Shareholders' Equity, Dividends Restrictions and Other Regulatory Matters

12 Months Ended

Dec. 31, 2019

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. Certain activities such as, 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%, Tier 1 risk-based capital minimum of 6.00%, total risk-based capital ratio minimum of 8.00% and Tier 1 leverage capital ratio minimum of 4.00%. 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 which was phased in annually over four years beginning January 1, 2016, at 0.625% of risk-weighted assets and increasing each subsequent year by an additional 0.625%. At January 1, 2018, the capital conservation buffer was 1.875%. As fully phased in on January 1, 2019, the capital conservation buffer is 2.50%.

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, 2019, 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, 2019 and 2018:

			December 31, 2019				December 31, 2018
(Dollars in thousands)	Requirements to be well-capitalized		Amount		Ratio		Amount		Ratio
BancShares
Tier 1 risk-based capital	8.00	%	$	3,344,305	10.86	%	$	3,463,307	12.67	%
Common equity Tier 1	6.50		3,344,305		10.86		3,463,307		12.67
Total risk-based capital	10.00		3,731,501		12.12		3,826,626		13.99
Leverage capital	5.00		3,344,305		8.81		3,463,307		9.77
FCB
Tier 1 risk-based capital	8.00		3,554,974		11.54		3,315,742		12.17
Common equity Tier 1	6.50		3,554,974		11.54		3,315,742		12.17
Total risk-based capital	10.00		3,837,670		12.46		3,574,561		13.12
Leverage capital	5.00		3,554,974		9.38		3,315,742		9.39

BancShares and FCB had capital conservation buffers of 4.12% and 4.46%, respectively, at December 31, 2019. These buffers exceeded the 2.50% requirement, and therefore, result in no limit on distributions.

At December 31, 2019, Tier 2 capital of BancShares included $128.5 million of trust preferred capital securities and $32.5 million of qualifying subordinated debentures, compared to $118.5 million of trust preferred capital securities and $20.0 million of qualifying subordinated debentures included at December 31, 2018.

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

On January 28, 2020, the Board authorized share repurchases of up to 500,000 of BancShares’ Class A common stock for the period February 1, 2020 through April 30, 2020. This authority will supersede all previously approved authorities.

During 2019, BancShares repurchased a total of 998,910 shares of Class A common stock, or 9.4% of outstanding shares of as of December 31, 2018, for $450.8 million at an average cost per share of $451.33. During 2018, BancShares repurchased a total of 382,000 shares of Class A common stock, or 3.5% of outstanding shares of as of December 31, 2017, for $165.3 million at an average cost per share of $432.78. All share repurchases were executed under previously approved authorities. Subsequent to year-end through February 14, 2020, BancShares repurchased an additional 120,990 shares of Class A common stock for $63.8 million at an average cost per share of $527.27

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, 2019, the maximum amount of distributions was limited to $651.7 million to preserve well-capitalized status. Dividends declared by FCB and paid to BancShares amounted to $149.8 million in 2019, $242.9 million in 2018 and $50.4 million in 2017. 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 2019, the requirements averaged $730.7 million.