8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): December 23, 2008

Peoples Bancorp of North Carolina, Inc.

(Exact Name of Registrant as Specified in Its Charter)

North Carolina

(State or Other Jurisdiction of Incorporation)

000-27205	56-2132396
(Commission File No.)	(IRS Employer Identification No.)

518 West C Street, Newton, North Carolina	28658
(Address of Principal Executive Offices)	(Zip Code)

(828) 464-5620

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

Peoples Bancorp of North Carolina, Inc. (“Registrant”), the parent company of Peoples Bank (the “Bank”) entered into a Letter Agreement (the “Purchase Agreement”) with the United States Department of the Treasury (the “UST”) on December 23, 2008. Under the Purchase Agreement, Registrant agreed to issue and sell (i) 25,054 shares of the Registrant’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), and (ii) a warrant (the “Warrant”) to purchase 357,234 of the Registrant’s common stock, no par value per share (the “Common Stock”), for an aggregate purchase price of $25,054,000 in cash. A copy of the Purchase Agreement is attached as Exhibit 10.1 to this Report and is incorporated herein by reference.

The Series A Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock has no maturity date and ranks senior to Registrant’s Common Stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of Registrant. The form of the Certificate for the Series A Preferred Stock is attached as Exhibit 4.1 to this Report and is incorporated herein by reference. The Series A Preferred Stock may be redeemed by Registrant after three years; however, prior to the end of the three-year period, the Series A Preferred Stock may only be redeemed by Registrant with proceeds from one or more sales of Registrant’s qualifying equity securities (“Qualified Equity Offering”). The restrictions on redemption are set forth in Registrant’s Articles of Amendment dated December 19, 2008, described in Item 5.03 below.

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $10.52 per share of the Common Stock. A copy of the Warrant is attached as Exhibit 4.2 to this Report and is incorporated herein by reference. If Registrant receives aggregate gross cash proceeds of not less than $25,054,000 from Qualified Equity Offerings on or prior to December 31, 2009, the number of shares of Common Stock issuable pursuant to the Treasury’s exercise of the Warrant will be reduced by one half of the original number of shares, taking into account all adjustments, underlying the Warrant. Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.

The Series A Preferred Stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the request of the Treasury, at any time, the Registrant has agreed to promptly enter into a deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and depositary shares (“Depositary Shares”), representing fractional shares of Series A Preferred Stock, may be issued. The Registrant also has agreed that, upon the request of the Treasury, at any time, it will register the Series A Preferred Stock, the Warrant, the shares of Common Stock underlying the Warrant (the “Warrant Shares”) and Depositary Shares, if any. Neither the Series A Preferred Stock nor the Warrant will be subject to any contractual restrictions on transfer, except that the Treasury may only transfer or exercise an aggregate of one-half (1/2) of the Warrant Shares prior to the

earlier of the redemption of 100% of the shares of Series A Preferred Stock or December 31, 2009.

As part of the sale of Series A Preferred Stock by the Registrant to the Treasury, the Registrant agreed, so long as Treasury continued to hold debt or equity in Registrant, to take all necessary actions to ensure that Registrant’s benefits plans with respect to “senior executive officers” comply with Section 111(b) of the Emergency Economic Stabilization Act of 2008 and any related rules and regulations promulgated. The Senior Executive Officers, Tony W. Wolfe, A. Joseph Lampron, Joseph F. Beaman, Jr. Lance A. Sellers and William D. Cable, Sr., executed waivers voluntarily waiving any claim against UST or Registrant for any changes their each officer’s compensation or benefits that are required to comply with UST regulations. The senior executive officers also entered into letter agreements with Registrant amending each such officer’s benefit plans to the extent necessary during the period that UST holds debt or equity in Registrant.

Item 3.02 Unregistered Sales of Equity Securities

The information set forth under “Item 1.01 Entry into a Material Definitive Agreement” above is incorporated by reference into this Item 3.02.

Item 3.03 Material Modification to Rights of Securityholders

Upon issuance of the Series A Preferred Stock on December 23, 2008, the ability of Registrant to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its Junior Stock (as defined below) and Parity Stock (as defined below) will be subject to restrictions, including Registrant’s restriction against increasing dividends from the last quarterly cash dividend per share ($0.12) declared on the Common Stock prior to December 23, 2008. The redemption, purchase or other acquisition of any trust preferred securities issued by Registrant or its affiliates also will be restricted. These restrictions will terminate on the earlier of (a) the third anniversary of the date of issuance of the Series A Preferred Stock, or (b) the date on which the Series A Preferred Stock has been redeemed in whole or the Treasury has transferred all of the Series A Preferred Stock to third parties. The restrictions described in this paragraph are set forth in the Purchase Agreement.

In addition, pursuant to Registrant’s Articles of Amendment dated December 19, 2008, the ability of Registrant to declare or pay dividends or distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of its Junior Stock (as defined below) and Parity Stock (as defined below) will be subject to restrictions in the event that the Registrant fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on its Series A Preferred Stock. These restrictions are set forth in Registrant’s Articles of Amendment dated December 19, 2008, described in Item 5.03.

“Junior Stock” means the Common Stock and any other class or series of stock of the Registrant, the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding

up of the Registration. “Parity Stock” means any class or series of stock of the Registrant, the terms of which do not expressly provide that such class or series will rank senior or junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of the Registrant (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

Item 5.02 Departure of Directors or Certain Officers, Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

The information concerning executive compensation set forth under “Item 1.01 Entry into a Material Definitive Agreement” is incorporated by reference into this Item 5.02. A copy of the letter agreements amending employment agreements of Registrant’s “senior executive officers” are attached as Exhibits 10(a)(i), 10(b)(i), 10(c)(i), 10(d)(i), and 10(f)(i) to this Report and are incorporated herein by reference.

Additionally, on December 18, 2009, each of the above listed officers entered into amendments to their employment agreements with the bank and Amended and Restated Executive Salary Continuation Agreements. These amendments were necessary to bring all such agreements into compliance with Section 409A of the Internal Revenue Code of 1896, as Amended (the “Code”). Copies of each of the amendments to the employment agreements and the Amended and Restated Executive Salary Continuation Agreements are attached as Exhibits to this Report and are incorporated herein by reference.

On December 18, 2008, each of the directors of the Registrant entered into Amended and Restated Director Supplemental Retirement Agreements between the Bank and each individual. The amendments were necessary to bring such agreements into compliance with Section 409A. A form of the agreement is attached to this Report as Exhibit 10(n) and incorporated herein by reference.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

On December 19, 2008, Registrant filed Articles of Amendment with the North Carolina Secretary of State, amending its Articles of Incorporation to allow for the designations, preferences, limitations and relative rights of the Series A Preferred Stock. The Series A Preferred Stock has a liquidation preference of $1,000 per share. A copy of the Articles of Amendment is attached to this Report as Exhibit 3.1 and is incorporated herein by reference.

Item 8.01 Other Events

On December 23, 2008, Registrant announced the transactions described in Item 1.01 above, which is incorporated herein by reference. A copy of the press release is attached as Exhibit 99.1 to this Report.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

3.1	Articles of Amendment dated December 19, 2008, regarding the Series A Preferred Stock
4.1	Form of Certificate for the Series A Preferred Stock
4.2	Warrant dated December 23, 2008, for the purchase of shares of Common Stock
10.1	Letter Agreement date December 23, 2008 between the Registrant and the United States Department of the Treasury
10(a)(i)	Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Tony W. Wolfe
10(a)(ii)	Amendment to Employment between Peoples Bank and Tony W. Wolfe dated December 18, 2008
10(a)(iii)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Tony W. Wolfe dated December 18, 2008
10(b)(i)	Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Joseph F. Beaman, Jr.
10(b)(ii)	Amendment to Employment Agreement between Peoples Bank and Joseph F. Beaman, Jr. dated December 18, 2008
10(b)(iii)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Joseph f. Beaman, Jr. dated December 18, 2008
10(c)(i)	Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and William D. Cable, Sr.
10(c)(ii)	Amendment to Employment Agreement between Peoples Bank and William D. Cable, Sr. dated December 18, 2008
10(c)(iii)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and William D. Cable, Jr. dated December 18, 2008
10(d)(i)	Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Lance A. Sellers

10(d)(ii)	Amendment to Employment Agreement between Peoples Bank and Lance A. Sellers dated December 18, 2008
10(d)(iii)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Lance A. Sellers dated December 18, 2008
10(f)(i)	Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and A. Joseph Lampron
10(f)(ii)	Amendment to Employment Agreement between Peoples Bank and A. Joseph Lampron dated December 18, 2008
10(f)(iii)	Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and A. Joseph Lampron dated December 18, 2008
10(n)	Form of Amended and Restated Director Supplemental Retirement Agreement between Peoples Bank and Directors Robert C. Abernethy, James S. Abernethy, Douglas S. Howard, John W. Lineberger, Jr., Gary E. Matthews, Dr. Billy L Price, Jr., Larry E Robinson, W. Gregory Terry, Dan Ray Timmerman, Sr., and Benjamin I. Zachary
99.1	Press Release dated December 23, 2008

Disclosure about forward-looking statements

This Form 8-K contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in interest rate environment, management’s business strategy, national, regional, and local market conditions and legislative and regulatory conditions.

Readers should not place undue reliance on forward-looking statements, which reflect management’s view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PEOPLES BANCORP OF NORTH CAROLINA, INC.
Date: December 24, 2008	By:	/s/    A. Joseph Lampron
		A. Joseph Lampron
		Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

3.1 Articles of Amendment dated December 19, 2008, regarding the Series A Preferred Stock

4.1 Form of Certificate for the Series A Preferred Stock

4.2 Warrant dated December 23, 2008, for the purchase of shares of Common Stock

10.1 Letter Agreement date December 23, 2008 between the Registrant and the United States Department of the Treasury

10(a)(i) Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Tony W. Wolfe

10(a)(ii) Amendment to Employment between Peoples Bank and Tony W. Wolfe dated December 18, 2008

10(a)(iii) Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Tony W. Wolfe dated December 18, 2008

10(b)(i) Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Joseph F. Beaman, Jr.

10(b)(ii) Amendment to Employment Agreement between Peoples Bank and Joseph F. Beaman, Jr. dated December 18, 2008

10(b)(iii) Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Joseph f. Beaman, Jr. dated December 18, 2008

10(c)(i) Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and William D. Cable, Sr.

10(c)(ii) Amendment to Employment Agreement between Peoples Bank and William D. Cable, Sr. dated December 18, 2008

10(c)(iii) Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and William D. Cable, Jr. dated December 18, 2008

10(d)(i) Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and Lance A. Sellers

10(d)(ii) Amendment to Employment Agreement between Peoples Bank and Lance A. Sellers dated December 18, 2008

10(d)(iii) Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and Lance A. Sellers dated December 18, 2008

10(f)(i) Employment Letter Agreement dated December 23, 2008 between Peoples Bancorp of North Carolina, Inc. and A. Joseph Lampron

10(f)(ii) Amendment to Employment Agreement between Peoples Bank and A. Joseph Lampron dated December 18, 2008

10(f)(iii) Amended and Restated Executive Salary Continuation Agreement between Peoples Bank and A. Joseph Lampron dated December 18, 2008

10(n) Form of Amended and Restated Director Supplemental Retirement Agreement between Peoples Bank and Directors Robert C. Abernethy, James S. Abernethy, Douglas S. Howard, John W. Lineberger, Jr., Gary E. Matthews, Dr. Billy L Price, Jr., Larry E Robinson, W. Gregory Terry, Dan Ray Timmerman, Sr., and Benjamin I. Zachary

99.1 Press Release dated December 23, 2008

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EX-3.1

Exhibit 3.1

State of North Carolina

Department of the Secretary of State

ARTICLES OF AMENDMENT

OF

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Pursuant to §55-10-06 of the General Statutes of North Carolina, the undersigned corporation hereby submits the following Articles of Amendment for the purpose of amending its Articles of Incorporation.

1. The name of the corporation is: Peoples Bancorp of North Carolina, Inc.

2. The text of each amendment adopted is as follows (State below or attach):

The attached designation of the preferences, limitations, and relative rights of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, were approved by the Company’s Board of Directors as provided in N.C. Gen. Stat. Section 55-6-02(b). Shareholder approval is not required under Section 55-6-02(b).

3. If an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment, if not contained in the amendment itself, are as follows:

Not applicable.

4. The date of adoption of each amendment was as follows: December 18, 2008

5. The amendment was approved by the Board of Directors of the corporation, as provided for pursuant to §55-10-02 of the General Statutes of North Carolina.

6. These articles will be effective upon filing, unless a delayed time and date is specified:

This the 18 day of December, 2008.

Peoples Bancorp of North Carolina, Inc.

Name of Corporation

/s/    Tony W. Wolfe

Signature

Tony W. Wolfe

President and Chief Executive Officer

Type or Print Name and Title

UST Seq. Number 329

DESIGNATION OF

PREFERENCES, LIMITATIONS AND

RELATIVE RIGHTS OF

FIXED RATE CUMULATIVE PERPETUAL

PREFERRED STOCK, SERIES A,

OF

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A.” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 25,054.

Part 2. Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.

Part. 3. Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Annex A hereto) as defined below:

(a) “Common Stock” means the common stock, no par value per share, of the Corporation.

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

(c) “Junior Stock” means the Common Stock, and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(d) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e) “Minimum Amount” means $6,263,500.

(f) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

(g) “Signing Date” means Original Issue Date.

Part. 4. Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

ANNEX A

STANDARD PROVISIONS

Section 1. General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

Section 2. Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

(d) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e) “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

(f) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

(g) “Charter” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(h) “Dividend Period” has the meaning set forth in Section 3(a).

(i) “Dividend Record Date” has the meaning set forth in Section 3(a).

(j) “Liquidation Preference” has the meaning set forth in Section 4(a).

(k) “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(l) “Preferred Director” has the meaning set forth in Section 7(b).

(m) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

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(n) “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(o) “Share Dilution Amount” has the meaning set forth in Section 3(b).

(p) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.

(q) “Successor Preferred Stock” has the meaning set forth in Section 5(a).

(r) “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3. Dividends.

(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

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Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker- dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

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Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

Section 4. Liquidation Rights.

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5. Redemption.

(a) Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole

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or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b) No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c) Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d) Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of

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New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7. Voting Rights.

(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c) Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 ²/3% of

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the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii) Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d) Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

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Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9. Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10. No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12. Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

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EX-4.1

Exhibit 4.1

Exhibit 4.1

A Quality Law Office Product of James Williams & Co., Inc., P O. Box 127, Yadkinville, NC 27055

INCORPORATED UNDER THE LAWS OF THE WITHIN NAMED STATE NOVEMBER 1

SHARES 25,054

Peoples Bancorp of North Carolina, Inc., a North Carolina Corporation

Fixed Rate Cumulative Perpetual Preferred Stock

Series A

This Certifies that

registered holderof

the United States Department of the Treasury

Twenty-Five Thousand Fifty-four (25,054)

is the shares

transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate property endorse.

In Witness Whereof, the said Corporation has              this Certificate to be signed by its duly authorized officers and its Corporates seal to be hereunto affixed this 19th day of              08

Secretary

President

THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE I44A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

For Value Received             hereby sell, assign and transfer unto             Shares represented by the within Certificate and do hereby irrevocably constitute and appoint             Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises

Dated             A. D. 20__

In presence of             

NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE. IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER

EX-4.2

Exhibit 4.2

UST Seq. Number 329

WARRANT TO PURCHASE COMMON STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.

WARRANT

to purchase

357,234

Shares of Common Stock of

Peoples Bancorp of

North Carolina, Inc.

Issue Date:    December 23, 2008

1. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.

“Affiliate” has the meaning ascribed to it in the Purchase Agreement.

“Appraisal Procedure” means a procedure whereby two independent appraisers, one chosen by the Company and one by the Original Warrantholder, shall mutually agree upon the determinations then the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the amount in question, a third independent appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers. The decision of the third appraiser so appointed and chosen shall be

given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Company and the Original Warrantholder; otherwise, the average of all three determinations shall be binding upon the Company and the Original Warrantholder. The costs of conducting any Appraisal Procedure shall be borne by the Company.

“Board of Directors” means the board of directors of the Company, including any duly authorized committee thereof.

“Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.

“Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

“Capital Stock” means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

“Charter” means, with respect to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.

“Common Stock” has the meaning ascribed to it in the Purchase Agreement.

“Company” means the Person whose name, corporate or other organizational form and jurisdiction of organization is set forth in Item 1 of Schedule A hereto.

“Conversion” has the meaning set forth in Section 13(B). “Convertible Securities” has the meaning set forth in Section 13(B). “CPP” has the meaning ascribed to it in the Purchase Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Exercise Price” means the amount set forth in Item 2 of Schedule A hereto. “Expiration Time” has the meaning set forth in Section 3.

“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith or, with respect to Section 14, as determined by the Original

2

Warrantholder acting in good faith. For so long as the Original Warrantholder holds this Warrant or any portion thereof, it may object in writing to the Board of Director’s calculation of fair market value within 10 days of receipt of written notice thereof. If the Original Warrantholder and the Company are unable to agree on fair market value during the 10-day period following the delivery of the Original Warrantholder’s objection, the Appraisal Procedure may be invoked by either party to determine Fair Market Value by delivering written notification thereof not later than the 30^th day after delivery of the Original Warrantholder’s objection.

“Governmental Entities” has the meaning ascribed to it in the Purchase Agreement.

“Initial Number” has the meaning set forth in Section 13(B).

“Issue Date” means the date set forth in Item 3 of Schedule A hereto.

“Market Price” means, with respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and ask prices as furnished by two members of the Financial Industry Regulatory Authority, Inc. selected from time to time by the Company for that purpose. “Market Price” shall be determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be (i) in the event that any portion of the Warrant is held by the Original Warrantholder, the fair market value per share of such security as determined in good faith by the Original Warrantholder or (ii) in all other circumstances, the fair market value per share of such security as determined in good faith by the Board of Directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Company for this purpose and certified in a resolution to the Warrantholder. For the purposes of determining the Market Price of the Common Stock on the “trading day” preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence immediately after the regular scheduled closing time of trading on the New York Stock Exchange or, if trading is closed at an earlier time, such earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).

“Ordinary Cash Dividends” means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time), provided that Ordinary Cash Dividends shall not include any cash dividends paid subsequent to the Issue Date to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the amount set forth in Item 4 of Schedule A hereto, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

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“Original Warrantholder” means the United States Department of the Treasury. Any actions specified to be taken by the Original Warrantholder hereunder may only be taken by such Person and not by any other Warrantholder.

