2)


184.3


Income tax expense



2,948



3,427



2,658



1,931



1,271


(14.0)


131.9























NET INCOME


$

8,407


$

9,658


$

7,499


$

5,613


$

2,723


(13.0)


208.7























Weighted average shares outstanding - basic



19,862



19,852



19,847



19,828



17,180


0.1


15.6


Weighted average shares outstanding - diluted



19,862



19,852



19,847



19,828



17,180


0.1


15.6























Basic and diluted net income per common share


$

0.42


$

0.49


$

0.38


$

0.28


$

0.16


(13.6)


164.5























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





























Q4 2022


Q4 2022





























compared to


compared to




Q4 2022


Q3 2022


Q2 2022


Q1 2022


Q4 2021


Q3 2022


Q4 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)


$

2,467,324


4.45

%

$

2,327,279


4.43

%

$

2,217,139


4.25

%

$

2,135,734


4.20

%

$

1,887,126


4.33

%

6.0

%

30.7

%

Investment securities































Taxable



661,519


2.39



618,378


2.06



546,252


1.75



531,017


1.49



468,724


1.42


7.0


41.1


Tax-exempt (1)



449


6.24














100.0


100.0


Interest-bearing deposits



77,299


3.40



264,576


2.20



426,535


0.78



586,798


0.18



486,247


0.14


(70.8)


(84.1)


Total earning assets



3,206,591


4.00

%


3,210,233


3.78

%


3,189,926


3.36

%


3,253,549


3.01

%


2,842,097


3.11

%

(0.1)


12.8


Cash and due from banks



29,358





31,724





26,162





(15,253)





22,625




(7.5)


29.8


Other assets



221,599





218,163





218,353





253,424





188,399




1.6


17.6


Allowance for credit losses



(16,469)





(15,755)





(15,273)





(14,239)





(15,859)




4.5


3.8


Total assets


$

3,441,079




$

3,444,365




$

3,419,168




$

3,477,481




$

3,037,262




(0.1)


13.3

































Interest-bearing liabilities































Demand deposits


$

670,424


1.31

%

$

646,399


0.66

%

$

644,881


0.22

%

$

589,737


0.16

%

$

494,081


0.14

%

3.7


35.7


Money market and savings deposits



1,043,076


0.60



1,034,580


0.35



1,019,295


0.21



1,075,791


0.23



1,001,115


0.26


0.8


4.2


Certificates of deposit $100,000 or more



217,051


0.79



222,697


0.55



234,325


0.58



286,587


0.40



174,268


0.49


(2.5)


24.6


Other time deposits



205,293


0.62



215,014


0.51



221,714


0.54



175,683


0.57



173,975


0.50


(4.5)


18.0


Interest-bearing deposits



2,135,844


0.85



2,118,690


0.48



2,120,215


0.29



2,127,798


0.26



1,843,439


0.27


0.8


15.9


Securities sold under retail repurchase agreements































    and federal funds purchased












2,770


0.29



3,972


0.30



(100.0)


Advances from FHLB - short-term



7,391


3.86














100.0


100.0


Advances from FHLB - long-term



653


(6.08)



10,035


0.63



10,075


0.60



10,116


0.57



6,630


2.21


(93.5)


(90.2)


Subordinated debt



43,031


6.64



42,953


6.33



42,876


4.93



42,804


4.93



36,589


5.12


0.2


17.6


Total interest-bearing liabilities



2,186,919


0.96

%


2,171,678


0.60

%


2,173,166


0.38

%


2,183,488


0.35

%


1,890,630


0.37

%

0.7


15.7


Noninterest-bearing deposits



870,890





893,968





872,883





916,415





703,712




(2.6)


23.8


Accrued expenses and other liabilities



21,647





21,336





19,927





24,567





141,825




1.5


(84.7)


Stockholders' equity



361,623





357,383





353,192





353,011





301,095




1.2


20.1


Total liabilities and stockholders' equity


$

3,441,079




$

3,444,365




$

3,419,168




$

3,477,481




$

3,037,262




(0.1)


13.3

































Net interest spread





3.04

%




3.18

%




2.98

%




2.66

%




2.74

%





Net interest margin





3.35

%




3.38

%




3.10

%




2.78

%




2.87

%







(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




Q4 2022


Q3 2022


Q2 2022


Q1 2022


Q4 2021


12/31/2022


12/31/2021

























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














































Net Income


$

8,407


$

9,658


$

7,499


$

5,613


$

2,723


$

31,177


$

15,368


Net Income - annualized (A)


$

33,354


$

38,317


$

30,078


$

22,764


$

10,803


$

31,177


$

15,368

























Net income, excluding net amortization of intangible assets























    and merger related expenses


$

9,463


$

10,144


$

8,054


$

6,541


$

8,176


$

34,201


$

22,279


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


$

37,543


$

40,245


$

32,305


$

26,527


$

32,437


$

34,201


$

22,279

























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



1.09

%


1.17

%


0.94

%


0.76

%


1.07

%


0.99

%


0.95

%
























Average stockholders' equity (C)


