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Regulatory Restrictions

12 Months Ended

Dec. 31, 2013

Note 16. Regulatory Restrictions

The Company is regulated by the Federal Reserve Board and is subject to securities registration and public reporting regulations of the Securities and Exchange Commission. The Bank is regulated by the FDIC and the North Carolina Commissioner of Banks.

The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation, may pay dividends only out of undivided profits as determined pursuant to North Carolina General Statutes Section 53-87. As of December 31, 2013, the Bank had undivided profits of approximately $178,290,000 which were available for the payment of dividends (subject to remaining in compliance with regulatory capital requirements). As of December 31, 2013, approximately $234,038,000 of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.

The average reserve balance maintained by the Bank under the requirements of the Federal Reserve Board was approximately $510,000 for the year ended December 31, 2013.

The Company and the Bank must comply with regulatory capital requirements established by the Federal Reserve Board and FDIC. 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 Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. These capital standards require the Company and the Bank to maintain minimum ratios of “Tier 1” capital to total risk-weighted assets (“Tier I Capital Ratio”) and total capital to risk-weighted assets of 4.00% and 8.00% (“Total Capital Ratio”), respectively. Tier 1 capital is comprised of total shareholders’ equity, excluding unrealized gains or losses from the securities available for sale, less intangible assets, and total capital is comprised of Tier 1 capital plus certain adjustments, the largest of which for the Company and the Bank is the allowance for loan losses. Risk-weighted assets refer to the on- and off-balance sheet exposures of the Company and the Bank, adjusted for their related risk levels using formulas set forth in Federal Reserve Board and FDIC regulations.

In addition to the risk-based capital requirements described above, the Company and the Bank are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets (“Leverage Ratio”) of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The Federal Reserve Board has not advised the Company of any requirement specifically applicable to it.

In addition to the minimum capital requirements described above, the regulatory framework for prompt corrective action also contains specific capital guidelines applicable to banks for classification as “well capitalized,” which are presented with the minimum ratios, the Company’s ratios and the Bank’s ratios as of December 31, 2013 and 2012 in the following table. Based on the most recent notification from its regulators, the Bank is well capitalized under the framework. There are no conditions or events since that notification that management believes have changed the Company’s classification.

Also see Note 19 for discussion of preferred stock transactions that have affected the Company’s capital ratios.

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
					(must equal or exceed)				(must equal or exceed)
As of December 31, 2013
Total Capital Ratio
Company	$	374,480		16.79%	$	178,270		8.00%	$	N/A		N/A
Bank		371,765		16.69%		178,128		8.00%		222,661		10.00%
Tier I Capital Ratio
Company		346,353		15.53%		89,135		4.00%		N/A		N/A
Bank		343,659		15.42%		89,064		4.00%		133,596		6.00%
Leverage Ratio
Company		346,353		11.18%		123,959		4.00%		N/A		N/A
Bank		343,659		11.10%		123,878		4.00%		154,847		5.00%

As of December 31, 2012
Total Capital Ratio
Company	$	359,554		16.67%	$	172,572		8.00%	$	N/A		N/A
Bank		358,098		16.61%		172,424		8.00%		215,530		10.00%
Tier I Capital Ratio
Company		332,350		15.41%		86,286		4.00%		N/A		N/A
Bank		330,916		15.35%		86,212		4.00%		129,318		6.00%
Leverage Ratio
Company		332,350		10.24%		129,820		4.00%		N/A		N/A
Bank		330,916		10.20%		129,742		4.00%		162,178		5.00%