“Permitted Transactions” has the meaning set forth in Section 13(B).

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

“Per Share Fair Market Value” has the meaning set forth in Section 13(C).

“Preferred Shares” means the perpetual preferred stock issued to the Original Warrantholder on the Issue Date pursuant to the Purchase Agreement.

“Pro Rata Repurchases” means any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 1 4E promulgated thereunder or (B) any other offer available to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding. The “Effective Date” of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

“Purchase Agreement” means the Securities Purchase Agreement – Standard Terms incorporated into the Letter Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as amended from time to time, between the Company and the United States Department of the Treasury (the “Letter Agreement”), including all annexes and schedules thereto.

“Qualified Equity Offering” has the meaning ascribed to it in the Purchase Agreement.

“Regulatory Approvals” with respect to the Warrantholder, means, to the extent applicable and required to permit the Warrantholder to exercise this Warrant for shares of Common Stock and to own such Common Stock without the Warrantholder being in violation of applicable law, rule or regulation, the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or expiration or termination of any applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

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“Shares” has the meaning set forth in Section 2.

“Trading Day” means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a business day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock.

“U.S. GAAP” means United States generally accepted accounting principles.

“Warrantholder” has the meaning set forth in Section 2.

“Warrant” means this Warrant, issued pursuant to the Purchase Agreement.

2. Number of Shares; Exercise Price. This certifies that, for value received, the United States Department of the Treasury or its permitted assigns (the “Warrantholder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise Price. The number of shares of Common Stock (the “Shares”) and the Exercise Price are subject to adjustment as provided herein, and all references to “Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.

3. Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by applicable laws and regulations, the right to purchase the Shares represented by this Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the execution and delivery of this Warrant by the Company on the date hereof, but in no event later than 5:00 p.m., New York City time on the tenth anniversary of the Issue Date (the “Expiration Time”), by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive office of the Company located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and (B) payment of the Exercise Price for the Shares thereby purchased:

(i) by having the Company withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common stock issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered to the Company pursuant to this Section 3, or

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(ii) with the consent of both the Company and the Warrantholder, by tendering in cash, by certified or cashier’s check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company.

If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder will be entitled to receive from the Company within a reasonable time, and in any event not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so exercised. Notwithstanding anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have first received any applicable Regulatory Approvals.

4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued upon exercise of this Warrant will be issued in such name or names as the Warrantholder may designate and will be delivered to such named Person or Persons within a reasonable time, not to exceed three business days after the date on which this Warrant has been duly exercised in accordance with the terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance with the provisions of Section 3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the Warrantholder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered on such date. The Company will at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this Warrant at any time. The Company will (A) procure, at its sole expense, the listing of the Shares issuable upon exercise of this Warrant at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Company will use reasonable best efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded.

5. No Fractional Shares or Scrip. No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

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6. No Rights as Stockholders; Transfer Books. This Warrant does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the date of exercise hereof. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

7. Charges, Taxes and Expenses. Issuance of certificates for Shares to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company.

8. Transfer/Assignment.

(A) Subject to compliance with clause (B) of this Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the registered holder hereof in person or by duly authorized attorney, and a new warrant shall be made and delivered by the Company, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8 shall be paid by the Company.

(B) The transfer of the Warrant and the Shares issued upon exercise of the Warrant are subject to the restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so long as required by the Purchase Agreement, this Warrant shall contain the legends as set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the Company, for a new warrant or warrants of like tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.

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12. Rule 144 Information. The Company covenants that it will use its reasonable best efforts to timely file all reports and other documents required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Warrantholder, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will use reasonable best efforts to take such further action as any Warrantholder may reasonably request, in each case to the extent required from time to time to enable such holder to, if permitted by the terms of this Warrant and the Purchase Agreement, sell this Warrant without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (B) any successor rule or regulation hereafter adopted by the SEC. Upon the written request of any Warrantholder, the Company will deliver to such Warrantholder a written statement that it has complied with such requirements.

13. Adjustments and Other Rights. The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided, that if more than one subsection of this Section 13 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 13 so as to result in duplication:

(A) Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Warrantholder after such date shall be entitled to purchase the number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately preceding sentence.

(B) Certain Issuances of Common Shares or Convertible Securities. Until the earlier of (i) the date on which the Original Warrantholder no longer holds this Warrant or any portion thereof and (ii) the third anniversary of the Issue Date, if the Company

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shall issue shares of Common Stock (or rights or warrants or other securities exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of Common Stock) (collectively, “convertible securities”) (other than in Permitted Transactions (as defined below) or a transaction to which subsection (A) of this Section 13 is applicable) without consideration or at a consideration per share (or having a conversion price per share) that is less than 90% of the Market Price on the last trading day preceding the date of the agreement on pricing such shares (or such convertible securities) then, in such event:

(A) the number of Shares issuable upon the exercise of this Warrant immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) (the “Initial Number”) shall be increased to the number obtained by multiplying the Initial Number by a fraction (A) the numerator of which shall be the sum of (x) the number of shares of Common Stock of the Company outstanding on such date and (y) the number of additional shares of Common Stock issued (or into which convertible securities may be exercised or convert) and (B) the denominator of which shall be the sum of (I) the number of shares of Common Stock outstanding on such date and (II) the number of shares of Common Stock which the aggregate consideration receivable by the Company for the total number of shares of Common Stock so issued (or into which convertible securities may be exercised or convert) would purchase at the Market Price on the last trading day preceding the date of the agreement on pricing such shares (or such convertible securities); and

(B) the Exercise Price payable upon exercise of the Warrant shall be adjusted by multiplying such Exercise Price in effect immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant prior to such date and the denominator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant immediately after the adjustment described in clause (A) above.

For purposes of the foregoing, the aggregate consideration receivable by the Company in connection with the issuance of such shares of Common Stock or convertible securities shall be deemed to be equal to the sum of the net offering price (including the Fair Market Value of any non-cash consideration and after deduction of any related expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such convertible securities into shares of Common Stock; and “Permitted Transactions” shall mean issuances (i) as consideration for or to fund the acquisition of businesses and/or related assets, (ii) in connection with employee benefit plans and compensation related arrangements in the ordinary course and consistent with past practice approved by the Board of Directors, (iii) in connection with a public or broadly marketed offering and sale of Common Stock or convertible securities for cash conducted by the Company or its affiliates pursuant to registration under the Securities Act or Rule 144A thereunder on a basis consistent with capital raising transactions by comparable financial institutions and (iv) in connection with the exercise of preemptive rights on terms existing as of the Issue Date. Any adjustment made pursuant to this Section 13(B) shall become effective immediately upon the date of such issuance.

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(C) Other Distributions. In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 13(A)), in each such case, the Exercise Price in effect prior to such record date shall be reduced immediately thereafter to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market Value”) divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the number of Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the distribution giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced by the per share amount of the portion of the cash dividend that would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and the number of Shares issuable upon exercise of this Warrant then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such shares, evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Exercise Price that would then be in effect and the number of Shares that would then be issuable upon exercise of this Warrant if such record date had not been fixed.

(D) Certain Repurchases of Common Stock. In case the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to

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the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 13(D).

(E) Business Combinations. In case of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)), the Warrantholder’s right to receive Shares upon exercise of this Warrant shall be converted into the right to exercise this Warrant to acquire the number of shares of stock or other securities or property (including cash) which the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Warrantholder’s right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the consideration that the Warrantholder shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares of common stock that affirmatively make an election (or of all such holders if none make an election).

(F) Rounding of Calculations; Minimum Adjustments. All calculations under this Section 13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 13 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

(G) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 13 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Warrantholder of this Warrant exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the

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Company upon request shall deliver to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder’s right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

(H) Completion of Qualified Equity Offering. In the event the Company (or any successor by Business Combination) completes one or more Qualified Equity Offerings on or prior to December 31, 2009 that result in the Company (or any such successor ) receiving aggregate gross proceeds of not less than 100% of the aggregate liquidation preference of the Preferred Shares (and any preferred stock issued by any such successor to the Original Warrantholder under the CPP), the number of shares of Common Stock underlying the portion of this Warrant then held by the Original Warrantholder shall be thereafter reduced by a number of shares of Common Stock equal to the product of (i) 0.5 and (ii) the number of shares underlying the Warrant on the Issue Date (adjusted to take into account all other theretofore made adjustments pursuant to this Section 13).

(I) Other Events. For so long as the Original Warrantholder holds this Warrant or any portion thereof, if any event occurs as to which the provisions of this Section 13 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such purchase rights as aforesaid. The Exercise Price or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

(J) Statement Regarding Adjustments. Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Warrantholder at the address appearing in the Company’s records.

(K) Notice of Adjustment Event. In the event that the Company shall propose to take any action of the type described in this Section 13 (but only if the action of the type described in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company shall give notice to the Warrantholder, in the manner set forth in Section 13(J), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case

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of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(L) Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 13, the Company shall take any action which may be necessary, including obtaining regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to receive upon exercise of this Warrant pursuant to this Section 13.

(M) Adjustment Rules. Any adjustments pursuant to this Section 13 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.

14. Exchange. At any time following the date on which the shares of Common Stock of the Company are no longer listed or admitted to trading on a national securities exchange (other than in connection with any Business Combination), the Original Warrantholder may cause the Company to exchange all or a portion of this Warrant for an economic interest (to be determined by the Original Warrantholder after consultation with the Company) of the Company classified as permanent equity under U.S. GAAP having a value equal to the Fair Market Value of the portion of the Warrant so exchanged. The Original Warrantholder shall calculate any Fair Market Value required to be calculated pursuant to this Section 14, which shall not be subject to the Appraisal Procedure.

15. No Impairment. The Company will not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder.

16. Governing Law. This Warrant will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each of the Company and the Warrantholder agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia for any civil action, suit or proceeding arising out of or relating to this Warrant or the transactions contemplated hereby, and (b) that notice may be served upon the Company at the address in Section 20 below and upon the Warrantholder at the

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address for the Warrantholder set forth in the registry maintained by the Company pursuant to Section 9 hereof. To the extent permitted by applicable law, each of the Company and the Warrantholder hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to the Warrant or the transactions contemplated hereby or thereby.

17. Binding Effect. This Warrant shall be binding upon any successors or assigns of the Company.

18. Amendments. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Warrantholder.

19. Prohibited Actions. The Company agrees that it will not take any action which would entitle the Warrantholder to an adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.

20. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

21. Entire Agreement. This Warrant, the forms attached hereto and Schedule A hereto (the terms of which are incorporated by reference herein), and the Letter Agreement (including all documents incorporated therein), contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings with respect thereto.

[Remainder of page intentionally left blank]

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[Form of Notice of Exercise]

Date:

TO: [Company]

RE: Election to Purchase Common Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock in the manner set forth below. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name set forth below.

Number of Shares of Common Stock             

Method of Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of the Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with consent of the Company and the Warrantholder)                     

Aggregate Exercise Price:             

Holder:

By:

Name:

Title:

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer.

Dated: December 23, 2008

COMPANY: Peoples Bancorp of North Carolina, Inc.
By:	/s/    Tony W. Wolfe
Name:	Tony W. Wolfe
Title:	President and CEO
Attest:
By:	/s/    Joseph F. Beamon, Jr.
Name:	Joseph F. Beaman, Jr.
Title:	Secretary

[Signature Page to Warrant]

SCHEDULE A

Item 1

Name: Peoples Bancorp of North Carolina, Inc.

Corporate or other organizational form: Corporation

Jurisdiction of organization: NC

Item 2

Exercise Price: ¹         $10.52

Item 3

Issue Date:     December 23, 2008

Item 4

Amount of last dividend declared prior to the Issue Date:     $0.12

Item 5

Date of Letter Agreement between the Company and the United States Department of the Treasury: December 23, 2008

Item 6

Number of shares of Common Stock:             357,234

Item 7

Company’s address:

Post Office Box 467

518 West C Street

Newton, North Carolina 28658-0467

Item 8

Notice information:

Tony W. Wolfe

Peoples Bancorp of North Carolina, Inc.

Post Office Box 467

518 West C Street

Newton, North Carolina 28658-0467

Phone: (828) 464-5620

twolfe@peoplesbanknc.com

¹ Initial exercise price to be calculated based on the average of closing prices of the Common Stock on the 20 trading days ending on the last trading day prior to the date the Company’s application for participation in the Capital Purchase Program was approved by the United States Department of the Treasury.

EX-10.1

Exhibit 10.1

UST Seq. Number 329

UNITED STATES DEPARTMENT OF THE TREASURY

1500 PENNSYLVANIA AVENUE, NW

WASHINGTON, D.C. 20220

Dear Ladies and Gentlemen:

The company set forth on the signature page hereto (the “Company”) intends to issue in a private placement the number of shares of a series of its preferred stock set forth on Schedule A hereto (the “Preferred Shares”) and a warrant to purchase the number of shares of its common stock set forth on Schedule A hereto (the “Warrant” and, together with the Preferred Shares, the “Purchased Securities”) and the United States Department of the Treasury (the “Investor”) intends to purchase from the Company the Purchased Securities.

The purpose of this letter agreement is to confirm the terms and conditions of the purchase by the Investor of the Purchased Securities. Except to the extent supplemented or superseded by the terms set forth herein or in the Schedules hereto, the provisions contained in the Securities Purchase Agreement – Standard Terms attached hereto as Exhibit A (the “Securities Purchase Agreement”) are incorporated by reference herein. Terms that are defined in the Securities Purchase Agreement are used in this letter agreement as so defined. In the event of any inconsistency between this letter agreement and the Securities Purchase Agreement, the terms of this letter agreement shall govern.

Each of the Company and the Investor hereby confirms its agreement with the other party with respect to the issuance by the Company of the Purchased Securities and the purchase by the Investor of the Purchased Securities pursuant to this letter agreement and the Securities Purchase Agreement on the terms specified on Schedule A hereto.

This letter agreement (including the Schedules hereto) and the Securities Purchase Agreement (including the Annexes thereto) and the Warrant constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof. This letter agreement constitutes the “Letter Agreement” referred to in the Securities Purchase Agreement.

This letter agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this letter agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.

***

UST Seq. Number 329

In witness whereof, this letter agreement has been duly executed and delivered by the duly authorized representatives of the parties hereto as of the date written below.

UNITED STATES DEPARTMENT OF THE TREASURY
By:
Name:
Title:
COMPANY: Peoples Bancorp of North Carolina, Inc.
By:	/s/    Tony W. Wolfe
Name:	Tony W. Wolfe
Title:	President and Chief Executive Officer

Date: December 23, 2009

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UST Seq. Number 329

EXHIBIT A

SECURITIES PURCHASE AGREEMENT

STANDARD TERMS

TABLE OF CONTENTS

		Page
Article I Purchase; Closing		1
Article II Representations and Warranties		4
2.1	Disclosure	4
2.2	Representations and Warranties of the Company	5
Article III Covenants		13
3.1	Commercially Reasonable Efforts	13
3.2	Expenses	14
3.3	Sufficiency of Authorized Common Stock; Exchange Listing	14
3.4	Certain Notifications Until Closing	15
3.5	Access, Information and Confidentiality	15
Article IV Additional Agreements		16
4.1	Purchase for Investment	16
4.2	Legends	16
4.3	Certain Transactions	18
4.4	Transfer of Purchased Securities and Warrant Shares; Restrictions on Exercise of the Warrant	18
4.5	Registration Rights	18
4.6	Voting of Warrant Shares	30
4.7	Depositary Shares	30
4.8	Restriction on Dividends and Repurchases	30
4.9	Repurchase of Investor Securities	32
4.10	Executive Compensation	33
Article V Miscellaneous		33
5.1	Termination	33
5.2	Survival of Representations and Warranties	33
5.3	Amendment	34
5.4	Waiver of Conditions	34
5.5	Governing Law: Submission to Jurisdiction, Etc	34
5.6	Notices	34
5.7	Definitions	35
5.8	Assignment	35
5.9	Severability	35
5.10	No Third Party Beneficiaries	35

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LIST OF ANNEXES

ANNEX A: FORM OF CERTIFICATE OF DESIGNATIONS FOR PREFERRED STOCK

ANNEX B: FORM OF WAIVER

ANNEX C: FORM OF OPINION

ANNEX D: FORM OF WARRANT

ii

INDEX OF DEFINED TERMS

Term	Location of         Definition
Affiliate	5.7(b)
Agreement	Recitals
Appraisal Procedure	4.9(c)(i)
Appropriate Federal Banking Agency	2.2(s)
Bankruptcy Exceptions	2.2(d)
Benefit Plans	1 .2(d)(iv)
Board of Directors	2.2(f)
Business Combination	4.4
business day	1.3
Capitalization Date	2.2(b)
Certificate of Designations	1.2(d)(iii)
Charter	1.2(d)(iii)
Closing	1.2(a)
Closing Date	1.2(a)
Code	2.2(n)
Common Stock	Recitals
Company	Recitals
Company Financial Statements	2.2(h)
Company Material Adverse Effect	2.1(a)
Company Reports	2.2(i)(i)
Company Subsidiary; Company Subsidiaries	2.2(i)(i)
control; controlled by; under common control with	5.7(b)
Controlled Group	2.2(n)
CPP	Recitals
EESA	1.2(d)(iv)
ERISA	2.2(n)
Exchange Act	2.1(b)
Fair Market Value	4.9(c)(ii)
GAAP	2.1(a)
Governmental Entities	1.2(c)
Holder	4.5(k)(i)
Holders’ Counsel	4.5(k)(ii)
Indemnitee	4. 5(g)(i)
Information	3.5(b)
Initial Warrant Shares	Recitals
Investor	Recitals
Junior Stock	4.8(c)
knowledge of the Company; Company’s knowledge	5.7(c)
Last Fiscal Year	2.1(b)
Letter Agreement	Recitals
officers	5.7(c)

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Parity Stock	4.8(c)
Pending Underwritten Offering	4.5(l)
Permitted Repurchases	4. 8(a)(ii)
Piggyback Registration	4.5(a)(iv)
Plan	2.2(n)
Preferred Shares	Recitals
Preferred Stock	Recitals
Previously Disclosed	2.1(b)
Proprietary Rights	2.2(u)
Purchase	Recitals
Purchase Price	1.1
Purchased Securities	Recitals
Qualified Equity Offering	4.4
register; registered; registration	4.5(k)(iii)
Registrable Securities	4.5(k)(iv)
Registration Expenses	4.5(k)(v)
Regulatory Agreement	2.2(s)
Rule 144; Rule 144A; Rule 159A; Rule 405; Rule 415	4.5(k)(vi)
Schedules	Recitals
SEC	2.1(b)
Securities Act	2.2(a)
Selling Expenses	4.5(k)(vii)
Senior Executive Officers	4.10
Share Dilution Amount	4.8(a)(ii)
Shelf Registration Statement	4. 5(a)(ii)
Signing Date	2.1(a)
Special Registration	4.5(i)
Stockholder Proposals	3.1(b)
subsidiary	5.8(a)
Tax; Taxes	2.2(o)
Transfer	4.4
Warrant	Recitals
Warrant Shares	2.2(d)

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SECURITIES PURCHASE AGREEMENT – STANDARD TERMS

Recitals:

WHEREAS, the United States Department of the Treasury (the “Investor”) may from time to time agree to purchase shares of preferred stock and warrants from eligible financial institutions which elect to participate in the Troubled Asset Relief Program Capital Purchase Program (“CPP”);

WHEREAS, an eligible financial institution electing to participate in the CPP and issue securities to the Investor (referred to herein as the “Company”) shall enter into a letter agreement (the “Letter Agreement”) with the Investor which incorporates this Securities Purchase Agreement – Standard Terms;

WHEREAS, the Company agrees to expand the flow of credit to U.S. consumers and businesses on competitive terms to promote the sustained growth and vitality of the U.S. economy;

WHEREAS, the Company agrees to work diligently, under existing programs, to modify the terms of residential mortgages as appropriate to strengthen the health of the U.S. housing market;

WHEREAS, the Company intends to issue in a private placement the number of shares of the series of its Preferred Stock (“Preferred Stock”) set forth on Schedule A to the Letter Agreement (the “Preferred Shares”) and a warrant to purchase the number of shares of its Common Stock (“Common Stock”) set forth on Schedule A to the Letter Agreement (the “Initial Warrant Shares”) (the “Warrant” and, together with the Preferred Shares, the “Purchased Securities”) and the Investor intends to purchase (the “Purchase”) from the Company the Purchased Securities; and

WHEREAS, the Purchase will be governed by this Securities Purchase Agreement – Standard Terms and the Letter Agreement, including the schedules thereto (the “Schedules”), specifying additional terms of the Purchase. This Securities Purchase Agreement – Standard Terms (including the Annexes hereto) and the Letter Agreement (including the Schedules thereto) are together referred to as this “Agreement”. All references in this Securities Purchase Agreement – Standard Terms to “Schedules” are to the Schedules attached to the Letter Agreement.

NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the parties agree as follows:

Article I

Purchase; Closing

1.1 Purchase. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, at the Closing (as hereinafter defined), the Purchased Securities for the price set forth on Schedule A (the “Purchase Price”).

1.2 Closing.

(a) On the terms and subject to the conditions set forth in this Agreement, the closing of the Purchase (the “Closing”) will take place at the location specified in Schedule A, at the time and on the date set forth in Schedule A or as soon as practicable thereafter, or at such other place, time and date as shall be agreed between the Company and the Investor. The time and date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

(b) Subject to the fulfillment or waiver of the conditions to the Closing in this Section 1.2, at the Closing the Company will deliver the Preferred Shares and the Warrant, in each case as evidenced by one or more certificates dated the Closing Date and bearing appropriate legends as hereinafter provided for, in exchange for payment in full of the Purchase Price by wire transfer of immediately available United States funds to a bank account designated by the Company on Schedule A.

(c) The respective obligations of each of the Investor and the Company to consummate the Purchase are subject to the fulfillment (or waiver by the Investor and the Company, as applicable) prior to the Closing of the conditions that (i) any approvals or authorizations of all United States and other governmental, regulatory or judicial authorities (collectively, “Governmental Entities”) required for the consummation of the Purchase shall have been obtained or made in form and substance reasonably satisfactory to each party and shall be in full force and effect and all waiting periods required by United States and other applicable law, if any, shall have expired and (ii) no provision of any applicable United States or other law and no judgment, injunction, order or decree of any Governmental Entity shall prohibit the purchase and sale of the Purchased Securities as contemplated by this Agreement.

(d) The obligation of the Investor to consummate the Purchase is also subject to the fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following conditions:

(i) (A) the representations and warranties of the Company set forth in (x) Section 2.2(g) of this Agreement shall be true and correct in all respects as though made on and as of the Closing Date, (y) Sections 2.2(a) through (f) shall be true and correct in all material respects as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct in all material respects as of such other date) and (z) Sections 2.2(h) through (v) (disregarding all qualifications or limitations set forth in such representations and warranties as to “materiality”, “Company Material Adverse Effect” and words of similar import) shall be true and correct as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct as of such other date), except to the extent that the failure of such representations and warranties referred to in this Section 1.2(d)(i)(A)(z) to be so true and correct, individually or in the

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aggregate, does not have and would not reasonably be expected to have a Company Material Adverse Effect and (B) the Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing;

(ii) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in Section 1 .2(d)(i) have been satisfied;

(iii) the Company shall have duly adopted and filed with the Secretary of State of its jurisdiction of organization or other applicable Governmental Entity the amendment to its certificate or articles of incorporation, articles of association, or similar organizational document (“Charter”) in substantially the form attached hereto as Annex A (the “Certificate of Designations”) and such filing shall have been accepted;

(iv) (A) the Company shall have effected such changes to its compensation, bonus, incentive and other benefit plans, arrangements and agreements (including golden parachute, severance and employment agreements) (collectively, “Benefit Plans”) with respect to its Senior Executive Officers (and to the extent necessary for such changes to be legally enforceable, each of its Senior Executive Officers shall have duly consented in writing to such changes), as may be necessary, during the period that the Investor owns any debt or equity securities of the Company acquired pursuant to this Agreement or the Warrant, in order to comply with Section 111(b) of the Emergency Economic Stabilization Act of 2008 (“EESA”) as implemented by guidance or regulation thereunder that has been issued and is in effect as of the Closing Date, and (B) the Investor shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the condition set forth in Section 1.2(d)(iv)(A) has been satisfied;

(v) each of the Company’s Senior Executive Officers shall have delivered to the Investor a written waiver in the form attached hereto as Annex B releasing the Investor from any claims that such Senior Executive Officers may otherwise have as a result of the issuance, on or prior to the Closing Date, of any regulations which require the modification of, and the agreement of the Company hereunder to modify, the terms of any Benefit Plans with respect to its Senior Executive Officers to eliminate any provisions of such Benefit Plans that would not be in compliance with the requirements of Section 111(b) of the EESA as implemented by guidance or regulation thereunder that has been issued and is in effect as of the Closing Date;

(vi) the Company shall have delivered to the Investor a written opinion from counsel to the Company (which may be internal counsel), addressed to the Investor and dated as of the Closing Date, in substantially the form attached hereto as

Annex C;

(vii) the Company shall have delivered certificates in proper form or, with the prior consent of the Investor, evidence of shares in book-entry form, evidencing the Preferred Shares to Investor or its designee(s); and

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(viii) the Company shall have duly executed the Warrant in substantially the form attached hereto as Annex D and delivered such executed Warrant to the Investor or its designee(s).

1.3 Interpretation. When a reference is made in this Agreement to “Recitals,” “Articles,” “Sections,” or “Annexes” such reference shall be to a Recital, Article or Section of, or Annex to, this Securities Purchase Agreement – Standard Terms, and a reference to “Schedules” shall be to a Schedule to the Letter Agreement, in each case, unless otherwise indicated. The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.” No rule of construction against the draftsperson shall be applied in connection with the interpretation or enforcement of this Agreement, as this Agreement is the product of negotiation between sophisticated parties advised by counsel. All references to “$” or “dollars” mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. References to a “business day” shall mean any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

Article II

Representations and Warranties

2.1 Disclosure.

(a) “Company Material Adverse Effect” means a material adverse effect on (i) the business, results of operation or financial condition of the Company and its consolidated subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall not be deemed to include the effects of (A) changes after the date of the Letter Agreement (the “Signing Date”) in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in which the Company and its subsidiaries operate, (B) changes or proposed changes after the Signing Date in generally accepted accounting principles in the United States (“GAAP”) or regulatory accounting requirements, or authoritative interpretations thereof, (C) changes or proposed changes after the Signing Date in securities, banking and other laws of general applicability or related policies or interpretations of Governmental Entities (in the case of each of these clauses (A), (B) and (C), other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially

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disproportionate adverse effect on the Company and its consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial services organizations), or (D) changes in the market price or trading volume of the Common Stock or any other equity, equity-related or debt securities of the Company or its consolidated subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the ability of the Company to consummate the Purchase and the other transactions contemplated by this Agreement and the Warrant and perform its obligations hereunder or thereunder on a timely basis.

(b) “Previously Disclosed” means information set forth or incorporated in the Company’s Annual Report on Form 10-K for the most recently completed fiscal year of the Company filed with the Securities and Exchange Commission (the “SEC”) prior to the Signing Date (the “Last Fiscal Year”) or in its other reports and forms filed with or furnished to the SEC under Sections 13(a), 14(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) on or after the last day of the Last Fiscal Year and prior to the Signing Date.

2.2 Representations and Warranties of the Company. Except as Previously Disclosed, the Company represents and warrants to the Investor that as of the Signing Date and as of the Closing Date (or such other date specified herein):

(a) Organization, Authority and Significant Subsidiaries. The Company has been duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of organization, with the necessary power and authority to own its properties and conduct its business in all material respects as currently conducted, and except as has not, individually or in the aggregate, had and would not reasonably be expected to have a Company Material Adverse Effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification; each subsidiary of the Company that is a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act of 1933 (the “Securities Act”) has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. The Charter and bylaws of the Company, copies of which have been provided to the Investor prior to the Signing Date, are true, complete and correct copies of such documents as in full force and effect as of the Signing Date.

(b) Capitalization. The authorized capital stock of the Company, and the outstanding capital stock of the Company (including securities convertible into, or exercisable or exchangeable for, capital stock of the Company) as of the most recent fiscal month-end preceding the Signing Date (the “Capitalization Date”) is set forth on Schedule B. The outstanding shares of capital stock of the Company have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). Except as provided in the Warrant, as of the Signing Date, the Company does not have outstanding any securities or other obligations providing the holder the right to acquire Common Stock that is not reserved for issuance as specified on Schedule B, and the Company has not made any other commitment to authorize, issue or sell any Common Stock. Since the Capitalization Date, the Company has not issued any shares of Common Stock,

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other than (i) shares issued upon the exercise of stock options or delivered under other equity-based awards or other convertible securities or warrants which were issued and outstanding on the Capitalization Date and disclosed on Schedule B and (ii) shares disclosed on Schedule B.

(c) Preferred Shares. The Preferred Shares have been duly and validly authorized, and, when issued and delivered pursuant to this Agreement, such Preferred Shares will be duly and validly issued and fully paid and non-assessable, will not be issued in violation of any preemptive rights, and will rank pari passu with or senior to all other series or classes of Preferred Stock, whether or not issued or outstanding, with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Company.

(d) The Warrant and Warrant Shares. The Warrant has been duly authorized and, when executed and delivered as contemplated hereby, will constitute a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity (“Bankruptcy Exceptions”). The shares of Common Stock issuable upon exercise of the Warrant (the “Warrant Shares”) have been duly authorized and reserved for issuance upon exercise of the Warrant and when so issued in accordance with the terms of the Warrant will be validly issued, fully paid and non-assessable, subject, if applicable, to the approvals of its stockholders set forth on Schedule C.

(e) Authorization, Enforceability.

(i) The Company has the corporate power and authority to execute and deliver this Agreement and the Warrant and, subject, if applicable, to the approvals of its stockholders set forth on Schedule C, to carry out its obligations hereunder and thereunder (which includes the issuance of the Preferred Shares, Warrant and Warrant Shares). The execution, delivery and performance by the Company of this Agreement and the Warrant and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and its stockholders, and no further approval or authorization is required on the part of the Company, subject, in each case, if applicable, to the approvals of its stockholders set forth on Schedule C. This Agreement is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the Bankruptcy Exceptions.

(ii) The execution, delivery and performance by the Company of this Agreement and the Warrant and the consummation of the transactions contemplated hereby and thereby and compliance by the Company with the provisions hereof and thereof, will not (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required

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by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Company Subsidiary under any of the terms, conditions or provisions of (i) subject, if applicable, to the approvals of the Company’s stockholders set forth on Schedule C, its organizational documents or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which it or any Company Subsidiary may be bound, or to which the Company or any Company Subsidiary or any of the properties or assets of the Company or any Company Subsidiary may be subject, or (B) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any statute, rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Company Subsidiary or any of their respective properties or assets except, in the case of clauses (A)(ii) and (B), for those occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(iii) Other than the filing of the Certificate of Designations with the Secretary of State of its jurisdiction of organization or other applicable Governmental Entity, any current report on Form 8-K required to be filed with the SEC, such filings and approvals as are required to be made or obtained under any state “blue sky” laws, the filing of any proxy statement contemplated by Section 3.1 and such as have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Company in connection with the consummation by the Company of the Purchase except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(f) Anti-takeover Provisions and Rights Plan. The Board of Directors of the Company (the “Board of Directors”) has taken all necessary action to ensure that the transactions contemplated by this Agreement and the Warrant and the consummation of the transactions contemplated hereby and thereby, including the exercise of the Warrant in accordance with its terms, will be exempt from any anti-takeover or similar provisions of the Company’s Charter and bylaws, and any other provisions of any applicable “moratorium”, “control share”, “fair price”, “interested stockholder” or other anti-takeover laws and regulations of any jurisdiction. The Company has taken all actions necessary to render any stockholders’ rights plan of the Company inapplicable to this Agreement and the Warrant and the consummation of the transactions contemplated hereby and thereby, including the exercise of the Warrant by the Investor in accordance with its terms.

(g) No Company Material Adverse Effect. Since the last day of the last completed fiscal period for which the Company has filed a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K with the SEC prior to the Signing Date, no fact, circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.

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(h) Company Financial Statements. Each of the consolidated financial statements of the Company and its consolidated subsidiaries (collectively the “Company Financial Statements”) included or incorporated by reference in the Company Reports filed with the SEC since December 31, 2006, present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated therein (or if amended prior to the Signing Date, as of the date of such amendment) and the consolidated results of their operations for the periods specified therein; and except as stated therein, such financial statements (A) were prepared in conformity with GAAP applied on a consistent basis (except as may be noted therein), (B) have been prepared from, and are in accordance with, the books and records of the Company and the Company Subsidiaries and (C) complied as to form, as of their respective dates of filing with the SEC, in all material respects with the applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto.

(i) Reports.

(i) Since December 31, 2006, the Company and each subsidiary of the Company (each a “Company Subsidiary” and, collectively, the “Company Subsidiaries”) has timely filed all reports, registrations, documents, filings, statements and submissions, together with any amendments thereto, that it was required to file with any Governmental Entity (the foregoing, collectively, the “Company Reports”) and has paid all fees and assessments due and payable in connection therewith, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. As of their respective dates of filing, the Company Reports complied in all material respects with all statutes and applicable rules and regulations of the applicable Governmental Entities. In the case of each such Company Report filed with or furnished to the SEC, such Company Report (A) did not, as of its date or if amended prior to the Signing Date, as of the date of such amendment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, and (B) complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act. With respect to all other Company Reports, the Company Reports were complete and accurate in all material respects as of their respective dates. No executive officer of the Company or any Company Subsidiary has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act of 2002.

(ii) The records, systems, controls, data and information of the Company and the Company Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or the Company Subsidiaries or their accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a material adverse effect on the system of internal accounting controls described below in this Section 2.2(i)(ii). The Company (A) has implemented and maintains disclosure controls and procedures (as defined in Rule 1 3a-15(e) of the Exchange Act) to ensure that material information relating to the Company, including the

8

consolidated Company Subsidiaries, is made known to the chief executive officer and the chief financial officer of the Company by others within those entities, and (B) has disclosed, based on its most recent evaluation prior to the Signing Date, to the Company’s outside auditors and the audit committee of the Board of Directors (x) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

(j) No Undisclosed Liabilities. Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which are not properly reflected or reserved against in the Company Financial Statements to the extent required to be so reflected or reserved against in accordance with GAAP, except for (A) liabilities that have arisen since the last fiscal year end in the ordinary and usual course of business and consistent with past practice and (B) liabilities that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(k) Offering of Securities. Neither the Company nor any person acting on its behalf has taken any action (including any offering of any securities of the Company under circumstances which would require the integration of such offering with the offering of any of the Purchased Securities under the Securities Act, and the rules and regulations of the SEC promulgated thereunder), which might subject the offering, issuance or sale of any of the Purchased Securities to Investor pursuant to this Agreement to the registration requirements of the Securities Act.

(l) Litigation and Other Proceedings. Except (i) as set forth on Schedule D or (ii) as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, there is no (A) pending or, to the knowledge of the Company, threatened, claim, action, suit, investigation or proceeding, against the Company or any Company Subsidiary or to which any of their assets are subject nor is the Company or any Company Subsidiary subject to any order, judgment or decree or (B) unresolved violation, criticism or exception by any Governmental Entity with respect to any report or relating to any examinations or inspections of the Company or any Company Subsidiaries.

