Regulatory Capital

12 Months Ended

Dec. 31, 2019

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Capital

REGULATORY CAPITAL

As of December 31, 2015, the Bank was a member of the Federal Reserve System and its primary federal regulator was the Federal Reserve Board. On April 18, 2016, Community Bank of the Chesapeake, cancelled its stock in the Federal Reserve Bank of Richmond. This terminated its status as a member of the Federal Reserve System. As of that date, the Bank’s primary regulator became the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation (the “Commissioner”) and the FDIC.

The Company continues to be subject to regulation, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

The Company and Bank are subject to the Basel III Capital Rules with full compliance with all of the final rule's requirements. In July 2013, the final rules were published (the “Basel III Capital Rules”) establishing a 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 included a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, required a minimum ratio (“Min. Ratio”) of Total Capital to risk-weighted assets of 8.0%, and required a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer (“CCB”) was 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 increased 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 revised the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.

As of December 31, 2019, and 2018, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action under the new Basel III Capital Rules. Management believes, as of December 31, 2019 and 2018, that the Company and the Bank met all capital adequacy requirements to which they were subject.

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

Regulatory Capital and Ratios			The Company						The Bank
(dollars in thousands)			December 31, 2019			December 31, 2018			December 31, 2019			December 31, 2018
Common Equity			$	181,494		$	154,482		$	202,604		$	185,073
Goodwill			(10,835		)	(10,835		)	(10,835		)	(10,835		)
Core Deposit intangible (net of deferred tax liability)			(1,534		)	(2,034		)	(1,534		)	(2,034		)
AOCI (Gains) Losses			(1,504		)	1,847			(1,504		)	1,847
Common Equity Tier 1 Capital			167,621			143,460			188,731			174,051
TRUPs			12,000			12,000			—			—
Tier 1 Capital			179,621			155,460			188,731			174,051
Allowable Reserve for Credit Losses and Other Tier 2 Adjustments			10,993			11,027			10,993			11,027
Subordinated Notes			23,000			23,000			—			—
Tier 2 Capital			$	213,614		$	189,487		$	199,724		$	185,078
Risk-Weighted Assets ("RWA")			$	1,508,352		$	1,384,807		$	1,506,766		$	1,383,048
Average Assets ("AA")			$	1,782,834		$	1,635,594		$	1,781,415		$	1,632,846
2019 Regulatory Min. Ratio + CCB (1)
Common Tier 1 Capital to RWA	7.00	%	11.11		%	10.36		%	12.53		%	12.58		%
Tier 1 Capital to RWA	8.50		11.91			11.23			12.53			12.58
Tier 2 Capital to RWA	10.50		14.16			13.68			13.26			13.38
Tier 1 Capital to AA (Leverage) (2)	n/a		10.08			9.50			10.59			10.66

(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%.

On February 15, 2020, the Company used the proceeds from a private placement offering and a cash dividend from the Bank to redeem the Company's outstanding $23.0 million of 6.25% fixed to floating rate subordinate notes. If the redemption of the subordinated notes had been effective as of December 31, 2019, this would have resulted in the Company's regulatory Tier 2 Risk-Based Capital decreasing to 12.64% If the redemption of the subordinated notes had been effective as of December 31, 2019, this would have resulted in the Bank's regulatory capital ratios decreasing to 11.66% for Common Tier 1 Capital and Tier 1 Capital, 12.39% for Tier 2 Risk-Based Capital and 9.86% for Leverage Capital.