Capital Matters

COB and the Bank 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 COB’s and the Bank's financial statements. Under the capital adequacy guidelines, COB and the 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. COB and the 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 the Bank as their capital levels decrease.

The Bank had been subject to a Consent Order with the OCC, dated July 22, 2010, which was terminated by the OCC effective June 10, 2013. However, the Bank has continuing obligations to, among other things, adhere to its 2013 Business Plan for which the Bank has obtained supervisory non-objection from the OCC, including maintaining the capital ratios contained in the Plan, and continues to have restrictions on its ability to pay dividends. Likewise, the Written Agreement between COB and the FRBR dated October 21, 2010 was terminated effective November 7, 2013; however, COB remains obligated to make sure the Bank adheres to its Business Plan. COB also remains obligated to not declare or pay any dividends or make any payments on its trust preferred securities or incur, increase or guarantee additional debt without prior written approval of the FRBR. The Bank is in compliance with its Business Plan and COB is in compliance with the obligations described above.

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). The minimum capital requirements to be characterized as “well-capitalized” and “adequately capitalized,” as defined by the prompt corrective action provision of federal law and CommunityOne’s capital ratios as of December 31, 2013 are noted in the following table. At December 31, 2013 CommunityOne Bank was designated as “well capitalized.”



					Minimum Regulatory Requirement to be Well Capitalized
(dollars in thousands)	Actual				For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio			Amount		Ratio
December 31, 2013
Total Capital (to Risk Weighted Assets)
Consolidated	$	159,146	12.62	%	$	100,859		8.00	%	N/A
CommunityOne Bank, N.A.	166,152		13.20		100,713			8.00		$	125,891		10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	119,499		9.48		$	50,429		N/A		N/A
CommunityOne Bank, N.A.	150,274		11.94		50,356			4.00		$	75,534		6.00	%
Tier 1 Capital (to Average Assets)
Consolidated	119,499		5.96		$	80,220		N/A		N/A
CommunityOne Bank, N.A.	150,274		7.49		80,204			4.00		$	100,256		5.00	%

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	%
Bank of Granite	60,896		16.30		29,893			8.00		37,366			10.00
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	%
Bank of Granite	56,209		15.04		14,946			4.00		22,420			6.00
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	%
Bank of Granite	56,209		8.12		27,675			4.00		34,594			5.00