(m) Compliance with Laws. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the Company and the Company Subsidiaries have all permits, licenses, franchises, authorizations, orders and approvals of, and have made all filings, applications and registrations with, Governmental Entities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently conducted and that are material to the business of the Company or such Company Subsidiary. Except as set forth on Schedule E, the Company and the Company Subsidiaries have complied in all respects and are not in default or violation of, and none of them is, to the knowledge of the

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Company, under investigation with respect to or, to the knowledge of the Company, have been threatened to be charged with or given notice of any violation of, any applicable domestic (federal, state or local) or foreign law, statute, ordinance, license, rule, regulation, policy or guideline, order, demand, writ, injunction, decree or judgment of any Governmental Entity, other than such noncompliance, defaults or violations that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Except for statutory or regulatory restrictions of general application or as set forth on Schedule E, no Governmental Entity has placed any restriction on the business or properties of the Company or any Company Subsidiary that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(n) Employee Benefit Matters. Except as would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect: (A) each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) providing benefits to any current or former employee, officer or director of the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) that is sponsored, maintained or contributed to by the Company or any member of its Controlled Group and for which the Company or any member of its Controlled Group would have any liability, whether actual or contingent (each, a “Plan”) has been maintained in compliance with its terms and with the requirements of all applicable statutes, rules and regulations, including ERISA and the Code; (B) with respect to each Plan subject to Title IV of ERISA (including, for purposes of this clause (B), any plan subject to Title IV of ERISA that the Company or any member of its Controlled Group previously maintained or contributed to in the six years prior to the Signing Date), (1) no “reportable event” (within the meaning of Section 4043(c) of ERISA), other than a reportable event for which the notice period referred to in Section 4043(c) of ERISA has been waived, has occurred in the three years prior to the Signing Date or is reasonably expected to occur, (2) no “accumulated funding deficiency” (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has occurred in the three years prior to the Signing Date or is reasonably expected to occur, (3) the fair market value of the assets under each Plan exceeds the present value of all benefits accrued under such Plan (determined based on the assumptions used to fund such Plan) and (4) neither the Company nor any member of its Controlled Group has incurred in the six years prior to the Signing Date, or reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC in the ordinary course and without default) in respect of a Plan (including any Plan that is a “multiemployer plan”, within the meaning of Section 4001(c)(3) of ERISA); and (C) each Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to its qualified status that has not been revoked, or such a determination letter has been timely applied for but not received by the Signing Date, and nothing has occurred, whether by action or by failure to act, which could reasonably be expected to cause the loss, revocation or denial of such qualified status or favorable determination letter.

(o) Taxes. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) the Company and the Company Subsidiaries have filed all federal, state, local and foreign income and franchise Tax returns

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required to be filed through the Signing Date, subject to permitted extensions, and have paid all Taxes due thereon, and (ii) no Tax deficiency has been determined adversely to the Company or any of the Company Subsidiaries, nor does the Company have any knowledge of any Tax deficiencies. “Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Entity.

(p) Properties and Leases. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the Company and the Company Subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances, claims and defects that would affect the value thereof or interfere with the use made or to be made thereof by them. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the Company and the Company Subsidiaries hold all leased real or personal property under valid and enforceable leases with no exceptions that would interfere with the use made or to be made thereof by them.

(q) Environmental Liability. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect:

(i) there is no legal, administrative, or other proceeding, claim or action of any nature seeking to impose, or that would reasonably be expected to result in the imposition of, on the Company or any Company Subsidiary, any liability relating to the release of hazardous substances as defined under any local, state or federal environmental statute, regulation or ordinance, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, pending or, to the Company’s knowledge, threatened against the Company or any Company Subsidiary;

(ii) to the Company’s knowledge, there is no reasonable basis for any such proceeding, claim or action; and

(iii) neither the Company nor any Company Subsidiary is subject to any agreement, order, judgment or decree by or with any court, Governmental Entity or third party imposing any such environmental liability.

(r) Risk Management Instruments. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, all derivative instruments, including, swaps, caps, floors and option agreements, whether entered into for the Company’s own account, or for the account of one or more of the Company Subsidiaries or its or their customers, were entered into (i) only in the ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all applicable laws, rules, regulations and regulatory policies and (iii) with counterparties believed to be financially responsible at the time; and each of such instruments constitutes the valid and legally binding obligation of the Company or one of the Company

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Subsidiaries, enforceable in accordance with its terms, except as may be limited by the Bankruptcy Exceptions. Neither the Company or the Company Subsidiaries, nor, to the knowledge of the Company, any other party thereto, is in breach of any of its obligations under any such agreement or arrangement other than such breaches that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(s) Agreements with Regulatory Agencies. Except as set forth on Schedule F, neither the Company nor any Company Subsidiary is subject to any material cease-and-desist or other similar order or enforcement action issued by, or is a party to any material written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any capital directive by, or since December 31, 2006, has adopted any board resolutions at the request of, any Governmental Entity (other than the Appropriate Federal Banking Agencies with jurisdiction over the Company and the Company Subsidiaries) that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies or procedures, its internal controls, its management or its operations or business (each item in this sentence, a “Regulatory Agreement”), nor has the Company or any Company Subsidiary been advised since December 31, 2006 by any such Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement. The Company and each Company Subsidiary are in compliance in all material respects with each Regulatory Agreement to which it is party or subject, and neither the Company nor any Company Subsidiary has received any notice from any Governmental Entity indicating that either the Company or any Company Subsidiary is not in compliance in all material respects with any such Regulatory Agreement. “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Company or such Company Subsidiaries, as applicable, as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)).

(t) Insurance. The Company and the Company Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of the Company reasonably has determined to be prudent and consistent with industry practice. The Company and the Company Subsidiaries are in material compliance with their insurance policies and are not in default under any of the material terms thereof, each such policy is outstanding and in full force and effect, all premiums and other payments due under any material policy have been paid, and all claims thereunder have been filed in due and timely fashion, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(u) Intellectual Property. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) the Company and each Company Subsidiary owns or otherwise has the right to use, all intellectual property rights, including all trademarks, trade dress, trade names, service marks, domain names, patents, inventions, trade secrets, know-how, works of authorship and copyrights therein, that are used in the conduct of their existing businesses and all rights relating to the plans, design and specifications of any of its branch facilities (“Proprietary Rights”) free and clear of all liens and any claims of ownership by current or former employees, contractors, designers or others and (ii) neither the Company nor any of the Company

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Subsidiaries is materially infringing, diluting, misappropriating or violating, nor has the Company or any or the Company Subsidiaries received any written (or, to the knowledge of the Company, oral) communications alleging that any of them has materially infringed, diluted, misappropriated or violated, any of the Proprietary Rights owned by any other person. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, to the Company’s knowledge, no other person is infringing, diluting, misappropriating or violating, nor has the Company or any or the Company Subsidiaries sent any written communications since January 1, 2006 alleging that any person has infringed, diluted, misappropriated or violated, any of the Proprietary Rights owned by the Company and the Company Subsidiaries.

(v) Brokers and Finders. No broker, finder or investment banker is entitled to any financial advisory, brokerage, finder’s or other fee or commission in connection with this Agreement or the Warrant or the transactions contemplated hereby or thereby based upon arrangements made by or on behalf of the Company or any Company Subsidiary for which the Investor could have any liability.

Article III

Covenants

3.1 Commercially Reasonable Efforts.

(a) Subject to the terms and conditions of this Agreement, each of the parties will use its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Purchase as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that end.

(b) If the Company is required to obtain any stockholder approvals set forth on Schedule C, then the Company shall comply with this Section 3.1(b) and Section 3.1(c). The Company shall call a special meeting of its stockholders, as promptly as practicable following the Closing, to vote on proposals (collectively, the “Stockholder Proposals”) to (i) approve the exercise of the Warrant for Common Stock for purposes of the rules of the national security exchange on which the Common Stock is listed and/or (ii) amend the Company’s Charter to increase the number of authorized shares of Common Stock to at least such number as shall be sufficient to permit the full exercise of the Warrant for Common Stock and comply with the other provisions of this Section 3.1(b) and Section 3.1(c). The Board of Directors shall recommend to the Company’s stockholders that such stockholders vote in favor of the Stockholder Proposals. In connection with such meeting, the Company shall prepare (and the Investor will reasonably cooperate with the Company to prepare) and file with the SEC as promptly as practicable (but in no event more than ten business days after the Closing) a preliminary proxy statement, shall use its reasonable best efforts to respond to any comments of the SEC or its staff thereon and to cause a definitive proxy statement related to such stockholders’ meeting to be mailed to the Company’s stockholders not more than five business days after clearance thereof by the SEC, and shall use its reasonable best efforts to solicit proxies for such stockholder

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approval of the Stockholder Proposals. The Company shall notify the Investor promptly of the receipt of any comments from the SEC or its staff with respect to the proxy statement and of any request by the SEC or its staff for amendments or supplements to such proxy statement or for additional information and will supply the Investor with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to such proxy statement. If at any time prior to such stockholders’ meeting there shall occur any event that is required to be set forth in an amendment or supplement to the proxy statement, the Company shall as promptly as practicable prepare and mail to its stockholders such an amendment or supplement. Each of the Investor and the Company agrees promptly to correct any information provided by it or on its behalf for use in the proxy statement if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall as promptly as practicable prepare and mail to its stockholders an amendment or supplement to correct such information to the extent required by applicable laws and regulations. The Company shall consult with the Investor prior to filing any proxy statement, or any amendment or supplement thereto, and provide the Investor with a reasonable opportunity to comment thereon. In the event that the approval of any of the Stockholder Proposals is not obtained at such special stockholders meeting, the Company shall include a proposal to approve (and the Board of Directors shall recommend approval of) each such proposal at a meeting of its stockholders no less than once in each subsequent six-month period beginning on January 1, 2009 until all such approvals are obtained or made.

(c) None of the information supplied by the Company or any of the Company Subsidiaries for inclusion in any proxy statement in connection with any such stockholders meeting of the Company will, at the date it is filed with the SEC, when first mailed to the Company’s stockholders and at the time of any stockholders meeting, and at the time of any amendment or supplement thereof, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

3.2 Expenses. Unless otherwise provided in this Agreement or the Warrant, each of the parties hereto will bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated under this Agreement and the Warrant, including fees and expenses of its own financial or other consultants, investment bankers, accountants and counsel.

3.3 Sufficiency of Authorized Common Stock; Exchange Listing.

(a) During the period from the Closing Date (or, if the approval of the Stockholder Proposals is required, the date of such approval) until the date on which the Warrant has been fully exercised, the Company shall at all times have reserved for issuance, free of preemptive or similar rights, a sufficient number of authorized and unissued Warrant Shares to effectuate such exercise. Nothing in this Section 3.3 shall preclude the Company from satisfying its obligations in respect of the exercise of the Warrant by delivery of shares of Common Stock which are held in the treasury of the Company. As soon as reasonably practicable following the Closing, the Company shall, at its expense, cause the Warrant Shares to be listed on the same national securities exchange on which the Common Stock is listed, subject to official notice of issuance, and shall maintain such listing for so long as any Common Stock is listed on such exchange.

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(b) If requested by the Investor, the Company shall promptly use its reasonable best efforts to cause the Preferred Shares to be approved for listing on a national securities exchange as promptly as practicable following such request.

3.4 Certain Notifications Until Closing. From the Signing Date until the Closing, the Company shall promptly notify the Investor of (i) any fact, event or circumstance of which it is aware and which would reasonably be expected to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate in any material respect or to cause any covenant or agreement of the Company contained in this Agreement not to be complied with or satisfied in any material respect and (ii) except as Previously Disclosed, any fact, circumstance, event, change, occurrence, condition or development of which the Company is aware and which, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect; provided, however, that delivery of any notice pursuant to this Section 3.4 shall not limit or affect any rights of or remedies available to the Investor; provided, further, that a failure to comply with this Section 3.4 shall not constitute a breach of this Agreement or the failure of any condition set forth in Section 1.2 to be satisfied unless the underlying Company Material Adverse Effect or material breach would independently result in the failure of a condition set forth in Section 1.2 to be satisfied.

3.5 Access, Information and Confidentiality.

(a) From the Signing Date until the date when the Investor holds an amount of Preferred Shares having an aggregate liquidation value of less than 10% of the Purchase Price, the Company will permit the Investor and its agents, consultants, contractors and advisors (x) acting through the Appropriate Federal Banking Agency, to examine the corporate books and make copies thereof and to discuss the affairs, finances and accounts of the Company and the Company Subsidiaries with the principal officers of the Company, all upon reasonable notice and at such reasonable times and as often as the Investor may reasonably request and (y) to review any information material to the Investor’s investment in the Company provided by the Company to its Appropriate Federal Banking Agency. Any investigation pursuant to this Section 3.5 shall be conducted during normal business hours and in such manner as not to interfere unreasonably with the conduct of the business of the Company, and nothing herein shall require the Company or any Company Subsidiary to disclose any information to the Investor to the extent (i) prohibited by applicable law or regulation, or (ii) that such disclosure would reasonably be expected to cause a violation of any agreement to which the Company or any Company Subsidiary is a party or would cause a risk of a loss of privilege to the Company or any Company Subsidiary (provided that the Company shall use commercially reasonable efforts to make appropriate substitute disclosure arrangements under circumstances where the restrictions in this clause (ii) apply).

(b) The Investor will use reasonable best efforts to hold, and will use reasonable best efforts to cause its agents, consultants, contractors and advisors to hold, in confidence all non-public records, books, contracts, instruments, computer data and other data and

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information (collectively, “Information”) concerning the Company furnished or made available to it by the Company or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (i) previously known by such party on a non-confidential basis, (ii) in the public domain through no fault of such party or (iii) later lawfully acquired from other sources by the party to which it was furnished (and without violation of any other confidentiality obligation)); provided that nothing herein shall prevent the Investor from disclosing any Information to the extent required by applicable laws or regulations or by any subpoena or similar legal process.

Article IV

Additional Agreements

4.1 Purchase for Investment. The Investor acknowledges that the Purchased Securities and the Warrant Shares have not been registered under the Securities Act or under any state securities laws. The Investor (a) is acquiring the Purchased Securities pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute them to any person in violation of the Securities Act or any applicable U.S. state securities laws, (b) will not sell or otherwise dispose of any of the Purchased Securities or the Warrant Shares, except in compliance with the registration requirements or exemption provisions of the Securities Act and any applicable U.S. state securities laws, and (c) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of the Purchase and of making an informed investment decision.

4.2 Legends.

(a) The Investor agrees that all certificates or other instruments representing the Warrant and the Warrant Shares will bear a legend substantially to the following effect:

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.”

(b) The Investor agrees that all certificates or other instruments representing the Warrant will also bear a legend substantially to the following effect:

“THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED

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BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.”

(c) In addition, the Investor agrees that all certificates or other instruments representing the Preferred Shares will bear a legend substantially to the following effect:

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”

(d) In the event that any Purchased Securities or Warrant Shares (i) become registered under the Securities Act or (ii) are eligible to be transferred without restriction in accordance with Rule 144 or another exemption from registration under the Securities Act (other than Rule 144A), the Company shall issue new certificates or other instruments representing such Purchased Securities or

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Warrant Shares, which shall not contain the applicable legends in Sections 4.2(a) and (c) above; provided that the Investor surrenders to the Company the previously issued certificates or other instruments. Upon Transfer of all or a portion of the Warrant in compliance with Section 4.4, the Company shall issue new certificates or other instruments representing the Warrant, which shall not contain the applicable legend in Section 4.2(b) above; provided that the Investor surrenders to the Company the previously issued certificates or other instruments.

4.3 Certain Transactions. The Company will not merge or consolidate with, or sell, transfer or lease all or substantially all of its property or assets to, any other party unless the successor, transferee or lessee party (or its ultimate parent entity), as the case may be (if not the Company), expressly assumes the due and punctual performance and observance of each and every covenant, agreement and condition of this Agreement to be performed and observed by the Company.

4.4 Transfer of Purchased Securities and Warrant Shares; Restrictions on Exercise of the Warrant. Subject to compliance with applicable securities laws, the Investor shall be permitted to transfer, sell, assign or otherwise dispose of (“Transfer”) all or a portion of the Purchased Securities or Warrant Shares at any time, and the Company shall take all steps as may be reasonably requested by the Investor to facilitate the Transfer of the Purchased Securities and the Warrant Shares; provided that the Investor shall not Transfer a portion or portions of the Warrant with respect to, and/or exercise the Warrant for, more than one-half of the Initial Warrant Shares (as such number may be adjusted from time to time pursuant to Section 13 thereof) in the aggregate until the earlier of (a) the date on which the Company (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Purchase Price (and the purchase price paid by the Investor to any such successor for securities of such successor purchased under the CPP) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor) and (b) December 31, 2009. “Qualified Equity Offering” means the sale and issuance for cash by the Company to persons other than the Company or any of the Company Subsidiaries after the Closing Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Company at the time of issuance under the applicable risk-based capital guidelines of the Company’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008). “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.

4.5 Registration Rights.

(a) Registration.

(i) Subject to the terms and conditions of this Agreement, the Company covenants and agrees that as promptly as practicable after the Closing Date (and in any event no later than 30 days after the Closing Date), the Company shall prepare and

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file with the SEC a Shelf Registration Statement covering all Registrable Securities (or otherwise designate an existing Shelf Registration Statement filed with the SEC to cover the Registrable Securities), and, to the extent the Shelf Registration Statement has not theretofore been declared effective or is not automatically effective upon such filing, the Company shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become effective and to keep such Shelf Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of such Registrable Securities for a period from the date of its initial effectiveness until such time as there are no Registrable Securities remaining (including by refiling such Shelf Registration Statement (or a new Shelf Registration Statement) if the initial Shelf Registration Statement expires). So long as the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) at the time of filing of the Shelf Registration Statement with the SEC, such Shelf Registration Statement shall be designated by the Company as an automatic Shelf Registration Statement. Notwithstanding the foregoing, if on the Signing Date the Company is not eligible to file a registration statement on Form S-3, then the Company shall not be obligated to file a Shelf Registration Statement unless and until requested to do so in writing by the Investor.

(ii) Any registration pursuant to Section 4.5(a)(i) shall be effected by means of a shelf registration on an appropriate form under Rule 415 under the Securities Act (a “Shelf Registration Statement”). If the Investor or any other Holder intends to distribute any Registrable Securities by means of an underwritten offering it shall promptly so advise the Company and the Company shall take all reasonable steps to facilitate such distribution, including the actions required pursuant to Section 4.5(c); provided that the Company shall not be required to facilitate an underwritten offering of Registrable Securities unless the expected gross proceeds from such offering exceed (i) 2% of the initial aggregate liquidation preference of the Preferred Shares if such initial aggregate liquidation preference is less than $2 billion and (ii) $200 million if the initial aggregate liquidation preference of the Preferred Shares is equal to or greater than $2 billion. The lead underwriters in any such distribution shall be selected by the Holders of a majority of the Registrable Securities to be distributed; provided that to the extent appropriate and permitted under applicable law, such Holders shall consider the qualifications of any broker-dealer Affiliate of the Company in selecting the lead underwriters in any such distribution.

