Shore Bancshares(SHBI) - 2021 Q4 - Annual Report

Financial Performance - The Company recorded a net income of $15.37 million for 2021, a decrease from $15.73 million in 2020, with basic and diluted earnings per share of $1.17 and $1.27, respectively[226]. - Net income for the year ended December 31, 2021, was $15,368,000, a decrease of 2.3% from $15,730,000 in 2020[367]. - The company reported a basic and diluted earnings per share of $1.17 in 2021, compared to $1.27 in 2020, a decline of 7.9%[359]. - Noninterest income increased to $13,498 thousand in 2021, up from $10,749 thousand in 2020, marking a growth of 25.7%[359]. - Total noninterest expenses rose to $56,806 thousand in 2021, compared to $38,399 thousand in 2020, an increase of 47.9%[359]. - The effective tax rate increased to 27.4% in 2021 from 25.3% in 2020, attributed to higher pre-tax earnings and nondeductible merger expenses[255]. Asset and Equity Growth - Total assets increased by $1.5 billion, or 79.0%, to $3.460 billion as of December 31, 2021, primarily due to the merger with Severn, which added approximately $1.1 billion in assets[227]. - Total stockholders' equity increased to $350.7 million at December 31, 2021, from $195.0 million in 2020, primarily due to the Severn acquisition which contributed $148.8 million[286]. - Total deposits rose by $1.326 billion, or 77.9%, compared to December 31, 2020, with the Severn merger contributing approximately $955.3 million[228]. - Total investment securities increased by $316.8 million from $210.3 million in 2020 to $527.1 million in 2021, with $146.3 million acquired from Severn[258]. Loan and Deposit Activity - Total loans increased by $664.9 million, or 45.7%, from $1.4 billion at the end of 2020 to $2.1 billion at the end of 2021[268]. - The acquisition of Severn added $584.6 million in total loans, with $553.0 million remaining outstanding as of December 31, 2021[269]. - Total deposits grew to $3,026,236 thousand in 2021, a significant increase of 77.8% from $1,700,705 thousand in 2020[355]. - Noninterest-bearing deposits increased by $143.2 million, or 33.2%, in 2021, compared to an increase of $82.7 million, or 23.7%, in 2020[274]. Credit Quality and Loss Provisions - The Company experienced a decrease in provision for credit losses of $4.3 million in 2021 compared to 2020[226]. - The provision for credit losses improved significantly, decreasing from $3,900,000 in 2020 to $358,000 in 2021[367]. - The allowance for credit losses was $13.9 million, or 0.93% of period-end loans, as of December 31, 2021, compared to 1.09% in 2020, driven by improved credit quality[302]. - Nonaccrual loans decreased by $3.5 million in 2021 compared to 2020, contributing to the overall improvement in credit quality[303]. Merger and Acquisition Impact - The Company acquired Severn Bancorp, Inc. on October 31, 2021, for total consideration valued at approximately $169.8 million, with Severn representing about 30% of the Company's consolidated assets and 8% of consolidated revenues[339]. - Noninterest expenses increased by $9.9 million in 2021, influenced by merger-related expenses of $8.5 million[226]. - The Company recorded merger-related expenses of $8.5 million in 2021 due to the acquisition of Severn, impacting overall expense growth[251]. Interest Income and Margin - Tax-equivalent net interest income for 2021 was $64.3 million, representing an increase of $11.5 million, or 21.9%, from 2020, driven by higher average balances on earning assets[242]. - Total interest income for 2021 was $70.3 million, an increase of 17.5% from $59.8 million in 2020, primarily driven by a $574.1 million increase in average earning assets[245]. - The net interest margin decreased to 2.94% in 2021 from 3.27% in 2020, primarily due to a decline in average yields on total earning assets of 50bps[243]. Employee and Operational Growth - The company had 454 full-time equivalent employees at the end of 2021, up from 287 at the end of 2020, indicating growth in operational capacity[252]. - The company aims to increase net interest income at a growth rate consistent with total asset growth while minimizing fluctuations in net interest margin[314]. Regulatory Compliance and Capital - The Company was in compliance with all applicable regulatory capital requirements as of December 31, 2021, with a common equity Tier 1 ratio of 12.76%[291]. - The Company issued $25.0 million in subordinated notes with an initial interest rate of 5.375%, structured to qualify as Tier 2 capital for regulatory purposes[278]. Cash Management and Liquidity - Cash and cash equivalents increased to $583.6 million at December 31, 2021, reflecting a rise of $396.7 million, or 212.2%, compared to $186.9 million at year-end 2020[332]. - The Company has $15 million available in federal funds lines of credit and a reverse repurchase agreement to meet short-term liquidity needs[331]. Miscellaneous - The Company’s internal control over financial reporting was assessed as effective as of December 31, 2021[338]. - Management does not anticipate any material effects on financial condition, revenues, or expenses from off-balance sheet arrangements[328].