$

361,623


$

357,383


$

353,192


$

353,011


$

301,095


$

355,850


$

224,055


Less:  Average goodwill and other intangible assets



(69,077)



(69,558)



(70,057)



(70,711)



(52,692)



(69,845)



(27,535)


Average tangible equity (D)


$

292,546


$

287,825


$

283,135


$

282,300


$

248,403


$

286,005


$

196,520

























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



9.22

%


10.72

%


8.52

%


6.45

%


3.59

%


8.76

%


6.86

%

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



12.83

%


13.98

%


11.41

%


9.40

%


13.06

%


11.96

%


11.34

%
























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














































Noninterest expense (E)


$

21,000


$

18,899


$

20,094


$

20,332


$

23,497


$

80,322


$

56,806


Less:  Amortization of intangible assets



(460)



(499)



(511)



(517)



(381)



(1,988)



(734)


           Merger Expenses



(967)



(159)



(241)



(730)



(7,615)



(2,098)



(8,530)


Adjusted noninterest expense (F)


$

19,573


$

18,241


$

19,342


$

19,085


$

15,501


$

76,236


$

47,542

























Net interest income (G)



26,943



27,315



24,618



22,430



20,639



101,302



64,130


Add:  Taxable-equivalent adjustment



40



35



38



39



13



155



121


Taxable-equivalent net interest income (H)


$

26,983


$

27,350


$

24,656


$

22,469


$

20,652


$

101,457


$

64,251

























Noninterest income (I)


$

5,862


$

5,344


$

5,833


$

6,046


$

5,129


$

23,086



13,498


Less:  Investment securities (gains)















(2)


Adjusted noninterest income (J)


$

5,862


$

5,344


$

5,833


$

6,046


$

5,129


$

23,086


$

13,496

























Efficiency ratio (GAAP)  (E)/(G)+(I)



64.01

%


57.87

%


65.99

%


71.40

%


91.19

%


64.57

%


73.18

%

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



59.59

%


55.79

%


63.44

%


66.93

%


60.13

%


61.21

%


61.15

%

 
























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














































Stockholders' equity (L)


$

364,285


$

357,221


$

352,777


$

351,864


$

350,693








Less:  Goodwill and other intangible assets



(68,813)



(69,288)



(69,787)



(70,299)



(70,956)








Tangible equity (M)


$

295,472


$

287,933


$

282,990


$

281,565


$

279,737































Shares outstanding (N)



19,865



19,858



19,850



19,843



19,808































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


$

18.34


$

17.99


$

17.77


$

17.73


$

17.71








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


$

14.87


$

14.50


$

14.26


$

14.19


$

14.12






















































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














































Stockholders' equity (O)


$

364,285


$

357,221


$

352,777


$

351,864


$

350,693








Less:  Goodwill and other intangible assets



(68,813)



(69,288)



(69,787)



(70,299)



(70,956)








Tangible equity (P)


$

295,472


$

287,933


$

282,990


$

281,565


$

279,737































Assets (Q)


$

3,477,276


$

3,446,804


$

3,442,550


$

3,494,497


$

3,460,136








Less:  Goodwill and other intangible assets



(68,813)



(69,288)



(69,787)



(70,299)



(70,956)








Tangible assets (R)


$

3,408,463


$

3,377,516


$

3,372,763


$

3,424,198


$

3,389,180































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



10.48

%


10.36

%


10.25

%


10.07

%


10.14

%







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



8.67

%


8.52

%


8.39

%


8.22

%


8.25

%








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.

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/shore-bancshares-reports-2022-financial-results-301731847.html

SOURCE Shore Bancshares, Inc.

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Lower mortgage rates fueling existing home sales

To understand why we had such a beat in sales, you only need to go back to Nov. 9, when mortgage rates started to fall from 7.37% to 5.99%.

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Existing home sales had a huge beat of estimates on Tuesday. This wasn’t shocking for people who follow how I track housing data. To understand why we had such a beat in sales, you only need to go back to Nov. 9, when mortgage rates started to fall from 7.37% to 5.99%.

During November, December and January, purchase application data trended positive, meaning we had many weeks of better-looking data. The weekly growth in purchase application data during those months stabilized housing sales to a historically low level.

For many years I have talked about how rare it is that existing home sales trend below 4 million. That is why the historic collapse in demand in 2022 was one for the record books. We understood why sales collapsed during COVID-19. However, that was primarily due to behavior changes, which meant sales were poised to return higher once behavior returned to normal.

In 2022, it was all about affordability as mortgage rates had a historical rise. Many people just didn’t want to sell their homes and move with a much higher total cost for housing, while first-time homebuyers had to deal with affordability issues.