(iii) The Company shall not be required to effect a registration (including a resale of Registrable Securities from an effective Shelf Registration Statement) or an underwritten offering pursuant to Section 4.5(a): (A) with respect to securities that are not Registrable Securities; or (B) if the Company has notified the Investor and all other Holders that in the good faith judgment of the Board of Directors, it would be materially detrimental to the Company or its securityholders for such registration or underwritten offering to be effected at such time, in which event the Company shall have the right to defer such registration for a period of not more than 45 days after receipt of the request of the Investor or any other Holder; provided that

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such right to delay a registration or underwritten offering shall be exercised by the Company (1) only if the Company has generally exercised (or is concurrently exercising) similar black-out rights against holders of similar securities that have registration rights and (2) not more than three times in any 12-month period and not more than 90 days in the aggregate in any 12-month period.

(iv) If during any period when an effective Shelf Registration Statement is not available, the Company proposes to register any of its equity securities, other than a registration pursuant to Section 4.5(a)(i) or a Special Registration, and the registration form to be filed may be used for the registration or qualification for distribution of Registrable Securities, the Company will give prompt written notice to the Investor and all other Holders of its intention to effect such a registration (but in no event less than ten days prior to the anticipated filing date) and will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten business days after the date of the Company’s notice (a “Piggyback Registration”). Any such person that has made such a written request may withdraw its Registrable Securities from such Piggyback Registration by giving written notice to the Company and the managing underwriter, if any, on or before the fifth business day prior to the planned effective date of such Piggyback Registration. The Company may terminate or withdraw any registration under this Section 4.5(a)(iv) prior to the effectiveness of such registration, whether or not Investor or any other Holders have elected to include Registrable Securities in such registration.

(v) If the registration referred to in Section 4.5(a)(iv) is proposed to be underwritten, the Company will so advise Investor and all other Holders as a part of the written notice given pursuant to Section 4. 5(a)(iv). In such event, the right of Investor and all other Holders to registration pursuant to Section 4.5(a) will be conditioned upon such persons’ participation in such underwriting and the inclusion of such person’s Registrable Securities in the underwriting if such securities are of the same class of securities as the securities to be offered in the underwritten offering, and each such person will (together with the Company and the other persons distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company; provided that the Investor (as opposed to other Holders) shall not be required to indemnify any person in connection with any registration. If any participating person disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriters and the Investor (if the Investor is participating in the underwriting).

(vi) If either (x) the Company grants “piggyback” registration rights to one or more third parties to include their securities in an underwritten offering under the Shelf Registration Statement pursuant to Section 4 .5(a) (ii) or (y) a Piggyback Registration under Section 4.5(a)(iv) relates to an underwritten offering on behalf of the Company, and in either case the managing underwriters advise the Company that in their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per share offering price), the Company will include in such offering only such number of securities that in

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the reasonable opinion of such managing underwriters can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (A) first, in the case of a Piggyback Registration under Section 4.5(a)(iv), the securities the Company proposes to sell, (B) then the Registrable Securities of the Investor and all other Holders who have requested inclusion of Registrable Securities pursuant to Section 4.5(a)(ii) or Section 4.5(a)(iv), as applicable, pro rata on the basis of the aggregate number of such securities or shares owned by each such person and (C) lastly, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement; provided, however, that if the Company has, prior to the Signing Date, entered into an agreement with respect to its securities that is inconsistent with the order of priority contemplated hereby then it shall apply the order of priority in such conflicting agreement to the extent that it would otherwise result in a breach under such agreement.

(b) Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the aggregate offering or sale price of the securities so registered.

(c) Obligations of the Company. The Company shall use its reasonable best efforts, for so long as there are Registrable Securities outstanding, to take such actions as are under its control to not become an ineligible issuer (as defined in Rule 405 under the Securities Act) and to remain a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) if it has such status on the Signing Date or becomes eligible for such status in the future. In addition, whenever required to effect the registration of any Registrable Securities or facilitate the distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the Company shall, as expeditiously as reasonably practicable:

(i) Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of Registrable Securities pursuant to an effective registration statement, subject to Section 4.5(d), keep such registration statement effective and keep such prospectus supplement current until the securities described therein are no longer Registrable Securities.

(ii) Prepare and file with the SEC such amendments and supplements to the applicable registration statement and the prospectus or prospectus supplement used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.

(iii) Furnish to the Holders and any underwriters such number of copies of the applicable registration statement and each such amendment and supplement thereto (including in each case all exhibits) and of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned or to be distributed by them.

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(iv) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders or any managing underwriter(s), to keep such registration or qualification in effect for so long as such registration statement remains in effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such Holder; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(v) Notify each Holder of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the applicable prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

(vi) Give written notice to the Holders:

(A) when any registration statement filed pursuant to Section 4.5(a) or any amendment thereto has been filed with the SEC (except for any amendment effected by the filing of a document with the SEC pursuant to the Exchange Act) and when such registration statement or any post-effective amendment thereto has become effective;

(B) of any request by the SEC for amendments or supplements to any registration statement or the prospectus included therein or for additional information;

(C) of the issuance by the SEC of any stop order suspending the effectiveness of any registration statement or the initiation of any proceedings for that purpose;

(D) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

(E) of the happening of any event that requires the Company to make changes in any effective registration statement or the prospectus related to the registration statement in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made); and

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(F) if at any time the representations and warranties of the Company contained in any underwriting agreement contemplated by Section 4.5(c)(x) cease to be true and correct.

(vii) Use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any registration statement referred to in Section 4.5(c)(vi)(C) at the earliest practicable time.

(viii) Upon the occurrence of any event contemplated by Section 4.5(c)(v) or 4.5(c)(vi)(E), promptly prepare a post-effective amendment to such registration statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to the Holders and any underwriters, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with Section 4.5(c)(vi)(E) to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Holders and any underwriters shall suspend use of such prospectus and use their reasonable best efforts to return to the Company all copies of such prospectus (at the Company’s expense) other than permanent file copies then in such Holders’ or underwriters’ possession. The total number of days that any such suspension may be in effect in any 12-month period shall not exceed 90 days.

(ix) Use reasonable best efforts to procure the cooperation of the Company’s transfer agent in settling any offering or sale of Registrable Securities, including with respect to the transfer of physical stock certificates into book-entry form in accordance with any procedures reasonably requested by the Holders or any managing underwriter(s).

(x) If an underwritten offering is requested pursuant to Section 4.5(a)(ii), enter into an underwriting agreement in customary form, scope and substance and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, to expedite or facilitate the underwritten disposition of such Registrable Securities, and in connection therewith in any underwritten offering (including making members of management and executives of the Company available to participate in “road shows”, similar sales events and other marketing activities), (A) make such representations and warranties to the Holders that are selling stockholders and the managing underwriter(s), if any, with respect to the business of the Company and its subsidiaries, and the Shelf Registration Statement, prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in customary form, substance and scope, and, if true, confirm the same if and when requested, (B) use its reasonable best efforts to furnish the underwriters with opinions of counsel to the Company, addressed to the managing underwriter(s), if any, covering the matters customarily covered in such opinions requested in underwritten offerings, (C) use its reasonable best efforts to obtain “cold comfort” letters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business acquired by the Company for which financial statements and financial

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data are included in the Shelf Registration Statement) who have certified the financial statements included in such Shelf Registration Statement, addressed to each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters, (D) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures customary in underwritten offerings (provided that the Investor shall not be obligated to provide any indemnity), and (E) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company.

(xi) Make available for inspection by a representative of Holders that are selling stockholders, the managing underwriter(s), if any, and any attorneys or accountants retained by such Holders or managing underwriter(s), at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested (and of the type customarily provided in connection with due diligence conducted in connection with a registered public offering of securities) by any such representative, managing underwriter(s), attorney or accountant in connection with such Shelf Registration Statement.

(xii) Use reasonable best efforts to cause all such Registrable Securities to be listed on each national securities exchange on which similar securities issued by the Company are then listed or, if no similar securities issued by the Company are then listed on any national securities exchange, use its reasonable best efforts to cause all such Registrable Securities to be listed on such securities exchange as the Investor may designate.

(xiii) If requested by Holders of a majority of the Registrable Securities being registered and/or sold in connection therewith, or the managing underwriter(s), if any, promptly include in a prospectus supplement or amendment such information as the Holders of a majority of the Registrable Securities being registered and/or sold in connection therewith or managing underwriter(s), if any, may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or such amendment as soon as practicable after the Company has received such request.

(xiv) Timely provide to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

(d) Suspension of Sales. Upon receipt of written notice from the Company that a registration statement, prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits or may omit to state a material fact required to be

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stated therein or necessary to make the statements therein not misleading or that circumstances exist that make inadvisable use of such registration statement, prospectus or prospectus supplement, the Investor and each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities until the Investor and/or Holder has received copies of a supplemented or amended prospectus or prospectus supplement, or until the Investor and/or such Holder is advised in writing by the Company that the use of the prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, the Investor and/or such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in the Investor and/or such Holder’s possession, of the prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of receipt of such notice. The total number of days that any such suspension may be in effect in any 12-month period shall not exceed 90 days.

(e) Termination of Registration Rights. A Holder’s registration rights as to any securities held by such Holder (and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable Securities.

(f) Furnishing Information.

(i) Neither the Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405) in connection with the sale of Registrable Securities without the prior written consent of the Company.

(ii) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 4.5(c) that Investor and/or the selling Holders and the underwriters, if any, shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registered offering of their Registrable Securities.

(g) Indemnification.

(i) The Company agrees to indemnify each Holder and, if a Holder is a person other than an individual, such Holder’s officers, directors, employees, agents, representatives and Affiliates, and each Person, if any, that controls a Holder within the meaning of the Securities Act (each, an “Indemnitee”), against any and all losses, claims, damages, actions, liabilities, costs and expenses (including reasonable fees, expenses and disbursements of attorneys and other professionals incurred in connection with investigating, defending, settling, compromising or paying any such losses, claims, damages, actions, liabilities, costs and expenses), joint or several, arising out of or based upon any untrue statement or alleged untrue statement of material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any documents incorporated therein by reference or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in writing for use by such Holder

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(or any amendment or supplement thereto); or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, that the Company shall not be liable to such Indemnitee in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (A) an untrue statement or omission made in such registration statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in writing for use by such Holder (or any amendment or supplement thereto), in reliance upon and in conformity with information regarding such Indemnitee or its plan of distribution or ownership interests which was furnished in writing to the Company by such Indemnitee for use in connection with such registration statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto, or (B) offers or sales effected by or on behalf of such Indemnitee “by means of” (as defined in Rule 1 59A) a “free writing prospectus” (as defined in Rule 405) that was not authorized in writing by the Company.

(ii) If the indemnification provided for in Section 4.5(g)(i) is unavailable to an Indemnitee with respect to any losses, claims, damages, actions, liabilities, costs or expenses referred to therein or is insufficient to hold the Indemnitee harmless as contemplated therein, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by reference to, among other factors, whether the untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; the Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 4.5(g)(ii) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 4.5(g)(i). No Indemnitee guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company was not guilty of such fraudulent misrepresentation.

(h) Assignment of Registration Rights. The rights of the Investor to registration of Registrable Securities pursuant to Section 4.5(a) may be assigned by the Investor to a transferee or assignee of Registrable Securities with a liquidation preference or, in the case of Registrable Securities other than Preferred Shares, a market value, no less than an amount equal to (i) 2% of the initial aggregate liquidation preference of the Preferred Shares if such initial aggregate liquidation preference is less than $2 billion and (ii) $200 million if the initial aggregate liquidation preference of the Preferred Shares is equal to or greater than $2 billion; provided,

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however, the transferor shall, within ten days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type of Registrable Securities that are being assigned. For purposes of this Section 4.5(h), “market value” per share of Common Stock shall be the last reported sale price of the Common Stock on the national securities exchange on which the Common Stock is listed or admitted to trading on the last trading day prior to the proposed transfer, and the “market value” for the Warrant (or any portion thereof) shall be the market value per share of Common Stock into which the Warrant (or such portion) is exercisable less the exercise price per share.

(i) Clear Market. With respect to any underwritten offering of Registrable Securities by the Investor or other Holders pursuant to this Section 4.5, the Company agrees not to effect (other than pursuant to such registration or pursuant to a Special Registration) any public sale or distribution, or to file any Shelf Registration Statement (other than such registration or a Special Registration) covering, in the case of an underwritten offering of Common Stock or Warrants, any of its equity securities or, in the case of an underwritten offering of Preferred Shares, any Preferred Stock of the Company, or, in each case, any securities convertible into or exchangeable or exercisable for such securities, during the period not to exceed ten days prior and 60 days following the effective date of such offering or such longer period up to 90 days as may be requested by the managing underwriter for such underwritten offering. The Company also agrees to cause such of its directors and senior executive officers to execute and deliver customary lock-up agreements in such form and for such time period up to 90 days as may be requested by the managing underwriter. “Special Registration” means the registration of (A) equity securities and/or options or other rights in respect thereof solely registered on Form S-4 or Form S-8 (or successor form) or (B) shares of equity securities and/or options or other rights in respect thereof to be offered to directors, members of management, employees, consultants, customers, lenders or vendors of the Company or Company Subsidiaries or in connection with dividend reinvestment plans.

(j) Rule 144; Rule 144A. With a view to making available to the Investor and Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its reasonable best efforts to:

(i) make and keep public information available, as those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the Securities Act, at all times after the Signing Date;

(ii)(A) file with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act, and (B) if at any time the Company is not required to file such reports, make available, upon the request of any Holder, such information necessary to permit sales pursuant to Rule 144A (including the information required by Rule 144A(d)(4) under the Securities Act);

(iii) so long as the Investor or a Holder owns any Registrable Securities, furnish to the Investor or such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the

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Securities Act, and of the Exchange Act; a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as the Investor or Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities to the public without registration; and

(iv) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act.

(k) As used in this Section 4.5, the following terms shall have the following respective meanings:

(i) “Holder” means the Investor and any other holder of Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with Section 4.5(h) hereof.

(ii) “Holders’ Counsel” means one counsel for the selling Holders chosen by Holders holding a majority interest in the Registrable Securities being registered.

(iii) “Register,” “registered,” and “registration” shall refer to a registration effected by preparing and (A) filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of effectiveness of such registration statement or (B) filing a prospectus and/or prospectus supplement in respect of an appropriate effective registration statement on Form S-3.

(iv) “Registrable Securities” means (A) all Preferred Shares, (B) the Warrant (subject to Section 4.5(p)) and (C) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in the foregoing clauses (A) or (B) by way of conversion, exercise or exchange thereof, including the Warrant Shares, or share dividend or share split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization, provided that, once issued, such securities will not be Registrable Securities when (1) they are sold pursuant to an effective registration statement under the Securities Act, (2) except as provided below in Section 4.5(o), they may be sold pursuant to Rule 144 without limitation thereunder on volume or manner of sale, (3) they shall have ceased to be outstanding or (4) they have been sold in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of the securities. No Registrable Securities may be registered under more than one registration statement at any one time.

(v) “Registration Expenses” mean all expenses incurred by the Company in effecting any registration pursuant to this Agreement (whether or not any registration or prospectus becomes effective or final) or otherwise complying with its obligations under this Section 4.5, including all registration, filing and listing fees, printing expenses, fees and disbursements of

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counsel for the Company, blue sky fees and expenses, expenses incurred in connection with any “road show”, the reasonable fees and disbursements of Holders’ Counsel, and expenses of the Company’s independent accountants in connection with any regular or special reviews or audits incident to or required by any such registration, but shall not include Selling Expenses.

(vi) “Rule 144”, “Rule 144A”, “Rule 159A”, “Rule 405” and “Rule 415” mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time.

(vii) “Selling Expenses” mean all discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of Holders’ Counsel included in Registration Expenses).

(l) At any time, any holder of Securities (including any Holder) may elect to forfeit its rights set forth in this Section 4.5 from that date forward; provided, that a Holder forfeiting such rights shall nonetheless be entitled to participate under Section 4.5(a)(iv) – (vi) in any Pending Underwritten Offering to the same extent that such Holder would have been entitled to if the holder had not withdrawn; and provided, further, that no such forfeiture shall terminate a Holder’s rights or obligations under Section 4.5(f) with respect to any prior registration or Pending Underwritten Offering. “Pending Underwritten Offering” means, with respect to any Holder forfeiting its rights pursuant to this Section 4.5(l), any underwritten offering of Registrable Securities in which such Holder has advised the Company of its intent to register its Registrable Securities either pursuant to Section 4.5(a)(ii) or 4.5(a)(iv) prior to the date of such Holder’s forfeiture.

(m) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations under this Section 4.5 and that the Investor and the Holders from time to time may be irreparably harmed by any such failure, and accordingly agree that the Investor and such Holders, in addition to any other remedy to which they may be entitled at law or in equity, to the fullest extent permitted and enforceable under applicable law shall be entitled to compel specific performance of the obligations of the Company under this Section 4.5 in accordance with the terms and conditions of this Section 4.5.

(n) No Inconsistent Agreements. The Company shall not, on or after the Signing Date, enter into any agreement with respect to its securities that may impair the rights granted to the Investor and the Holders under this Section 4.5 or that otherwise conflicts with the provisions hereof in any manner that may impair the rights granted to the Investor and the Holders under this Section 4.5. In the event the Company has, prior to the Signing Date, entered into any agreement with respect to its securities that is inconsistent with the rights granted to the Investor and the Holders under this Section 4.5 (including agreements that are inconsistent with the order of priority contemplated by Section 4.5(a)(vi)) or that may otherwise conflict with the provisions hereof, the Company shall use its reasonable best efforts to amend such agreements to ensure they are consistent with the provisions of this Section 4.5.

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(o) Certain Offerings by the Investor. In the case of any securities held by the Investor that cease to be Registrable Securities solely by reason of clause (2) in the definition of “Registrable Securities,” the provisions of Sections 4.5(a)(ii), clauses (iv), (ix) and (x)-(xii) of Section 4.5(c), Section 4.5(g) and Section 4.5(i) shall continue to apply until such securities otherwise cease to be Registrable Securities. In any such case, an “underwritten” offering or other disposition shall include any distribution of such securities on behalf of the Investor by one or more broker-dealers, an “underwriting agreement” shall include any purchase agreement entered into by such broker-dealers, and any “registration statement” or “prospectus” shall include any offering document approved by the Company and used in connection with such distribution.

