Shareholders' Equity, Dividends Restrictions and Other Regulatory Matters

12 Months Ended

Dec. 31, 2018

Regulatory Capital Requirements [Abstract]

Shareholders' Equity, Dividend Restrictions and Other Regulatory Matters

SHAREHOLDERS' EQUITY, DIVIDEND RESTRICTIONS AND OTHER REGULATORY MATTERS

BancShares and FCB are required to meet minimum capital requirements set forth by regulatory authorities. The ability to undertake new business initiatives (including acquisitions), the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in large part, on a financial institution’s capital strength.

Bank regulatory agencies approved regulatory capital guidelines (Basel III) aimed at strengthening existing capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015. Under Basel III, requirements include a common equity Tier 1 ratio minimum of 4.50 percent, Tier 1 risk-based capital minimum of 6.00 percent, total risk-based capital ratio minimum of 8.00 percent and Tier 1 leverage capital ratio minimum of 4.00 percent. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements.

Basel III also introduced a capital conservation buffer in addition to the regulatory minimum capital requirements that is being phased in annually over four years beginning January 1, 2016, at 0.625 percent of risk-weighted assets and increasing each subsequent year by an additional 0.625 percent. At January 1, 2018, the capital conservation buffer was 1.88%. As fully phased in on January 1, 2019, the capital conservation buffer is 2.50 percent.

Based on the most recent notifications from its regulators, BancShares and FCB is well-capitalized under the regulatory framework for prompt corrective action. As of December 31, 2018, BancShares and FCB met all capital adequacy requirements to which they are subject and were not aware of any conditions or events that would affect each entity's well-capitalized status.

Following is an analysis of capital ratios under Basel III guidelines for BancShares and FCB as of December 31, 2018 and 2017:

	December 31, 2018						December 31, 2017
(Dollars in thousands)	Amount		Ratio		Requirements to be well-capitalized		Amount		Ratio		Requirements to be well-capitalized
BancShares
Tier 1 risk-based capital	$	3,463,307	12.67	%	8.00	%	$	3,287,364	12.88	%	8.00	%
Common equity Tier 1	3,463,307		12.67		6.50		3,287,364		12.88		6.50
Total risk-based capital	3,826,626		13.99		10.00		3,626,789		14.21		10.00
Leverage capital	3,463,307		9.77		5.00		3,287,364		9.47		5.00
FCB
Tier 1 risk-based capital	3,315,742		12.17		8.00		3,189,709		12.54		8.00
Common equity Tier 1	3,315,742		12.17		6.50		3,189,709		12.54		6.50
Total risk-based capital	3,574,561		13.12		10.00		3,422,634		13.46		10.00
Leverage capital	3,315,742		9.39		5.00		3,189,709		9.22		5.00

BancShares and FCB had capital conservation buffers of 5.99 percent and 5.12 percent, respectively, at December 31, 2018. These buffers exceeded the 1.88 percent requirement and, therefore, result in no limit on distributions.

BancShares had no trust preferred capital securities included in Tier 1 capital at December 31, 2018 or December 31, 2017 under Basel III guidelines. Trust preferred capital securities continue to be a component of total risk-based capital.

At December 31, 2018, Tier 2 capital of BancShares included $20.0 million of qualifying subordinated debt acquired from the HomeBancorp transaction with a scheduled maturity date of December 31, 2026, compared to no amount included at December 31, 2017. Under current regulatory guidelines, when subordinated debt is within five years of its scheduled maturity date, issuers must discount the amount included in Tier 2 capital by 20 percent for each year until the debt matures. Once the debt is within one year of its scheduled maturity date, no amount of the debt is allowed to be included in Tier 2 capital.

BancShares has two classes of common stock—Class A common and Class B common. Shares of Class A common have one vote per share, while shares of Class B common have 16 votes per share.

During 2018, our Board authorized the purchase of up to 800,000 shares of Class A common stock. The shares may be purchased from time to time at management's discretion from November 1, 2018 through October 31, 2019. That authorization does not obligate BancShares to purchase any particular amount of shares, and purchases may be suspended or discontinued at any time. The Board's action replaced existing authority to purchase up to 800,000 shares in effect during the twelve months preceding November 1, 2018. A total of 200,000 shares were purchased under the previous authority that expired on October 31, 2018, and 182,000 shares have been purchased under the newly approved authority, which began November 1, 2018. An additional 106,500 shares have been purchased subsequent to December 31, 2018.

The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions do not reduce capital below applicable capital requirements. As of December 31, 2018, the maximum amount of the dividend was limited to $1.09 billion to preserve well-capitalized status. Dividends declared by FCB and paid to BancShares amounted to $242.9 million in 2018, $50.4 million in 2017 and $90.1 million in 2016. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. BancShares' principal source of liquidity for payment of shareholder dividends is the dividend it receives from FCB.

BancShares and FCB are subject to various requirements imposed by state and federal banking statutes and regulations, including regulations requiring the maintenance of reserve balances at the Federal Reserve Bank. Banks are allowed to reduce the required balances by the amount of vault cash. For 2018, the requirements averaged $680.3 million.