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REGULATORY CAPITAL
 9 Months Ended
Sep. 30, 2020
Regulatory Assets and Liabilities Disclosure [Abstract]  
Regulatory Capital REGULATORY CAPITAL
The Bank’s primary regulator is 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 is 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 which establish a comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s “Basel III” framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revised 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 common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 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 capital conservation buffer (“CCB”) is also established above the regulatory minimum capital requirements. The capital conservation buffer was phased-in over a three-year period before reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the rules. The rules revised the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.
On April 13, 2020, the regulatory agencies published an interim final rule, which permits banking organizations to exclude from regulatory capital requirements Paycheck Protection Program ("PPP") covered loans pledged under the PPPLF. The interim final rule also clarifies that PPP covered loans as defined in section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) receive a zero percent risk weight.
The interim final rule modifies the agencies’ capital rule and allows PPPLF-eligible banking organizations to neutralize the regulatory effects of PPP covered loans on their risk-based capital ratios, as well as PPP covered loans pledged under the PPPLF on their leverage capital ratios. When calculating leverage capital ratios, a banking organization may exclude from average total consolidated assets and, as applicable, total leverage exposure a PPP covered loan as of the date that it has been pledged under the PPPLF. Accordingly, a PPP covered loan that has not been pledged as collateral in connection with an extension of credit under the PPPLF would be included in the calculation of the banking organization’s average total consolidated assets and, as applicable, total leverage exposure. No new extensions of credit will be made under the PPPLF after September 30, 2020, unless the Federal Reserve Board and U.S. Department of Treasury jointly determine to extend the facility.
As of September 30, 2020 and December 31, 2019, 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 September 30, 2020 and December 31, 2019, 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 RatiosThe CompanyThe Bank
(dollars in thousands)September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Common equity$192,850 $181,494 $200,632 $202,604 
Goodwill(10,835)(10,835)(10,835)(10,835)
Core deposit intangible (net of deferred tax liability)(1,232)(1,534)(1,232)(1,534)
AOCI (gains) losses(4,780)(1,504)(4,780)(1,504)
Common Equity Tier 1 Capital176,003 167,621 183,785 188,731 
TRUPs12,000 12,000 — — 
Tier 1 Capital188,003 179,621 183,785 188,731 
Allowable reserve for credit losses and other Tier 2 adjustments18,880 10,993 18,880 10,993 
Subordinated notes— 23,000 — —
Tier 2 Capital$206,883 $213,614 $202,665 $199,724 
Risk-Weighted Assets ("RWA")$1,584,216 $1,508,352 $1,582,143 $1,506,766 
Average Assets ("AA")$1,932,742 $1,782,834 $1,931,123 $1,781,415 
Regulatory Min. Ratio + CCB (1)
Common Tier 1 Capital to RWA7.00 %11.11 %11.11 %11.62 %12.53 %
Tier 1 Capital to RWA8.50 11.87 11.91 11.62 12.53 
Tier 2 Capital to RWA10.50 13.06 14.16 12.81 13.26 
Tier 1 Capital to AA (Leverage) (2)
n/a9.73 10.08 9.52 10.59 
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(1)The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB").
(2)Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. PCA well capitalized is defined as 5.00%.
On October 14, 2020, the Company issued $20.0 million in aggregate principal amount of 4.75% Fixed to Floating Rate Subordinated Notes due 2030, which will be treated as Tier 2 Capital at the Company. On October 15, 2020, the Company contributed $10.0 million of net proceeds from the Subordinated Notes offering to the Bank as Tier 1 Capital. If the Subordinated Notes were issued at September 30, 2020, Tier 2 Capital to risk weighted assets at the Company would have been approximately 14.32% and Tier 1 leverage and Tier 2 Capital to risk weighted assets at the Bank would have been approximately 10.03% and 13.44%, respectively.