Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2021

Regulatory Capital Requirements [Abstract]

REGULATORY CAPITAL REQUIREMENTS

NOTE 20. REGULATORY CAPITAL REQUIREMENTS

Banks and bank holding companies 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank 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.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain amounts and ratios (set forth in the table below) of Common Equity Tier 1, 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, 2021, management believes that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2021, the most recent notification from our primary regulator categorized Shore United Bank, N.A., as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes would change the Bank’s classification. To be categorized as well capitalized, the Bank 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 7.00%, 8.50%, 10.50% and 4.00% for the common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively which include a capital conservation buffer of 2.50% 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.

The following tables present the capital amounts and ratios at December 31.

	Common		Total		Net						Tier 1		Total
	Equity/		Risk-		Risk-		Adjusted		Common		Risk-Based		Risk-Based		Tier 1
(Dollars in thousands)	Tier 1		Based		Weighted		Average		Equity		Capital		Capital		Leverage
2021	Capital		Capital		Assets		Total Assets		Tier 1 ratio		Ratio		Ratio		Ratio
Shore Bancshares, Inc.	$	279,681	$	336,696	$	2,191,557	$	2,966,412	12.76	%	12.76	%	15.36	%	9.43	%
Shore United Bank, N.A.	$	304,362	$	318,614	$	2,189,775	$	2,965,319	13.90	%	13.90	%	14.55	%	9.48	%

Common

Total

Net

Tier 1

Total

Equity/

Risk-

Risk-

Adjusted

Common

Risk-Based

Risk-Based

Tier 1

(Dollars in thousands)

Tier 1

Based

Weighted

Average

Equity

Capital

Capital

Leverage

2020

Capital

Capital

Assets

Total Assets

Tier 1 ratio

Ratio

Ratio

Ratio

Shore United Bank, N.A.

$

180,696

$

194,885

$

1,367,544

$

1,857,802

13.21

%

13.21

%

14.25

%

9.73

%

Bank and holding company regulations impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company.

At December 31, 2021, the Bank could pay dividends to the parent to the extent of its earnings so long as it maintained required capital ratios. The Bank issued a dividend to Shore Bancshares, Inc. in the fourth quarter of 2021 of $25.0 million in relation to the purchase of Severn. There were no dividends paid by the Bank to Shore Bancshares, Inc. in 2020. Shore Bancshares, Inc. had no outstanding receivables from its subsidiary at December 31, 2021 or 2020.