REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2015

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 17. REGULATORY CAPITAL REQUIREMENTS

Shore Bancshares, Inc. and each of the Banks 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 direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks’ assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Basel III

The FRB and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's (“BCBS”) capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revise the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.

The phase-in period for the final rules became effective for the Company on January 1, 2015, with full compliance with all of the final rules’ requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019.

Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain amounts and ratios (set forth in the table below) of Tier 1 and total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (leverage ratio). As of December 31, 2015, management believes that Shore Bancshares, Inc., The Talbot Bank and CNB met all capital adequacy requirements to which they are subject.

As of December 31, 2015, the most recent notification from the Federal Deposit Insurance Corporation categorized Talbot Bank and CNB as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum common equity Tier 1, Tier 1 risk-based and total risk-based capital ratios, and Tier 1 leverage ratios, which are described below.

The minimum ratios for capital adequacy purposes are 4.50%, 6.00%, 8.00% and 4.00% for the common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively. To be categorized as well capitalized, a bank must maintain minimum ratios of 6.50%, 8.00%, 10.00% and 5.00% for its common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively. Shore Bancshares, Inc., as a financial holding company, is subject to the well-capitalized requirement.

The following tables present the capital amounts and ratios for Shore Bancshares, Inc., Talbot Bank and CNB as of December 31, 2015 and 2014.

	Common		Total		Net				Common			Tier 1			Total
	Equity/		Risk-		Risk-		Adjusted		Equity			Risk-Based			Risk-Based			Tier 1
December 31, 2015 (1)	Tier 1		Based		Weighted		Average		Tier 1 ratio			Capital			Capital			Leverage
(Dollars in thousands)	Capital		Capital		Assets		Total Assets		(2)			Ratio			Ratio			Ratio
Company	$	126,024	$	134,643	$	807,807	$	1,116,692		15.60	%		15.60	%		16.67	%		11.29	%
Talbot Bank		59,692		64,405		448,634		613,945		13.31			13.31			14.36			9.72
CNB		48,051		51,957		354,278		486,404		13.56			13.56			14.67			9.88

December 31, 2014 (1) (Dollars in thousands)	Tier 1 Capital		Total Risk- Based Capital		Net Risk- Weighted Assets		Adjusted Average Total Assets		Common Equity Tier 1 ratio (2)		Tier 1 Risk-Based Capital Ratio			Total Risk-Based Capital Ratio			Tier 1 Leverage Ratio
Company	$	112,511	$	120,510	$	736,763	$	1,075,674		n/a		15.27	%		16.36	%		10.46	%
Talbot Bank		51,637		55,910		394,788		579,781		n/a		13.08			14.16			8.91
CNB		44,869		48,594		331,089		485,042		n/a		13.55			14.68			9.25

(1) The capital ratios as of December 31, 2015 reflect the adoption of Basel III in effect beginning January 1, 2015 while ratios for the prior period represent the previous capital rules under Basel I.

(2) The Common Equity Tier 1 ratio is a new ratio under Basel III and represents common equity, less goodwill and intangible assets net of any deferred tax liabilities, divided by risk-weighted assets.

Federal and state laws and regulations applicable to banks and their holding companies impose certain restrictions on dividend payments by the Banks, as well as restricting extensions of credit and transfers of assets between the Banks and Shore Bancshares, Inc. Talbot Bank is currently prohibited from paying dividends to Shore Bancshares, Inc. without the prior consent of its banking regulators. CNB paid dividends of $280 thousand to Shore Bancshares, Inc. during 2015. At December 31, 2015, CNB could have paid additional dividends to Shore Bancshares, Inc. of approximately $7.7 million without the prior consent and approval of its regulatory agencies. Shore Bancshares, Inc. had no outstanding receivables from subsidiaries at December 31, 2015 or 2014.