(p) Registered Sales of the Warrant. The Holders agree to sell the Warrant or any portion thereof under the Shelf Registration Statement only beginning 30 days after notifying the Company of any such sale, during which 30-day period the Investor and all Holders of the Warrant shall take reasonable steps to agree to revisions to the Warrant to permit a public distribution of the Warrant, including entering into a warrant agreement and appointing a warrant agent.

4.6 Voting of Warrant Shares. Notwithstanding anything in this Agreement to the contrary, the Investor shall not exercise any voting rights with respect to the Warrant Shares.

4.7 Depositary Shares. Upon request by the Investor at any time following the Closing Date, the Company shall promptly enter into a depositary arrangement, pursuant to customary agreements reasonably satisfactory to the Investor and with a depositary reasonably acceptable to the Investor, pursuant to which the Preferred Shares may be deposited and depositary shares, each representing a fraction of a Preferred Share as specified by the Investor, may be issued. From and after the execution of any such depositary arrangement, and the deposit of any Preferred Shares pursuant thereto, the depositary shares issued pursuant thereto shall be deemed “Preferred Shares” and, as applicable, “Registrable Securities” for purposes of this Agreement.

4.8 Restriction on Dividends and Repurchases.

(a) Prior to the earlier of (x) the third anniversary of the Closing Date and (y) the date on which the Preferred Shares have been redeemed in whole or the Investor has transferred all of the Preferred Shares to third parties which are not Affiliates of the Investor, neither the Company nor any Company Subsidiary shall, without the consent of the Investor:

(i) declare or pay any dividend or make any distribution on the Common Stock (other than (A) regular quarterly cash dividends of not more than the amount of the last quarterly cash dividend per share declared or, if lower, publicly announced an intention to declare, on the Common Stock prior to October 14, 2008, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction, (B) dividends payable solely in shares of Common Stock and (C) dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan); or

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(ii) redeem, purchase or acquire any shares of Common Stock or other capital stock or other equity securities of any kind of the Company, or any trust preferred securities issued by the Company or any Affiliate of the Company, other than (A) redemptions, purchases or other acquisitions of the Preferred Shares, (B) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock, in each case in this clause (B) in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice; provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount, (C) purchases or other acquisitions by a broker-dealer subsidiary of the Company solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business, (D) purchases by a broker-dealer subsidiary of the Company of capital stock of the Company for resale pursuant to an offering by the Company of such capital stock underwritten by such broker-dealer subsidiary, (E) any redemption or repurchase of rights pursuant to any stockholders’ rights plan, (F) the acquisition by the Company or any of the Company Subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Company or any other Company Subsidiary), including as trustees or custodians, and (G) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock or trust preferred securities for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case set forth in this clause (G), solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock (clauses (C) and (F), collectively, the “Permitted Repurchases”). “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with GAAP, and as measured from the date of the Company’s most recently filed Company Financial Statements prior to the Closing Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

(iii) Until such time as the Investor ceases to own any Preferred Shares, the Company shall not repurchase any Preferred Shares from any holder thereof, whether by means of open market purchase, negotiated transaction, or otherwise, other than Permitted Repurchases, unless it offers to repurchase a ratable portion of the Preferred Shares then held by the Investor on the same terms and conditions.

(b) “Junior Stock” means Common Stock and any other class or series of stock of the Company the terms of which expressly provide that it ranks junior to the Preferred Shares as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Company. “Parity Stock” means any class or series of stock of the Company the terms of which do not expressly provide that such class or series will rank senior or junior to the Preferred Shares as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Company (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

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4.9 Repurchase of Investor Securities.

(a) Following the redemption in whole of the Preferred Shares held by the Investor or the Transfer by the Investor of all of the Preferred Shares to one or more third parties not affiliated with the Investor, the Company may repurchase, in whole or in part, at any time any other equity securities of the Company purchased by the Investor pursuant to this Agreement or the Warrant and then held by the Investor, upon notice given as provided in clause (b) below, at the Fair Market Value of the equity security.

(b) Notice of every repurchase of equity securities of the Company held by the Investor shall be given at the address and in the manner set forth for such party in Section 5.6. Each notice of repurchase given to the Investor shall state: (i) the number and type of securities to be repurchased, (ii) the Board of Director’s determination of Fair Market Value of such securities and (iii) the place or places where certificates representing such securities are to be surrendered for payment of the repurchase price. The repurchase of the securities specified in the notice shall occur as soon as practicable following the determination of the Fair Market Value of the securities.

(c) As used in this Section 4.9, the following terms shall have the following respective meanings:

(i) “Appraisal Procedure” means a procedure whereby two independent appraisers, one chosen by the Company and one by the Investor, shall mutually agree upon the Fair Market Value. Each party shall deliver a notice to the other appointing its appraiser within 10 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the Fair Market Value, a third independent appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers. The decision of the third appraiser so appointed and chosen shall be given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Company and the Investor; otherwise, the average of all three determinations shall be binding upon the Company and the Investor. The costs of conducting any Appraisal Procedure shall be borne by the Company.

(ii) “Fair Market Value” means, with respect to any security, the fair market value of such security as determined by the Board of Directors, acting in good faith in reliance on an opinion of a nationally recognized independent investment banking firm retained by the Company for this purpose and certified in a resolution to the Investor. If the Investor does not agree with the Board of Director’s determination, it may object in writing within 10 days of receipt of the Board of Director’s determination. In the event of such an objection, an authorized representative of the Investor and the chief executive officer of the Company shall promptly meet to resolve the objection and to agree upon the Fair Market Value. If the chief executive officer and the authorized

32

representative are unable to agree on the Fair Market Value during the 10-day period following the delivery of the Investor’s objection, the Appraisal Procedure may be invoked by either party to determine the Fair Market Value by delivery of a written notification thereof not later than the 30^th day after delivery of the Investor’s objection.

4.10 Executive Compensation. Until such time as the Investor ceases to own any debt or equity securities of the Company acquired pursuant to this Agreement or the Warrant, the Company shall take all necessary action to ensure that its Benefit Plans with respect to its Senior Executive Officers comply in all respects with Section 111(b) of the EESA as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the Closing Date, and shall not adopt any new Benefit Plan with respect to its Senior Executive Officers that does not comply therewith. “Senior Executive Officers” means the Company’s “senior executive officers” as defined in subsection 111 (b)(3) of the EESA and regulations issued thereunder, including the rules set forth in 31 C.F.R. Part 30.

Article V

Miscellaneous

5.1 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by either the Investor or the Company if the Closing shall not have occurred by the 30^th calendar day following the Signing Date; provided, however, that in the event the Closing has not occurred by such 30^th calendar day, the parties will consult in good faith to determine whether to extend the term of this Agreement, it being understood that the parties shall be required to consult only until the fifth day after such 30^th calendar day and not be under any obligation to extend the term of this Agreement thereafter; provided, further, that the right to terminate this Agreement under this Section 5.1(a) shall not be available to any party whose breach of any representation or warranty or failure to perform any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such date; or

(b) by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or

(c) by the mutual written consent of the Investor and the Company.

In the event of termination of this Agreement as provided in this Section 5.1, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement.

5.2 Survival of Representations and Warranties. All covenants and agreements, other than those which by their terms apply in whole or in part after the Closing, shall terminate as of the Closing. The representations and warranties of the Company made herein or in any certificates delivered in connection with the Closing shall survive the Closing without limitation.

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5.3 Amendment. No amendment of any provision of this Agreement will be effective unless made in writing and signed by an officer or a duly authorized representative of each party; provided that the Investor may unilaterally amend any provision of this Agreement to the extent required to comply with any changes after the Signing Date in applicable federal statutes. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative of any rights or remedies provided by law.

5.4 Waiver of Conditions. The conditions to each party’s obligation to consummate the Purchase are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver.

5.5 Governing Law: Submission to Jurisdiction, Etc. This Agreement will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia and the United States Court of Federal Claims for any and all civil actions, suits or proceedings arising out of or relating to this Agreement or the Warrant or the transactions contemplated hereby or thereby, and (b) that notice may be served upon (i) the Company at the address and in the manner set forth for notices to the Company in Section 5.6 and (ii) the Investor in accordance with federal law. To the extent permitted by applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to this Agreement or the Warrant or the transactions contemplated hereby or thereby.

5.6 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices to the Company shall be delivered as set forth in Schedule A, or pursuant to such other instruction as may be designated in writing by the Company to the Investor. All notices to the Investor shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Investor to the Company.

If to the Investor:

United States Department of the Treasury

1500 Pennsylvania Avenue, NW, Room 2312

Washington, D.C. 20220

Attention: Assistant General Counsel (Banking and Finance)

Facsimile: (202) 622-1974

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5.7 Definitions.

(a) When a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation, partnership, joint venture, limited liability company or other entity (x) of which such person or a subsidiary of such person is a general partner or (y) of which a majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one or more subsidiaries thereof.

(b) The term “Affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such person, whether through the ownership of voting securities by contract or otherwise.

(c) The terms “knowledge of the Company” or “Company’s knowledge” mean the actual knowledge after reasonable and due inquiry of the “officers” (as such term is defined in Rule 3b-2 under the Exchange Act, but excluding any Vice President or Secretary) of the Company.

5.8 Assignment. Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any party hereto without the prior written consent of the other party, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (a) an assignment, in the case of a Business Combination where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such Business Combination or the purchaser in such sale and (b) as provided in Section 4.5.

5.9 Severability. If any provision of this Agreement or the Warrant, or the application thereof to any person or circumstance, is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.

5.10 No Third Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company and the Investor any benefit, right or remedies, except that the provisions of Section 4.5 shall inure to the benefit of the persons referred to in that Section.

* * *

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UST Seq. Number 329

ANNEX A

CERTIFICATE OF DESIGNATIONS

OF

FIXED RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A

OF

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Peoples Bancorp of North Carolina, Inc., a corporation organized and existing under the laws of the state of North Carolina (the “Corporation”), in accordance with the provisions of Sections 55-10-06 and 55-6-02(b) of the General Statutes of North Carolina thereof, does hereby certify:

The board of directors of the Corporation (the “Board of Directors”) or an applicable committee of the Board of Directors, in accordance with the articles of incorporation of the Corporation and applicable law, adopted the following resolution on December 18, 2008 creating a series of A shares of Preferred Stock of the Corporation designated as “Fixed Rate Cumulative Perpetual Preferred Stock, Series A”.

RESOLVED, that pursuant to the provisions of the articles of incorporation of the Corporation and applicable law, a series of Preferred Stock, no par value per share, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A.” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 25,054.

Part 2. Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.

Part. 3. Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Annex A hereto) as defined below:

(a) “Common Stock” means the common stock, no par value per share, of the Corporation.

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

(c) “Junior Stock” means the Common Stock, and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(d) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e) “Minimum Amount” means $6,263,500.

(f) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

(g) “Signing Date” means Original Issue Date.

Part. 4. Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.]

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, Peoples Bancorp of North Carolina, Inc. has caused this Certificate of Designations to be signed by Tony W. Wolfe, its chief executive officer, this 23rd day of December, 2008.

Peoples Bancorp of North Carolina, Inc.
By:
Name:	Tony W. Wolfe
Title:	President and Chief Executive Officer

ANNEX A

STANDARD PROVISIONS

Section 1. General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

Section 2. Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

(d) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e) “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

(f) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

(g) “Charter” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(h) “Dividend Period” has the meaning set forth in Section 3(a).

(i) “Dividend Record Date” has the meaning set forth in Section 3(a).

(j) “Liquidation Preference” has the meaning set forth in Section 4(a).

(k) “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(l) “Preferred Director” has the meaning set forth in Section 7(b).

(m) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

(n) “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(o) “Share Dilution Amount” has the meaning set forth in Section 3(b).

(p) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.

(q) “Successor Preferred Stock” has the meaning set forth in Section 5(a).

(r) “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3. Dividends.

(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that

date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its

business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

Section 4. Liquidation Rights.

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5. Redemption.

(a) Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally

available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b) No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c) Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder

receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d) Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7. Voting Rights.

(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c) Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or

any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii) Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d) Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9. Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10. No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12. Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

UST Seq. Number 329

ANNEX B

FORM OF WAIVER

In consideration for the benefits I will receive as a result of my employer’s participation in the United States Department of the Treasury’s TARP Capital Purchase Program, I hereby voluntarily waive any claim against the United States or my employer for any changes to my compensation or benefits that are required to comply with the regulation issued by the Department of the Treasury as published in the Federal Register on October 20, 2008.

I acknowledge that this regulation may require modification of the compensation, bonus, incentive and other benefit plans, arrangements, policies and agreements (including so-called “golden parachute” agreements) that I have with my employer or in which I participate as they relate to the period the United States holds any equity or debt securities of my employer acquired through the TARP Capital Purchase Program.

This waiver includes all claims I may have under the laws of the United States or any state related to the requirements imposed by the aforementioned regulation, including without limitation a claim for any compensation or other payments I would otherwise receive, any challenge to the process by which this regulation was adopted and any tort or constitutional claim about the effect of these regulations on my employment relationship.

UST Seq. Number 329

ANNEX C

FORM OF OPINION

(a) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation.

(b) The Preferred Shares have been duly and validly authorized, and, when issued and delivered pursuant to the Agreement, the Preferred Shares will be duly and validly issued and fully paid and non-assessable, will not be issued in violation of any preemptive rights, and will rank pari passu with or senior to all other series or classes of Preferred Stock issued on the Closing Date with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Company.

(c) The Warrant has been duly authorized and, when executed and delivered as contemplated by the Agreement, will constitute a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.

(d) The shares of Common Stock issuable upon exercise of the Warrant have been duly authorized and reserved for issuance upon exercise of the Warrant and when so issued in accordance with the terms of the Warrant will be validly issued, fully paid and non-assessable [insert, if applicable:    , subject to the approvals of the Company’s stockholders set forth on Schedule C].

(e) The Company has the corporate power and authority to execute and deliver the Agreement and the Warrant and [insert, if applicable:    , subject to the approvals of the Company’s stockholders set forth on Schedule C,] to carry out its obligations thereunder (which includes the issuance of the Preferred Shares, Warrant and Warrant Shares).

(f) The execution, delivery and performance by the Company of the Agreement and the Warrant and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company and its stockholders, and no further approval or authorization is required on the part of the Company [insert, if applicable:    , subject, in each case, to the approvals of the Company’s stockholders set forth on Schedule C].

(g) The Agreement is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity; provided, however, such counsel need express no opinion with respect to Section 4.5(g) or the severability provisions of the Agreement insofar as Section 4.5(g) is concerned.

UST Seq. Number 329

ANNEX D

WARRANT TO PURCHASE COMMON STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.

WARRANT

to purchase

357,234

Shares of Common Stock of

Peoples Bancorp of

North Carolina, Inc.

Issue Date: December 23, 2008

1. Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.

“Affiliate” has the meaning ascribed to it in the Purchase Agreement.

“Appraisal Procedure” means a procedure whereby two independent appraisers, one chosen by the Company and one by the Original Warrantholder, shall mutually agree upon the determinations then the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the amount in question, a third independent appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers. The decision of the third appraiser so appointed and chosen shall be

given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Company and the Original Warrantholder; otherwise, the average of all three determinations shall be binding upon the Company and the Original Warrantholder. The costs of conducting any Appraisal Procedure shall be borne by the Company.

“Board of Directors” means the board of directors of the Company, including any duly authorized committee thereof.

“Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.

“Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

“Capital Stock” means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

“Charter” means, with respect to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.

“Common Stock” has the meaning ascribed to it in the Purchase Agreement.

“Company” means the Person whose name, corporate or other organizational form and jurisdiction of organization is set forth in Item 1 of Schedule A hereto.

“Conversion” has the meaning set forth in Section 13(B). “Convertible Securities” has the meaning set forth in Section 13(B). “CPP” has the meaning ascribed to it in the Purchase Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

“Exercise Price” means the amount set forth in Item 2 of Schedule A hereto. “Expiration Time” has the meaning set forth in Section 3.

“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith or, with respect to Section 14, as determined by the Original

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Warrantholder acting in good faith. For so long as the Original Warrantholder holds this Warrant or any portion thereof, it may object in writing to the Board of Director’s calculation of fair market value within 10 days of receipt of written notice thereof. If the Original Warrantholder and the Company are unable to agree on fair market value during the 10-day period following the delivery of the Original Warrantholder’s objection, the Appraisal Procedure may be invoked by either party to determine Fair Market Value by delivering written notification thereof not later than the 30^th day after delivery of the Original Warrantholder’s objection.

“Governmental Entities” has the meaning ascribed to it in the Purchase Agreement.

“Initial Number” has the meaning set forth in Section 13(B).

“Issue Date” means the date set forth in Item 3 of Schedule A hereto.

“Market Price” means, with respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and ask prices as furnished by two members of the Financial Industry Regulatory Authority, Inc. selected from time to time by the Company for that purpose. “Market Price” shall be determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be (i) in the event that any portion of the Warrant is held by the Original Warrantholder, the fair market value per share of such security as determined in good faith by the Original Warrantholder or (ii) in all other circumstances, the fair market value per share of such security as determined in good faith by the Board of Directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Company for this purpose and certified in a resolution to the Warrantholder. For the purposes of determining the Market Price of the Common Stock on the “trading day” preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence immediately after the regular scheduled closing time of trading on the New York Stock Exchange or, if trading is closed at an earlier time, such earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).

“Ordinary Cash Dividends” means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time), provided that Ordinary Cash Dividends shall not include any cash dividends paid subsequent to the Issue Date to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the amount set forth in Item 4 of Schedule A hereto, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

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“Original Warrantholder” means the United States Department of the Treasury. Any actions specified to be taken by the Original Warrantholder hereunder may only be taken by such Person and not by any other Warrantholder.

“Permitted Transactions” has the meaning set forth in Section 13(B).

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

“Per Share Fair Market Value” has the meaning set forth in Section 13(C).

“Preferred Shares” means the perpetual preferred stock issued to the Original Warrantholder on the Issue Date pursuant to the Purchase Agreement.

“Pro Rata Repurchases” means any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 1 4E promulgated thereunder or (B) any other offer available to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding. The “Effective Date” of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

“Purchase Agreement” means the Securities Purchase Agreement – Standard Terms incorporated into the Letter Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as amended from time to time, between the Company and the United States Department of the Treasury (the “Letter Agreement”), including all annexes and schedules thereto.

“Qualified Equity Offering” has the meaning ascribed to it in the Purchase Agreement.