Even though mortgage rates were falling in November and December, positive purchase application data takes 30-90 days to hit the sales data. So, as sales collapsed from 6.5 million to 4 million in the monthly sales data, it set a low bar for sales to grow. This is something I talked about yesterday on CNBC, to take this home sale in context to what happened before it. 

Because housing data and all economics are so violent lately, we created the weekly Housing Market Tracker, which is designed to look forward, not backward.

From NAR: Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – vaulted 14.5% from January to a seasonally adjusted annual rate of 4.58 million in February. Year-over-year, sales fell 22.6% (down from 5.92 million in February 2022).




As we can see in the chart above, the bounce is very noticeable, but this is different than the COVID-19 lows and massive rebound in sales. Mortgage rates spiked from 5.99% to 7.10% this year, and that produced one month of negative forward-looking purchase application data, which takes about 30-90 days to hit the sales data.

So this report is too old and slow, but if you follow the tracker, you’re not slow. This is the wild housing action I have talked about for some time and why the Housing Market Tracker becomes helpful in understanding this data.

The last two weeks have had positive purchase application data as mortgage rates fell from 7.10% down to 6.55%; tomorrow, we will see if we can make a third positive week. One thing to remember about purchase application data since Nov. 9, 2022 is that it’s had a lot more positive data than harmful data. 

However, the one-month decline in purchase application data did bring us back to levels last seen in 1995 recently. So, the bar is so low we can trip over.



One of the reasons I took off the savagely unhealthy housing market label was that the days on the market are now above 30 days. I am not endorsing, nor will I ever, a housing market that has days on the market at teenager levels. A teenager level means one of two bad things are happening:

1. We have a massive credit boom in housing which will blow up in time because demand is booming, similar to the run-up in the housing bubble years.

2. We simply don’t have enough products for homebuyers, creating forced bidding in a low-inventory environment. 

Guess which one we had post 2020? Look at the purchase application data above — we never had a credit boom. Look at the Inventory data below. Even with the collapse in home sales and the first real rebound, total active listings are still below 1 million.

From NAR: Total housing inventory registered at the end of February was 980,000 units, identical to January & up 15.3% from one year ago (850,000). Unsold inventory sits at a 2.6-month supply at the current sales pace, down 10.3% from January but up from 1.7 months in February ’22. #NAREHS



However, with that said, the one data line that I love, love, love, the days on the market, is over 30 days again, and no longer a teenager like last year, when the housing market was savagely unhealthy.

From NAR: First-time buyers were responsible for 27% of sales in January; Individual investors purchased 18% of homes; All-cash sales accounted for 28% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 34 days.



Today’s existing home sales report was good: we saw a bounce in sales, as to be expected, and the days on the market are still over 30 days. When the Federal Reserve talks about a housing reset, they’re saying they did not like the bidding wars they saw last year, so the fact that price growth looks nothing like it was a year ago is a good thing.

Also, the days on market are on a level they might feel more comfortable in. And, in this report, we saw no signs of forced selling. I’ve always believed we would never see the forced selling we saw from 2005-2008, which was the worst part of the housing bubble crash years. The Federal Reserve also believes this to be the case because of the better credit standards we have in place since 2010. 

Case in point, the MBA‘s recent forbearance data shows that instead of forbearance skyrocketing higher, it’s collapsed. Remember, if you see a forbearance crash bro, hug them, they need it.

Today’s existing home sales report is backward looking as purchase application data did take a hit this year when mortgage rates spiked up to 7.10%. We all can agree now that even with a massive collapse in sales, the inventory data didn’t explode higher like many have predicted for over a decade now.

I have stressed that to understand the housing market, you need to understand how credit channels work post-2010. The 2005 bankruptcy reform laws and 2010 QM laws changed the landscape for housing economics in a way that even today I don’t believe people understand.

However, the housing market took its biggest shot ever in terms of affordability in 2022 and so far in 2023, and the American homeowner didn’t panic once. Even though this data is old, it shows the solid footing homeowners in America have, and how badly wrong the extremely bearish people in this country were about the state of the financial condition of the American homeowner.

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SVB contagion: Australia purportedly asks banks to report on crypto

Australia’s prudential regulator has purportedly told banks to improve reporting on crypto assets and provide daily updates.
Australia’s…

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Australia’s prudential regulator has purportedly told banks to improve reporting on crypto assets and provide daily updates.

Australia’s prudential regulator has purportedly asked local banks to report on cryptocurrency transactions amid the ongoing contagion of Silicon Valley Bank’s (SVB) collapse.

The Australian Prudential Regulation Authority (APRA) has started requesting banks to declare their exposures to startups and crypto-related companies, the Australian Financial Review reported on March 21.

