Note 16. Regulatory Restrictions

The Company is regulated by the Federal Reserve Board (FED) and is subject to securities registration and public reporting regulations of the Securities and Exchange Commission. The Bank is regulated by the FED and the North Carolina Commissioner of Banks. Until April 22, 2015, the Bank was regulated by the FDIC. Effective April 22, 2015, the Bank became a member of the Federal Reserve, and therefore, the FED replaced the FDIC as the Bank's primary federal regulator.

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, 2015, the Bank had undivided profits of approximately $153,305,000 which were available for the payment of dividends (subject to remaining in compliance with regulatory capital requirements). As of December 31, 2015, approximately $235,204,000 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 $1,702,000 for the year ended December 31, 2015.

The Company and the Bank must comply with regulatory capital requirements established by the FED. 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.

In 2013, the FED approved final rules implementing the Basel Committee on Banking Supervision capital guidelines, referred to a “Basel III.” The final rules established a new “Common Equity Tier I” ratio; new higher capital ratio requirements, including a capital conservation buffer; narrowed the definitions of capital; imposed new operating restrictions on banking organizations with insufficient capital buffers; and increased the risk weighting of certain assets. The final rules became effective January 1, 2015 for the Company. The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk weighted assets, increasing each year until fully implemented at 2.5% in January 1, 2019.

As of December 31, 2015, the capital standards require the Company to maintain minimum ratios of “Common Equity Tier I” capital to total risk-weighted assets, “Tier I” capital to total risk-weighted assets, and total capital to risk-weighted assets of 4.50%, 6.00% and 8.00%, respectively. Common Equity Tier I capital is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier I capital is comprised of Common Equity Tier I capital plus Additional Tier I Capital, which for the Company includes non-cumulative perpetual preferred stock and trust preferred securities. Total capital is comprised of Tier I capital plus certain adjustments, the largest of which is our allowance for loan losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FED 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 I capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution's composite ratings as determined by its regulators. The FED 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, 2015 and 2014 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				Fully Phased-In Regulatory Guidelines Minimum				To Be Well Capitalized Under Current Prompt Corrective Action Provisions
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
					(must equal or exceed)				(must equal or exceed)
As of December 31, 2015
Common Equity Tier I Capital Ratio
Company	$	282,766		11.22%	$	176,344		7.00%	$	N/A		N/A
Bank		332,822		13.22%	176,231			7.00%	163,643			6.50%
Total Capital Ratio
Company		364,125		14.45%		264,515		10.50%		N/A		N/A
Bank		361,405		14.36%		264,347		10.50%		251,759		10.00%
Tier I Capital Ratio
Company		335,053		13.30%		214,131		8.50%		N/A		N/A
Bank		332,822		13.22%		213,995		8.50%		201,407		8.00%
Leverage Ratio
Company		335,053		10.38%		129,087		4.00%		N/A		N/A
Bank		332,822		10.32%		129,014		4.00%		161,267		5.00%


						For Capital Adequacy Purposes (pre-Basel III				To Be Well Capitalized Under Prompt Corrective Action Provisions
						(must equal or exceed)				(must equal or exceed)
As of December 31, 2014 (pre-Basel III)
Total Capital Ratio
Company	$	393,480		17.60%	$	178,811		8.00%	$	N/A		N/A
Bank		391,216		17.52%		178,679		8.00%		223,348		10.00%
Tier I Capital Ratio
Company		365,384		16.35%		89,406		4.00%		N/A		N/A
Bank		363,141		16.26%		89,339		4.00%		134,009		6.00%
Leverage Ratio
Company		365,384		11.61%		125,856		4.00%		N/A		N/A
Bank		363,141		11.55%		125,784		4.00%		157,229		5.00%