Acquisition of Bank of Granite Corporation

On October 21, 2011, as part of the recapitalization of FNB, FNB acquired Granite Corp., through the Merger of a wholly owned subsidiary of FNB merging into Granite Corp. The Merger was part of the Company’s recapitalization strategy, a condition to the closing of the Investment Agreements, and was a 100% stock exchange transaction. The Merger allows us to improve efficiencies and opens new markets for us. Upon consummation of the Merger, each outstanding share of Granite Corp.’s common stock, par value $1.00 per share, other than shares held by FNB, Granite Corp.’s and shares owned in a fiduciary capacity or as a result of debts previously contracted, was converted into the right to receive 3.375 shares of FNB common stock, resulting in FNB issuing approximately 521,595 shares (adjusted for the Reverse Stock Split) of FNB common stock to Granite Corp.’s stockholders.

Granite Corp. is a Delaware corporation organized on June 1, 1987, which is registered as a bank holding company due to its ownership of Granite, a North Carolina state chartered bank which has been in existence and continuously operating since August 2, 1906. Granite conducts banking business operations from 17 full-service branches located in Burke, Caldwell, Catawba, Forsyth, Iredell, Mecklenburg, Watauga, and Wilkes counties in North Carolina. As of December 31, 2012, Granite had total assets of approximately $682.3 million and 148 employees. On March 1, 2013, we filed an application to merge Granite into CommunityOne. Subject to regulatory approval, we expect to complete the bank merger in the second quarter of 2013.

Granite Corp. also owns Granite Mortgage, Inc. (“Granite Mortgage”), a North Carolina corporation which ceased mortgage operations in July 2009 and which filed for Chapter 11 bankruptcy on February 15, 2012.

The acquisition of Granite Corp. by FNB was accounted for under the acquisition method of accounting in accordance with relevant accounting guidance. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair value adjustments were preliminary and were subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values became available. During the first quarter of 2012, we recognized $0.3 million in additional goodwill from the Merger. This additional goodwill was due to new valuations received on OREO acquired in the Merger, which had been written down to our best estimate of fair value at October 21, 2011.

None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the fair values of assets and liabilities of Granite Corp. assumed by FNB.



(dollars in thousands)	October 21,2011 (after all fair value adjustments)
Assets acquired:
Cash and cash equivalents	$	99,126
Investment securities	186,361
Loans, net	393,653
Premises and equipment, net	9,778
Other real estate owned	18,136
Bank-owned life insurance	4,432
Core deposit intangible	4,900
Other assets	7,766
Total assets acquired	$	724,152
Liabilities assumed:
Deposits	$	719,443
Other	3,990
Total liabilities assumed	$	723,433
Equity:
Total shareholders’ equity	$	—
Total liabilities assumed and shareholders’ equity	$	723,433
Contributed capital	$	4,924
Total liabilities assumed and contributed capital	$	728,357
Goodwill (excess of liabilities assumed and contributed capital over assets acquired)	$	4,205

The following table presents our unaudited pro forma results of operations for the periods presented as if the Merger had been completed on January 1, 2010. The unaudited pro forma results of operations include the historical accounts of FNB and Granite Corp. and pro forma adjustments as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the Merger been completed on January 1, 2010. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.



(dollars in thousands, except per share data)	Revenue		Earnings (Loss)
Actual results for BOGC from 10/21/11 - 12/31/11	$	7,868	$	2,988
Supplemental pro forma from 1/1/11 - 12/31/11	133,312		(123,343		)
Supplemental pro forma from 1/1/10 - 12/31/10	180,090		(135,605		)

The proforma results are not necessarily indicative of actual results had the acquisition been completed as of the beginning of each fiscal period presented, nor are they necessarily indicative of future consolidated results.