Capital Matters

FNB and each of its bank subsidiaries are required to comply with capital adequacy requirements established by the federal banking agencies. Failure to meet these minimum capital requirements can initiate certain mandatory – and possible additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on FNB’s and each bank’s financial statements. Under the capital adequacy guidelines, FNB and each bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. FNB and each bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors. In addition, the prompt corrective action provisions of federal law require the federal banking agencies to take action to resolve problems of insured depository institutions such as CommunityOne and Granite as their capital levels decrease.

Quantitative measures established by regulation to ensure capital adequacy require each bank to maintain minimum amounts and ratios (set forth in the accompanying table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined).



					Minimum Regulatory Requirement to be Well Capitalized
(dollars in thousands)	Actual				For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions					Pursuant to Order
	Amount		Ratio		Amount		Ratio			Amount		Ratio			Ratio
December 31, 2012
Total Capital (to Risk Weighted Assets)
Consolidated	$	158,993	12.34	%	$	103,051		8.00	%	N/A
CommunityOne Bank, N.A.	103,976		11.40		72,997			8.00		$	91,247		10.00	%	12.00	%
Bank of Granite	60,896		16.30		29,893			8.00		37,366			10.00		12.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	119,242		9.26		$	51,525		—		N/A
CommunityOne Bank, N.A.	92,418		10.13		36,499			4.00		$	54,748		6.00	%	9.00	%
Bank of Granite	56,209		15.04		14,946			4.00		22,420			6.00		8.00
Tier 1 Capital (to Average Assets)
Consolidated	119,242		5.45		$	87,567		—		N/A
CommunityOne Bank, N.A.	92,418		6.17		59,909			4.00		$	74,886		5.00	%	9.00	%
Bank of Granite	56,209		8.12		27,675			4.00		34,594			5.00		8.00

December 31, 2011
Total Capital (to Risk Weighted Assets)
Consolidated	$	193,725	13.81	%	$	112,245		N/A		N/A
CommunityOne Bank, N.A.	136,761		14.52		75,363			8.00		$	94,204		10.00	%	12.00	%
Bank of Granite	54,647		12.04		36,305			8.00		45,382			10.00		12.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	164,253		11.71		56,123			N/A		N/A
CommunityOne Bank, N.A.	124,639		13.23		37,682			4.00		$	56,522		6.00	%	9.00	%
Bank of Granite	54,633		12.04		18,153			4.00		27,229			6.00		8.00
Tier 1 Capital (to Average Assets)
Consolidated	164,253		6.70		98,092			N/A		N/A
CommunityOne Bank, N.A.	124,639		7.39		67,426			4.00		$	84,282		5.00	%	9.00	%
Bank of Granite	54,633		7.19		30,410			4.00		38,013			5.00		8.00

CommunityOne is designated as “adequately capitalized” by the OCC because it is subject to an order or written agreement that requires the institution to meet and maintain a specific capital level. CommunityOne currently is not in compliance with the capital requirements of the CommunityOne Order. Granite is under a regulatory obligation to maintain capital in excess of regulatory minimums and is in compliance with that obligation.

Certain regulatory requirements restrict the lending of funds by CommunityOne and Granite to FNB and the amount of dividends which can be paid to FNB. Since 2009, these regulatory requirements have prohibited CommunityOne from declaring dividends payable to FNB without the approval of the OCC. Similar requirements would prohibit Granite from declaring dividends payable to FNB without the approval of the FDIC and the NCCOB. The CommunityOne Order described in Note 2 “Regulatory Matters” further prohibit CommunityOne from paying dividends or making distributions to FNB.

Each of CommunityOne and Granite are no longer required to maintain average reserve balances with the FRBR based on a percentage of deposits as of December 31, 2012.