“Regulatory Approvals” with respect to the Warrantholder, means, to the extent applicable and required to permit the Warrantholder to exercise this Warrant for shares of Common Stock and to own such Common Stock without the Warrantholder being in violation of applicable law, rule or regulation, the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or expiration or termination of any applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

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“Shares” has the meaning set forth in Section 2.

“Trading Day” means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a business day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock.

“U.S. GAAP” means United States generally accepted accounting principles.

“Warrantholder” has the meaning set forth in Section 2.

“Warrant” means this Warrant, issued pursuant to the Purchase Agreement.

2. Number of Shares; Exercise Price. This certifies that, for value received, the United States Department of the Treasury or its permitted assigns (the “Warrantholder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise Price. The number of shares of Common Stock (the “Shares”) and the Exercise Price are subject to adjustment as provided herein, and all references to “Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.

3. Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by applicable laws and regulations, the right to purchase the Shares represented by this Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the execution and delivery of this Warrant by the Company on the date hereof, but in no event later than 5:00 p.m., New York City time on the tenth anniversary of the Issue Date (the “Expiration Time”), by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive office of the Company located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and (B) payment of the Exercise Price for the Shares thereby purchased:

(i) by having the Company withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common stock issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered to the Company pursuant to this Section 3, or

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(ii) with the consent of both the Company and the Warrantholder, by tendering in cash, by certified or cashier’s check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company.

If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder will be entitled to receive from the Company within a reasonable time, and in any event not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so exercised. Notwithstanding anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have first received any applicable Regulatory Approvals.

4. Issuance of Shares; Authorization; Listing. Certificates for Shares issued upon exercise of this Warrant will be issued in such name or names as the Warrantholder may designate and will be delivered to such named Person or Persons within a reasonable time, not to exceed three business days after the date on which this Warrant has been duly exercised in accordance with the terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance with the provisions of Section 3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the Warrantholder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered on such date. The Company will at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this Warrant at any time. The Company will (A) procure, at its sole expense, the listing of the Shares issuable upon exercise of this Warrant at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Company will use reasonable best efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded.

5. No Fractional Shares or Scrip. No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

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6. No Rights as Stockholders; Transfer Books. This Warrant does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the date of exercise hereof. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

7. Charges, Taxes and Expenses. Issuance of certificates for Shares to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company.

8. Transfer/Assignment.

(A) Subject to compliance with clause (B) of this Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the registered holder hereof in person or by duly authorized attorney, and a new warrant shall be made and delivered by the Company, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8 shall be paid by the Company.

(B) The transfer of the Warrant and the Shares issued upon exercise of the Warrant are subject to the restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so long as required by the Purchase Agreement, this Warrant shall contain the legends as set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the Company, for a new warrant or warrants of like tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.

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12. Rule 144 Information. The Company covenants that it will use its reasonable best efforts to timely file all reports and other documents required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Warrantholder, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will use reasonable best efforts to take such further action as any Warrantholder may reasonably request, in each case to the extent required from time to time to enable such holder to, if permitted by the terms of this Warrant and the Purchase Agreement, sell this Warrant without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (B) any successor rule or regulation hereafter adopted by the SEC. Upon the written request of any Warrantholder, the Company will deliver to such Warrantholder a written statement that it has complied with such requirements.

13. Adjustments and Other Rights. The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided, that if more than one subsection of this Section 13 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 13 so as to result in duplication:

(A) Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Warrantholder after such date shall be entitled to purchase the number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately preceding sentence.

(B) Certain Issuances of Common Shares or Convertible Securities. Until the earlier of (i) the date on which the Original Warrantholder no longer holds this Warrant or any portion thereof and (ii) the third anniversary of the Issue Date, if the Company

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shall issue shares of Common Stock (or rights or warrants or other securities exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of Common Stock) (collectively, “convertible securities”) (other than in Permitted Transactions (as defined below) or a transaction to which subsection (A) of this Section 13 is applicable) without consideration or at a consideration per share (or having a conversion price per share) that is less than 90% of the Market Price on the last trading day preceding the date of the agreement on pricing such shares (or such convertible securities) then, in such event:

(A) the number of Shares issuable upon the exercise of this Warrant immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) (the “Initial Number”) shall be increased to the number obtained by multiplying the Initial Number by a fraction (A) the numerator of which shall be the sum of (x) the number of shares of Common Stock of the Company outstanding on such date and (y) the number of additional shares of Common Stock issued (or into which convertible securities may be exercised or convert) and (B) the denominator of which shall be the sum of (I) the number of shares of Common Stock outstanding on such date and (II) the number of shares of Common Stock which the aggregate consideration receivable by the Company for the total number of shares of Common Stock so issued (or into which convertible securities may be exercised or convert) would purchase at the Market Price on the last trading day preceding the date of the agreement on pricing such shares (or such convertible securities); and

(B) the Exercise Price payable upon exercise of the Warrant shall be adjusted by multiplying such Exercise Price in effect immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant prior to such date and the denominator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant immediately after the adjustment described in clause (A) above.

For purposes of the foregoing, the aggregate consideration receivable by the Company in connection with the issuance of such shares of Common Stock or convertible securities shall be deemed to be equal to the sum of the net offering price (including the Fair Market Value of any non-cash consideration and after deduction of any related expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such convertible securities into shares of Common Stock; and “Permitted Transactions” shall mean issuances (i) as consideration for or to fund the acquisition of businesses and/or related assets, (ii) in connection with employee benefit plans and compensation related arrangements in the ordinary course and consistent with past practice approved by the Board of Directors, (iii) in connection with a public or broadly marketed offering and sale of Common Stock or convertible securities for cash conducted by the Company or its affiliates pursuant to registration under the Securities Act or Rule 144A thereunder on a basis consistent with capital raising transactions by comparable financial institutions and (iv) in connection with the exercise of preemptive rights on terms existing as of the Issue Date. Any adjustment made pursuant to this Section 13(B) shall become effective immediately upon the date of such issuance.

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(C) Other Distributions. In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 13(A)), in each such case, the Exercise Price in effect prior to such record date shall be reduced immediately thereafter to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market Value”) divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the number of Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the distribution giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced by the per share amount of the portion of the cash dividend that would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and the number of Shares issuable upon exercise of this Warrant then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such shares, evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Exercise Price that would then be in effect and the number of Shares that would then be issuable upon exercise of this Warrant if such record date had not been fixed.

(D) Certain Repurchases of Common Stock. In case the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such

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adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 13(D).

(E) Business Combinations. In case of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)), the Warrantholder’s right to receive Shares upon exercise of this Warrant shall be converted into the right to exercise this Warrant to acquire the number of shares of stock or other securities or property (including cash) which the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Warrantholder’s right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the consideration that the Warrantholder shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares of common stock that affirmatively make an election (or of all such holders if none make an election).

(F) Rounding of Calculations; Minimum Adjustments. All calculations under this Section 13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one- hundredth (1/100th) of a share, as the case may be. Any provision of this Section 13 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

(G) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 13 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Warrantholder of this Warrant exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the

11

Company upon request shall deliver to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder’s right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

(H) Completion of Qualified Equity Offering. In the event the Company (or any successor by Business Combination) completes one or more Qualified Equity Offerings on or prior to December 31, 2009 that result in the Company (or any such successor ) receiving aggregate gross proceeds of not less than 100% of the aggregate liquidation preference of the Preferred Shares (and any preferred stock issued by any such successor to the Original Warrantholder under the CPP), the number of shares of Common Stock underlying the portion of this Warrant then held by the Original Warrantholder shall be thereafter reduced by a number of shares of Common Stock equal to the product of (i) 0.5 and (ii) the number of shares underlying the Warrant on the Issue Date (adjusted to take into account all other theretofore made adjustments pursuant to this Section 13).

(I) Other Events. For so long as the Original Warrantholder holds this Warrant or any portion thereof, if any event occurs as to which the provisions of this Section 13 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such purchase rights as aforesaid. The Exercise Price or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

(J) Statement Regarding Adjustments. Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Warrantholder at the address appearing in the Company’s records.

(K) Notice of Adjustment Event. In the event that the Company shall propose to take any action of the type described in this Section 13 (but only if the action of the type described in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company shall give notice to the Warrantholder, in the manner set forth in Section 13(J), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed,

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and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(L) Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 13, the Company shall take any action which may be necessary, including obtaining regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to receive upon exercise of this Warrant pursuant to this Section 13.

(M) Adjustment Rules. Any adjustments pursuant to this Section 13 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.

14. Exchange. At any time following the date on which the shares of Common Stock of the Company are no longer listed or admitted to trading on a national securities exchange (other than in connection with any Business Combination), the Original Warrantholder may cause the Company to exchange all or a portion of this Warrant for an economic interest (to be determined by the Original Warrantholder after consultation with the Company) of the Company classified as permanent equity under U.S. GAAP having a value equal to the Fair Market Value of the portion of the Warrant so exchanged. The Original Warrantholder shall calculate any Fair Market Value required to be calculated pursuant to this Section 14, which shall not be subject to the Appraisal Procedure.

15. No Impairment. The Company will not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder.

16. Governing Law. This Warrant will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each of the Company and the Warrantholder agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia for any civil action, suit or proceeding arising out of or relating to this Warrant or the transactions contemplated hereby, and (b) that notice may be served upon the Company at the address in Section 20 below and upon the Warrantholder at the address for the Warrantholder set forth in the registry maintained by the Company pursuant to Section 9 hereof. To the

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extent permitted by applicable law, each of the Company and the Warrantholder hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to the Warrant or the transactions contemplated hereby or thereby.

17. Binding Effect. This Warrant shall be binding upon any successors or assigns of the Company.

18. Amendments. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Warrantholder.

19. Prohibited Actions. The Company agrees that it will not take any action which would entitle the Warrantholder to an adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.

20. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

21. Entire Agreement. This Warrant, the forms attached hereto and Schedule A hereto (the terms of which are incorporated by reference herein), and the Letter Agreement (including all documents incorporated therein), contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings with respect thereto.

[Remainder of page intentionally left blank]

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[Form of Notice of Exercise]

Date:

TO: [Company]

RE: Election to Purchase Common Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock in the manner set forth below. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name set forth below.

Number of Shares of Common Stock                     

Method of Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of the Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with consent of the Company and the Warrantholder)                     

Aggregate Exercise Price:                     

Holder:

By:

Name:

Title:

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer.

Dated: December 23, 2008

COMPANY: Peoples Bancorp of North Carolina, Inc.
By:
Name:	Tony W. Wolfe
Title:	President and CEO
Attest:
By:
Name:
Title:	Secretary

[Signature Page to Warrant]

UST Seq. Number 329

SCHEDULE A

Item 1

Name: Peoples Bancorp of North Carolina, Inc.

Corporate or other organizational form: Corporation

Jurisdiction of organization: NC

Item 2

Exercise Price: ¹    $10.52

Item 3

Issue Date:    December 23, 2008

Item 4

Amount of last dividend declared prior to the Issue Date:    $0.12

Item 5

Date of Letter Agreement between the Company and the United States Department of the Treasury:    December 23, 2008

Item 6

Number of shares of Common Stock:    357,234

Item 7

Company’s address: Post Office Box 467

518 West C Street

Newton, North Carolina 28658-0467

Item 8

Notice information:

Tony W. Wolfe

Peoples Bancorp of North Carolina, Inc.

Post Office Box 467

518 West C Street

Newton, North Carolina 28658-0467

Phone: (828) 464-5620

twolfe@peoplesbanknc.com

¹ Initial exercise price to be calculated based on the average of closing prices of the Common Stock on the 20 trading days ending on the last trading day prior to the date the Company’s application for participation in the Capital Purchase Program was approved by the United States Department of the Treasury.

UST Seq. Number 329

SCHEDULE A

ADDITIONAL TERMS AND CONDITIONS

Company Information:

Name of the Company:    Peoples Bancorp of North Carolina, Inc.

Corporate or other organizational form:    corporation

Jurisdiction of Organization:    North Carolina

Appropriate Federal Banking Agency:    Federal Reserve

Notice Information:	Tony W. Wolfe
	Post Office Box 467
	518 West C Street
	Newton, North Carolina 28658-0467
	Phone:	(828) 464-5620
	Fax:	828-465-6780
	Email:	twolfe@peoplesbanknc.com

Terms of the Purchase:

Series of Preferred Stock Purchased:    Fixed Rate Cumulative Perpetual Preferred Stock, Series A

Per Share Liquidation Preference of Preferred Stock:    $1,000

Number of Shares of Preferred Stock Purchased:    25,054

Dividend Payment Dates on the Preferred Stock:    Feb. 15; May 15; August 15, Nov. 15

Number of Initial Warrant Shares:    357,234

Exercise Price of the Warrant:    $10.52

Purchase Price:    $25,054,000

Closing:

Location of Closing:	Squire Sanders & Dempsey L.L.P.
	One Tampa City Center, 201 N. Franklin Street, Suite 2100
	Tampa, Florida 33602
Time of Closing:	9:00 am Eastern Standard Time
Date of Closing:	December 23, 2008

Wire Information for Closing:	ABA Number: 053104869
	Bank: Peoples Bank
	Account Name: Peoples Bancorp of North Carolina, Inc.
	Account Number: 240190000015
	Beneficiary: Peoples Bancorp of North Carolina, Inc.

UST Seq. Number 329

SCHEDULE B

CAPITALIZATION

Capitalization Date: November 30, 2008

Common Stock

Par value:    None

Total Authorized:    20,000,000

Outstanding:    5,539,056

Subject to warrants, options, convertible securities, etc.:    286,376

Reserved for benefit plans and other issuances:    630,478

Remaining authorized but unissued:    13,830,466

Shares issued after Capitalization Date (other than pursuant to warrants, options, convertible securities, etc. as set forth

above):    None

Preferred Stock

Par value:    None

Total Authorized:    5,000,000

Outstanding (by series):    None

Reserved for issuance:    None

Remaining authorized but unissued:    5,000,000

UST Seq. Number 329

SCHEDULE C

REQUIRED STOCKHOLDER APPROVALS

	Required2	%Vote Required
Warrants — Common Stock Issuance
Charter Amendment
Stock Exchange Rules

If no stockholder approvals are required, please so indicate by checking the box: x

² If stockholder approval is required, indicate applicable class/series of capital stock that are required to vote.

UST Seq. Number 329

SCHEDULE D

LITIGATION

List any exceptions to the representation and warranty in Section 2.2(l) of the Securities Purchase Agreement – Standard Terms.

If none, please so indicate by checking the box  x

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UST Seq. Number 329

SCHEDULE E

COMPLIANCE WITH LAWS

List any exceptions to the representation and warranty in the second sentence of Section 2.2(m) of the Securities Purchase

Agreement – Standard Terms.

If none, please so indicate by checking the box:  x

List any exceptions to the representation and warranty in the last sentence of Section 2.2(m) of the Securities Purchase

Agreement – Standard Terms.

If none, please so indicate by checking the box:  x

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UST Seq. Number 329

SCHEDULE F

REGULATORY AGREEMENTS

List any exceptions to the representation and warranty in Section 2.2(s) of the Securities Purchase Agreement – Standard Terms.

If none, please so indicate by checking the box  x

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EX-10.A.I

Exhibit 10(a)(i)

December 23, 2008

Tony W. Wolfe

518 West C. Street

Newton, NC 28658

Dear Tony,

Peoples Bancorp of North Carolina, Inc.(the “Company”) anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”) with the United States Department of Treasury (the “Treasury”) that provides, among other things, for the purchase by the Treasury of securities issued by the Company. This purchase is anticipated to occur as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program - Capital Purchase Program (the “CPP”).

As a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to take certain actions with respect to compensation arrangements of its senior executive officers. The Company has determined that you are or may be a senior executive officer for purposes of the CPP. To comply with the requirements of the CPP, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you agree as follows:

(1) No Golden Parachute Payments. You will not be entitled to receive from the Company any golden parachute payment (as defined below) during any period in which the Treasury holds an equity or debt position acquired from the Company in the CPP (the “CPP Covered Period”) (or during the year following any acquisition of the Company, to the extent required by the CPP Limitations (as defined below)).

(2) Recovery of Bonus and Incentive Compensation. You will be required to and shall return to the Company any bonus or incentive compensation paid to you by the Company during the CPP Covered Period if such bonus or incentive compensation is paid to you based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements , including golden parachute, severance and employment agreements (all such plans, arrangements and agreements, the “Benefit Plans”) are hereby amended to the extent necessary to give effect to provisions (1) and (2) of this letter.

The Company is also required as a condition to participation in the CPP to review the Benefit Plans to ensure that the Benefit Plans do not encourage its senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent that the Company determines that the Benefit Plans must be revised as a result of such review, or determines that the Benefit Plans must otherwise be revised to comply with Section 111(b) of the EESA (as defined below) as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the closing date of the Company’s issuance of preferred stock and warrants to acquire common stock to the Treasury pursuant to the CPP (the “CPP Limitations”), you and the Company agree to negotiate and effect such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

• “Senior executive officer” means the Company’s “senior executive officers” as defined in Q&A 2 of the Interim Final Rule issued by the Treasury at 31 CFR Part 30, effective on October 20, 2008 (the “Interim Final Rule”).

• “Golden parachute payment” shall have the meaning set forth in Q&A 9 of the Interim Final Rule.

• The term “Company” includes any entities treated as a single employer with the Company under Q&A 1 and Q&A 11 of the Interim Final Rule.

• This letter is intended to, and shall be interpreted, administered and construed to comply with Section 111 of the Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations and guidance promulgated thereunder (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be governed by and construed in accordance with the laws of the State of North Carolina. This letter may be executed in two or more counterparts, each of which will be deemed to be an original. A signature transmitted by facsimile will be deemed an original signature.

(6) If the Treasury does not purchase the securities contemplated by the Participation Agreement, then this letter shall be of no force or effect. In addition, upon such time as the Treasury no longer holds securities or debt of the Company acquired under the CPP, this letter shall be of no further force or effect, except to the extent required by the CPP Limitations. If you cease to be a senior executive officer of the Company for purposes of the CPP, you shall be released from the restrictions and obligations set forth in this letter to the extent permissible under the CPP. If it is determined that you are not a senior executive officer of the Company as of the date hereof, this letter shall be of no force or effect.

The Company appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times.

