KBRA Affirms Ratings for Shore Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Easton, Maryland-based Shore Bancshares, Inc. (NASDAQ: SHBI) (“Shore” or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Shore United Bank, N.A. The Outlook for all long-term ratings is Stable.

The ratings are supported by a strong core deposit franchise, underpinned by the company’s solidified presence and market share within its footprint, particularly among locally headquartered banks in Maryland. Core deposits represent the majority of funding sources, bolstered by a strong NIB component that accounts for nearly 30% of the deposit base, contributing to a lower cost of deposits relative to peers at 1.95% for 3Q25. Although the operating footprint is relatively concentrated, KBRA recognizes that the company’s community-focused approach has led to deep market knowledge and expertise, serving as a catalyst for its solid deposit market share. The company’s slightly liability-sensitive balance sheet has benefited from rate cuts beginning in 2024, supporting modest NIM expansion through 9M25 to 3.22%. As such, ROA has improved through 9M25 (roughly 1%). While the core margin remains below peer averages due to lower average loan yields, we expect improvement driven by ongoing loan repricing and management’s target of low-to-mid single-digit loan growth. SHBI is also well positioned to benefit from the additional rate cuts in late 2025, with 90% of time deposits set to mature within the next year and roughly 15% of deposits indexed to fed funds. Elsewhere, management’s continued focus on expense containment, with operating expenses falling to 2.08% of average assets for 9M25 (from 2.49% in 2023), alongside minimal loss content (provision to average assets generally tracking 20 bps or less in recent years) has supported earnings performance. SHBI has a conservative and credit focused management team with prudent underwriting standards, evidenced by sound credit performance in recent periods, including well contained NPAs and limited NCOs. We also acknowledge the strong underlying demographics in MD, including a low level of unemployment, and the presence of governmental entities/contractors (primarily consisting of defense contractors that have been well insulated from the Depart of Government Efficiency initiatives) that also help support the local economies. While capital metrics have tracked below peers in recent years following the merger with The Community Financial Corporation, Inc., CET1 has increased 80 bps since YE24 to 10.2% via improved earnings power and muted loan growth. Management remains committed to rebuilding capital closer to historical levels and is targeting approximately 11% by YE26.

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