Regulatory Capital

6 Months Ended

Jun. 30, 2018

Regulatory Capital [Abstract]

Regulatory Capital

NOTE 12 – REGULATORY CAPITAL

On April 18, 2016, the Bank’s primary regulator became the Federal Deposit Insurance Corporation (“FDIC”),  subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation (the “Commissioner”) and the FDIC. The Company is subject to regulation, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the regulations of the Federal Reserve Board.

On January 1, 2015, the Company and Bank became subject to the new Basel III Capital Rules with full compliance with all of the final rule's requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. In July 2013, the final rules were published (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions compared to the previous U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.

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 (“Min. 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 (“CCB”) is also established above the regulatory minimum capital requirements. This capital conservation buffer began its phase-in period beginning January 1, 2016 at 0.625% of risk-weighted assets and will 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.

As of June 30, 2018, and December 31, 2017, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action under the Basel III Capital Rules. Management believes, as of June 30, 2018 and December 31, 2017, that the Company and the Bank met all capital adequacy requirements to which they were subject.

The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.

Regulatory Capital and Ratios			The Company				The Bank
(dollars in thousands)			June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Common equity			$                 147,246		$                 109,957		$                 178,367		$                 139,046
Goodwill			(10,603)		-		(10,603)		-
Core deposit intangible (net of deferred tax liability)			(2,309)		-		(2,309)		-
AOCI losses			2,182		1,191		2,182		1,191
Common Equity Tier 1 Capital			136,516		111,148		167,637		140,237
TRUPs			12,000		12,000		-		-
Tier 1 Capital			148,516		123,148		167,637		140,237
Allowable reserve for credit losses and other Tier 2 adjustments			10,776		10,545		10,776		10,545
Subordinated notes			23,000		23,000		-		-
Tier 2 Capital			$                 182,292		$                 156,693		$                 178,413		$                 150,782
Risk-Weighted Assets ("RWA")			$              1,322,840		$              1,169,341		$              1,319,955		$              1,164,478
Average Assets ("AA")			$              1,569,489		$              1,401,741		$              1,566,336		$              1,398,001
	2019 Regulatory Min. Ratio + CCB (1)
Common Tier 1 Capital to RWA	7.00	%	10.32	%	9.51	%	12.70	%	12.04	%
Tier 1 Capital to RWA	8.50		11.23		10.53		12.70		12.04
Tier 2 Capital to RWA	10.50		13.78		13.40		13.52		12.95
Tier 1 Capital to AA (Leverage) (2)	n/a		9.46		8.79		10.70		10.03
(1) These are the fully phased-in ratios as of January 1, 2019 that include the minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB"). The phase-in period is more fully described in the footnote above.
(2) Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. PCA well capitalized is defined as 5.00%.