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's 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.

Under revised capital rules established by the federal banking agencies, including the Federal Reserve Board and the OCC, effective for community banks as of January 1, 2015, capital adequacy is measured by certain risk-based capital ratios, supplemented by a leverage capital ratio. The revised capital rules assess an institution's risk-based capital through three ratios: a common equity Tier 1 capital (“CET 1”) ratio, an additional Tier 1 risk-based capital ratio, and a total capital ratio, which includes Tier 2 capital. CET 1 is comprised of the sum of common stock instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive income (“AOCI”) and certain qualifying minority interests, less certain adjustments and deductions that include AOCI (based on an irrevocable option to neutralize the AOCI). Additional Tier 1 capital is comprised of noncumulative perpetual preferred stock, tier 1minority interests, grandfathered trust preferred securities, less certain intangibles; and Tier 2 capital, which may include the ALL up to a maximum of 1.25% of risk weighted assets, qualifying subordinated debt, qualifying preferred stock and hybrid capital instruments. The requirements also define the weights assigned to assets and off-balance sheet items to determine the risk weighted asset components of the risk-based capital rules.

The revised rules require a minimum CET 1 risk-based capital ratio of 4.5%, a minimum overall Tier 1 risk-based capital ratio of 6%, and a total risk-based capital ratio of 8%. In addition, the revised rules require a capital conservation buffer of up to 2.5% above each of the capital ratio requirements (CET 1, tier 1, and total risk-based capital) which must be met for a bank to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction. This capital conservation buffer will be phased in over a four year period starting on January 1, 2016. The revised rules also change the risk weighting of certain assets, including “high volatility” commercial real estate, past due assets, structured securities and equity holdings. When fully implemented, a banking organization would need to maintain a CET 1 capital ratio of at least 7%, a total Tier 1 capital ratio of at least 8.5% and a total risk-based capital ratio of at least 10.5% or it would be subject to restrictions on capital distributions and discretionary bonus payments to its executive management.

The leverage capital ratio, which serves as a minimum capital standard, considers Tier 1 capital only and is expressed as a percentage of average total assets for the most recent quarter, after reduction of those assets for goodwill and other disallowed intangible assets at the measurement date. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution's exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution's ability to manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an institution's overall capital adequacy.

Quantitative measures established by regulation to ensure capital adequacy require each bank to maintain minimum amounts and ratios (set forth in the accompanying table) , a common equity Tier 1 capital (“CET 1”) ratio, an additional Tier 1 risk-based capital ratio, and a total capital ratio, which includes Tier 2 capital, and a leverage capital ratio, which is the percentage of Tier 1 capital to average total assets for the most recent quarter, after reduction of those assets for goodwill and other disallowed intangible assets at the measurement date. 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, 2015 are noted in the following table. At December 31, 2015, the 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, 2015
Total Capital (to Risk Weighted Assets)
Consolidated	$	221,245	13.21	%	$	133,986		8.00	%	N/A
CommunityOne Bank, N.A.	225,510		13.48		133,839			8.00		$	167,299		10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	187,845		11.22		66,968			N/A		N/A
CommunityOne Bank, N.A.	209,541		12.53		66,893			4.00		99,944			6.00
CET 1 (to Risk Weighted Assets)
Consolidated	187,845		11.22		66,968			N/A		N/A
CommunityOne Bank, N.A.	209,541		12.53		75,255			4.50		116,601			7.00
Tier 1 Capital (to Average Assets)
Consolidated	187,845		8.19		$	91,744		N/A		N/A
CommunityOne Bank, N.A.	209,541		9.30		90,125			4.00		112,656			5.00

December 31, 2014
Total Capital (to Risk Weighted Assets)
Consolidated	$	203,150	14.58	%	$	110,982		8.00	%	N/A
CommunityOne Bank, N.A.	206,474		14.88		111,013			8.00		138,767			10.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	185,690		13.33		55,491			N/A		N/A
CommunityOne Bank, N.A.	189,081		13.63		55,507			4.00		83,260			6.00
Tier 1 Capital (to Average Assets)
Consolidated	185,690		9.78		75,937			N/A		N/A
CommunityOne Bank, N.A.	189,081		9.94		76,068			4.00		95,085			5.00