The regulator has ordered banks to improve their reporting on crypto assets and provide daily updates to the APRA, the Financial Review notes, citing three people familiar with the matter. The agency is aiming to obtain more information and insight into banking exposures into crypto as well as associated risks, the sources said.

The new measures are apparently part of the APRA’s increased supervision of the banking sector in the aftermath of recent massive collapses in the global banking system. On March 19, UBS Group agreed to buy its ailing competitor Credit Suisse for $3.2 billion after the latter collapsed over the weekend. The takeover became one of the latest failures in the banking industry following the collapses of SVB and Silvergate.

Barrenjoey analyst Jonathan Mott reportedly told clients in a note that the situation “remains stable” for Australian banks but warned confidence could be quickly disrupted, putting pressure on bank margins.

Related: Silvergate, SBV collapse ‘definitely good’ for Bitcoin, Trezor exec says

“Our channel checks indicate deposits are not being withdrawn from smaller institutions in any size, and capital and liquidity buffers are strong,” Mott said, adding:

“But this is a crisis of confidence and credit spreads and cost of capital will continue to rise. At a minimum, this will add to the margin pressure the banks are facing, while credit quality will continue to deteriorate.”

The news comes soon after the Australian Banking Association launched a cost of living inquiry to study the impact of the COVID-19 pandemic and geopolitical tensions on Australians. The inquiry followed an analysis of the rising inflation suggesting that more than 186 banks in the United States are at risk of a similar shutdown if depositors decide to withdraw all funds.

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Delta Move Is Bad News For Southwest, United Airlines Passengers

Passengers won’t be happy about this, but there’s nothing they can do about it.

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Passengers won't be happy about this, but there's nothing they can do about it.

Airfare prices move up and down based on two major things -- passenger demand and the cost of actually flying the plane. In recent months, with covid rules and mask mandates a thing of the past, demand has been very heavy.

Domestic air travel traffic for 2022 rose 10.9% compared to the prior year. The nation's air traffic in 2022 was at 79.6% of the full-year 2019 level. December 2022 domestic traffic was up 2.6% over the year-earlier period and was at 79.9% of December 2019 traffic, according to The International Air Transport Association (IATA).

“The industry left 2022 in far stronger shape than it entered, as most governments lifted COVID-19 travel restrictions during the year and people took advantage of the restoration of their freedom to travel. This momentum is expected to continue in the New Year,” said IATA Director General Willie Walsh.

And, while that's not a full recovery to 2019 levels, overall capacity has also not recovered. Total airline seats available actually sits "around 18% below the 2019 level," according to a report from industry analyst OAG.

So, basically, the drop in passengers equals the drop in capacity meaning that planes are flying full. That's one half of the equation that keeps airfare prices high and the second one looks bad for anyone planning to fly in the coming years.

Image source: Getty Images.

Airlines Face One Key Rising Cost

While airlines face some variable costs like fuel, they also must account for fixed costs when setting airfares. Personnel are a major piece of that and the pandemic has accelerated a pilot shortage. That has given the unions that represent pilots the upper hand when it comes to making deals with the airlines.

The first domino in that process fell when Delta Airlines (DAL) - Get Free Report pilots agreed to a contract in early March that gave them an immediate 18% increase with a total of a 34% raise over the four-year term of the deal.

"The Delta contract is now the industry standard, and we expect United to also offer their pilots a similar contract," investment analyst Helane Becker of Cowen wrote in a March 10 commentary, Travel Weekly reported.

US airfare prices have been climbing. They were 8.3% above pre-pandemic levels in February, according to Consumer Price Index, but they're actually below historical highs.

Southwest and United Airlines Pilots Are Next

Airlines have very little negotiating power when it comes to pilots. You can't fly a plane without pilots and the overall shortage of qualified people to fill those roles means that, within reason, United (UAL) - Get Free Report and Southwest Airlines  (LUV) - Get Free Report, both of which are negotiating new deals with their pilot unions, more or less have to equal (or improve on) the Delta deal.

The actual specifics don't matter much to consumers, but the takeaway is that the cost of hiring pilots is about to go up in a very meaningful way at both United and Southwest. That will create a situation where all major U.S. airlines have a higher cost basis going forward.

Lower fuel prices could offset that somewhat, but raises are not going to be unique to pilots. Southwest also has to make a deal with its flight attendants and, although they don't have the same leverage as the pilots, they have taken a hard line.   

The union, which represents Southwest’s 18,000 flight attendants, has been working without a contract for four years. It shared a statement on its Facebook page detailing its position Feb. 20.

"TWU Local 556 believes strongly in making this airline successful and is working to ensure this company we love isn’t run into the ground by leadership more concerned about shareholders than about workers and customers. Management’s methodology of choosing profits at the expense of the operation and its workforce has to change, because the flying public is also tired of the empty apologies that flight attendants have endured for years."

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