Note 17 – 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, 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	³	8.00		$	94,204	³	10.00	%		12.00	%
Bank of Granite		54,647			12.04			36,305	³	8.00			45,382	³	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	³	4.00		$	56,522	³	6.00	%		9.00	%
Bank of Granite		54,633			12.04			18,153	³	4.00			27,229	³	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	³	4.00		$	84,282	³	5.00	%		9.00	%
Bank of Granite		54,633			7.19			30,410	³	4.00			38,013	³	5.00			8.00

December 31, 2010
Total Capital (to Risk Weighted Assets)
Consolidated	$	(36,818	)		(2.56	)%	$	114,884		N/A	%	$	N/A
CommunityOne Bank, N.A.		33,812			2.36			114,608	³	8.00			143,260	³	10.00	%		12.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated		(36,818	)		(2.56	)		57,442		N/A			N/A
CommunityOne Bank, N.A.		16,906			1.18			57,304	³	4.00			85,956	³	6.00	%		9.00	%

Tier 1 Capital (to Average Assets)
Consolidated		(36,818	)		(1.86	)		78,992		N/A			N/A
CommunityOne Bank, N.A.		16,906			0.86			78,951	³	4.00			98,688	³	5.00	%		9.00	%

Each of CommunityOne and Granite are designated as "adequately capitalized" by the OCC and FDIC, respectively, because each is subject to an order. Furthermore, neither CommunityOne nor Granite is currently in compliance with the leverage capital requirement of its respective consent order.

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 and the Granite Order, described in Note 2 "Regulatory Matters" further prohibit each bank from paying dividends or making distributions to FNB.

Each of CommunityOne and Granite is required to maintain average reserve balances with the FRBR based on a percentage of deposits. For the reserve maintenance period in effect at December 31, 2011, CommunityOne met its reserve requirement of $0.3 million and Granite met its reserve requirements of $0.5 million, respectively, with the FRBR.