[Signature page follows]

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Sincerely,
Peoples Bancorp of North Carolina, Inc.
By:
Name:	Robert Abernethy
Title:	Chairman of the Board of Directors

Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.
By:
Name:	Tony W. Wolfe
Title:	President and CEO
Date:	December 23, 2008

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EX-10.A.II

Exhibit 10(a)(ii)

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made on the      day of             , 2008, between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the “Bank”), and TONY W. WOLFE (the “Employee”) and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the “Holding Company”).

W I T N E S S E T H

WHEREAS, the Bank and Employee, joined by the Holding Company, have previously entered into that certain Employment Agreement dated December 1, 1999 (as it may have heretofore been amended, the “Agreement”) to set forth the terms of Employee’s employment with the Bank and to provide for certain benefits upon the termination of such employment;

WHEREAS, Paragraph 14 of the Agreement provides, “No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided”; and

WHEREAS, the Bank and Employee joined in by the Holding Company now desire to amend the Agreement through this Amendment in order to bring the arrangement into compliance with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”).

NOW THEREFORE, the Bank and Employee joined in by the Holding Company hereby agree to amend the Agreement as follows:

I. Paragraph 3 of the Agreement is hereby deleted in its entirety and replaced by the following provisions:

3. Discretionary Bonuses. The Employee shall be entitled to participate with all other key management personnel of the Bank in discretionary bonuses authorized and declared by the Directors of the Bank for all members of Bank management.

No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as are declared by the Board of Directors, so long as such bonuses are provided for Bank management generally. Payment of the bonus shall be in a lump sum on or before March 15 of the Employee’s first taxable year after the taxable year in which the bonus is declared by the Board.

II. Paragraph 9.A(1) of the Agreement is amended by adding the following sentence as the last sentence of that paragraph:

Said compensation shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

III. Paragraph 9.A.(2) of the Agreement is amended by adding the following sentence as the last subparagraph of that paragraph:

Any payments of compensation and/or benefits required under this paragraph 9.A.(2) shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

IV. A new Paragraph 9.C of the Agreement is added as follows:

C. For purposes of this Agreement and to the extent any payment is triggered by a termination of employment, the terms “terminate” and “termination” shall mean that the Employee has experienced a “separation from service” within the meaning of Section 409A.

V. Paragraph 14 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

14. Amendments.

A. No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided. An amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”). If an amendment to this Agreement is required by any future guidance or regulation issues pursuant to Section 409A, the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A.

B. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes to the extent Section 409A applies to such matters.

VI. Paragraph 15 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

15. Applicable Law. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of North Carolina, without reference to any choice- or conflict-of-laws provisions or principles, except to the extent that federal law shall be deemed to apply.

VII. The following Paragraphs are hereby added to the Agreement:

19. Reimbursements. Any reimbursements provided under this Agreement in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year. The Employee’s right to reimbursement as provided in this Agreement is not subject to liquidation or exchange for any other benefit.

20. Interpretation. It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Employee acknowledges that neither the Bank nor the Holding Company has made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

21. Certain Payments Delayed for a Specified Employee. If the Employee is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Employee’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PEOPLES BANK,
a North Carolina banking institution
By:		(SEAL)
	Robert C. Abernethy, Chairman
	Board of Directors
TONY W. WOLFE
		(SEAL)

The Foregoing Amendment is joined in and agreed to by Peoples Bancorp, Inc.

PEOPLES BANCORP, INC.,
a North Carolina corporation
By:		(SEAL)
	Robert C. Abernethy, Chairman
	Board of Directors

EX-10.A.III

Exhibit 10(a)(iii)

AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a Bank organized and existing under the laws of the State of North Carolina, hereinafter referred to as “the Bank”, and Tony W. Wolfe, a Key Employee and the Executive of the Bank, hereinafter referred to as “the Executive.”

W I T N E S S E T H:

WHEREAS, the Bank and the Executive previously entered into an Executive Supplemental Retirement Plan Agreement dated the 1^st day of January, 2002 between Peoples Bank and Tony W. Wolfe, that provided for the payment of certain benefits; and

WHEREAS, the Bank and the Executive thereafter entered into an Executive Salary Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Executive Supplemental Retirement Plan Agreement and the benefits provided thereunder; and

WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Executive’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of operating efficiency and present position in its field of activity; and

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Executive’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employ during the Executive’s lifetime or until the age of retirement; and

WHEREAS, it is the desire of the Bank that the Executive’s services be retained as herein provided; and

WHEREAS, the Executive is willing to continue in the employ of the Bank provided the Bank agrees to pay the Executive or the Executive’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Executive desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this Amended and Restated Salary Continuation Agreement (the “Agreement”) under which the Bank will agree to make certain payments to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. DEFINITIONS

A. Effective Date:

The “Effective Date” of this Agreement shall be December 31, 2008.

B. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.

C. Retirement Date:

“Retirement Date” shall mean retirement from active employment with the Bank on or after the Executive’s sixty-fifth (65th) birthday.

D. Early Retirement Date:

“Early Retirement Date” shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one half (59 ¹/2) and is one hundred percent (100%) vested.

E. Termination of Service:

“Termination of Service” shall mean voluntary resignation of service by the Executive or the Bank’s discharge of the Executive without cause [“cause” defined in Subparagraph III (F) hereinafter], prior to the Normal Retirement Age (described in Subparagraph I (J) hereinafter).

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F. Index Retirement Benefit:

The “Index Retirement Benefit” for the Executive for any year shall be equal to the excess of the annual earnings (if any) determined by the Index [Subparagraph I (G)] for that Plan Year less the Cost of Funds Expense [Subparagraph I (H)] for that Plan Year.

G. Index:

The “Index” for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on December 31, 2003.

Insurance Company:	Jefferson Pilot Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	ESP VI
Insured’s Age and Sex:	52, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$222,000
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001
Insurance Company	Mass Mutual Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	Strategic Life Executive
Insured’s Age and Sex:	53, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$230,580
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001

If such contracts of life insurance are actually purchased by the Bank then the actual policies as of the dates they were purchased shall be used in calculations under this Agreement. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased from the above named insurance company(ies) on the Effective Date from which the increase in policy value will be used to calculate the amount of the Index.

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In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured general creditor of the Bank.

Any reference to a specific insurance contract under this Subparagraph I (G) also includes a reference to a replacement contract that has replaced the specifically referenced insurance contract through an exchange qualifying under Section 1035 of the Internal Revenue Code.

H. Cost of Funds Expense:

The “Cost of Funds Expense” for any Plan Year shall be calculated by taking the sum of the amount of premiums set forth in the Indexed policies described above plus the amount of any after-tax benefits paid to the Executive pursuant to this Agreement (Paragraph III hereinafter) plus the amount of all previous years after-tax Costs of Funds Expense, and multiplying that sum by the average after-tax cost of funds of the Bank’s third quarter Call Report for the Plan Year as filed with the Federal Reserve.

I. Separation from Service:

Any reference to “retirement,” “retirement from service,” “early retirement,” or “termination of service” that triggers a payment under this Agreement requires that the Executive has incurred a “separation from service” as interpreted in accordance with Section 409A (“Separation from Service”). The Executive will not be considered to have had a “Separation from Service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Executive has a right to reemployment that is provided by statute or contract.

J. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Executive attains age sixty-five (65).

K. Benefit Accounting:

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

L. Unforeseeable Emergency:

“Unforeseeable Emergency” shall mean that the Executive has experienced an “unforeseeable emergency” within the meaning of Section 409A of the Code.

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II. EMPLOYMENT

The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive’s rights to voluntarily sever his employment at any time.

III. BENEFITS

A. Retirement Benefits:

Should the Executive continue to be employed by the Bank until “Normal Retirement Age” defined in Subparagraph I (J), the Executive shall be entitled to receive an annual benefit as set forth in Exhibit A-1, in equal monthly installments [1/12th of the annual benefit for a period of thirteen (13) years]. Said payments to commence thirty (30) days following the Executive’s Retirement Date. Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

B. Early Retirement Benefits:

Subject to Subparagraph III (F), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (D)], the Executive shall be entitled to receive a reduced annual benefit amount as set forth in Exhibit A-2, commencing thirty (30) days following the Executive’s Early Retirement Date. For benefits received in years prior to age sixty-five (65), the reduced annual benefit as set forth in Exhibit A-2 will apply to the age sixty-six (66) benefit listed on schedule A-1. Such payments shall continue until the participant attains age seventy-eight (78). Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

C. Termination of Service:

Subject to Subparagraph III(F) hereinafter, should the Executive suffer a Termination of Service [defined in Subparagraph I(E)], the Executive shall be entitled to receive the vested balance of the accrued liability account paid to the Executive to be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments following Normal Retirement Age [Subparagraph I (J)], accruing interest at the one-year Treasury Bill rate.

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Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall begin the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total benefit as provide herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit. The vesting schedule is as follows:

Years Employed Since Effective Date of Plan	Percentage That Vests in That Year
1	30%
2-5	17.5%

D. Disability Benefit:

If the Executive becomes disabled as defined herein, he shall become fully vested in and be entitled to receive an amount equal to the accrued liability retirement account established to account for the Executive’s benefits under this Agreement. For purposes of this Agreement, the term “disabled” means that the Executive is

(i) Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of 3 or more months under an accident and health plan covering employees of the Bank, or

(iii) Determined to be disabled by the Social Security Administration.

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Said disability benefit will be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments commencing at the Normal Retirement Age [Subparagraph I (J)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the disability benefit is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment within thirty (30) days following Normal Retirement Age.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Executive may have designated in writing and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall be made on the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total disability benefit as provided herein, then no further benefit shall be due hereunder.

E. Death:

Should the Executive die prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C), and (D) hereinabove, the unpaid accrued liability account balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive’s estate on the first day of the second month following the date of the Executive’s death. If, upon death, the Executive shall have received the total benefit as provided herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit.

F. Discharge for Cause:

Should the Executive be discharged for cause at any time, all Benefits under this Agreement shall be forfeited. The term “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement.

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G. Death Benefit:

Except as set forth above, there is no death benefit provided under this Agreement.

H. Unforeseeable Emergency:

Prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C) and (D) hereinabove, the Executive may make application to the Plan Administrator to receive a distribution in a lump sum of all or a portion of the vested unpaid accrued liability account balance (determined as of the date the distribution, if any, is made under this Paragraph III(H)) because of an Unforeseeable Emergency.

A distribution because of an Unforeseeable Emergency shall not exceed the amount required to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

The Executive’s request for a distribution on account of Unforeseeable Emergency must be made in writing to the Plan Administrator. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the vested unpaid accrued liability account balance, and the total amount of the actual expense incurred or to be incurred on account of the Unforeseeable Emergency.

If a distribution under this Section III(H) is approved by the Plan Administrator, such distribution will be made within thirty (30) days following the date the distribution is approved. The processing of the request shall be completed as soon as practicable from the date on which the Plan Administrator receives the properly completed written request for a distribution on account of an Unforeseeable Emergency.

The Plan Administrator may from time to time adopt additional policies or rules consistent with the requirements of Section 409A to govern the manner in which such distributions may be made so that the Agreement may be conveniently administered.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, the Executive’s beneficiary(ies) or any successor in interest to the Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien or right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph V, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding 12 months) ownership of stock of the Bank possessing 30% or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any 12 month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph V, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding 12 months) assets from the Bank that have a total gross fair market value that is equal to or exceeds 40% of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph V, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than 50% of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own 50% or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph V, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than 50% of the total fair market value and total voting power of the Bank).

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Upon a Change in Control (as defined above), the Executive shall become fully vested in and be entitled to receive the benefits promised in Subparagraph III(A) of this Agreement upon attaining Normal Retirement Age (Subparagraph I[J]), as if the Executive had been employed by the Bank until Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

VI. MISCELLANEOUS

A. Alienation and Assignment Prohibition:

Neither the Executive, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of Bank and Successor in Interest:

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiary(ies), heirs and personal representatives.

C. Revocation:

It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Executive and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

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D. Gender:

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans:

Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law:

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina.

H. Fringe Benefits:

The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase, and shall in no event be construed to effect nor limit the Executive’s current or prospective salary increases, cash bonuses, or profit-sharing distribution or credits. The Executive has no option to take any current payment or bonus in lieu of these benefits except as may be set forth hereinafter.

I. Supersede and Constitute Entire Agreement:

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Executive Supplemental Retirement Plan Agreement dated the 1st day of January 2002; this Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

J. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of

11

Section 409A. The Executive acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

K. Certain Payments Delayed for a Specified Employee.

If the Executive is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “Separation from Service” shall be made and/or shall begin on the first day of the seventh month following the date of the Executive’s separation from service if such payments are not exempt from Section 409A and the six month delay in payment is required by Section 409A.

L. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Executive for failure to comply with Section 409A, a payment shall be made to the Executive within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph VI (L) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

VII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Executive Plan shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits:

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

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2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries:

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

C. Enforce Your Rights:

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support

13

order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

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D. Assistance with Your Questions:

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

VIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits:

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

B. Denial of Claim:

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator

15

will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

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(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure:

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

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(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than 180 days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

IX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on the Bank or this Executive Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in Control (Paragraph V), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	PEOPLES BANK,
	a North Carolina banking institution
	By:
(SEAL)
	Name:
	Title:
	TONY W. WOLFE
(SEAL)

20

BENEFICIARY DESIGNATION FORM FOR

THE AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

EFFECTIVE             , 20    

I. DESIGNATIONS (Please refer to the beneficiary designation instructions below prior to completion of this form.)

A. Person(s) as a Primary & Secondary Designation: (Please indicate the percentage for each beneficiary.)

1.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
2.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
3.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
4.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)

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B. Estate as a Primary Designation:

My Primary Beneficiary is The Estate of                              As set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.

C. Trust as a Primary Designation:

Name of the Trust:
Execution Date of the Trust:	Name of the Trustee:
Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
Name(s):
Name(s):

Is this an Irrevocable Life Insurance Trust?    ¨  Yes     ¨  No

(If yes and this designation is for a Joint Beneficiary Agreement, an Assignment of Rights form must be completed.)

II. SECONDARY (CONTINGENT) DESIGNATION

A. Estate as a Secondary (Contingent) Designation:

My Primary Beneficiary is The Estate of                              as set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.

B. Trust as a Secondary (Contingent) Designation:

Name of the Trust:
Execution Date of the Trust:	Name of the Trustee:
Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
Name(s):
Name(s):

Is this an Irrevocable Life Insurance Trust?    ¨  Yes     ¨  No

(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)

III. SIGN AND DATE

All sums payable under the Amended and Restated Executive Salary Continuation Agreement, by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Executive Date

22

BENEFICIARY DESIGNATION INSTRUCTIONS

• If you make a mistake in completing this form, line out the erroneous information, add the correct information and initial the correction. The printed material on this form should not be deleted or altered in any way.

• In all cases, the relationship of the beneficiary should be included with the beneficiary designations.

• A Secondary Beneficiary will receive benefits only if the Primary Beneficiary(ies) do not survive the Insured. If naming more than one Secondary Beneficiary at 100% each, please indicate on designations 1, 2, 3 or 4 on the designation line which states: “If deceased, designate     %”.

• If a married woman is named beneficiary, her full legal name should be shown.

• For Example: Mary J. Smith, not Mrs. John J. Smith. Likewise, if this form is to be signed by a married woman, she should sign her full legal name.

• When two or more beneficiaries are named, and they are not to share the benefits equally, enter the percentage each beneficiary is to receive on the form in the space provided. Dollars and cents should not be specified. When added together, the sum of the percentages going to the two or more named beneficiaries should equal 100%.

• If a trustee is named beneficiary, show the exact name of the trust, date of the trust agreement, and the name and address of the trustee.

For Example: The John J. Smith Revocable Life Insurance Trust dated January 1, 1994, John Smith Trustee, 123 Apple Lane, Hartford, CT 06006.

23

EXHIBIT A-1

For

Tony W. Wolfe

End of Year Age	Benefit Amount
65	$ 22,033
66	$ 132,196
67	$ 132,196
68	$ 132,196
69	$ 132,196
70	$ 132,196
71	$ 132,196
72	$ 132,196
73	$ 132,196
74	$ 132,196
75	$ 132,196
76	$ 132,196
77	$ 132,196
78	$ 122,697

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EXHIBIT A-2

For

Tony W. Wolfe

Age 59 1/2	50% of age 66 benefit
Age 60 1/2	60% of age 66 benefit
Age 61 1/2	70% of age 66 benefit
Age 62 1/2	80% of age 66 benefit
Age 63 1/2	90% of age 66 benefit
Age 64 1/2	100% of age 66 benefit

25

EX-10.B.I

Exhibit 10(b)(i)

December 23, 2008

Joseph F. Beaman, Jr.

518 West C. Street

Newton, NC 28658

Dear Joe,

Peoples Bancorp of North Carolina, Inc. (the “Company”) anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”) with the United States Department of Treasury (the “Treasury”) that provides, among other things, for the purchase by the Treasury of securities issued by the Company. This purchase is anticipated to occur as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program - Capital Purchase Program (the “CPP”).

As a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to take certain actions with respect to compensation arrangements of its senior executive officers. The Company has determined that you are or may be a senior executive officer for purposes of the CPP. To comply with the requirements of the CPP, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you agree as follows:

(1) No Golden Parachute Payments. You will not be entitled to receive from the Company any golden parachute payment (as defined below) during any period in which the Treasury holds an equity or debt position acquired from the Company in the CPP (the “CPP Covered Period”) (or during the year following any acquisition of the Company, to the extent required by the CPP Limitations (as defined below)).

(2) Recovery of Bonus and Incentive Compensation. You will be required to and shall return to the Company any bonus or incentive compensation paid to you by the Company during the CPP Covered Period if such bonus or incentive compensation is paid to you based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements , including golden parachute, severance and employment agreements (all such plans, arrangements and agreements, the “Benefit Plans”) are hereby amended to the extent necessary to give effect to provisions (1) and (2) of this letter.

The Company is also required as a condition to participation in the CPP to review the Benefit Plans to ensure that the Benefit Plans do not encourage its senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent that the Company determines that the Benefit Plans must be revised as a result of such review, or determines that the Benefit Plans must otherwise be revised to comply with Section 111(b) of the EESA (as defined below) as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the closing date of the Company’s issuance of preferred stock and warrants to acquire common stock to the Treasury pursuant to the CPP (the “CPP Limitations”), you and the Company agree to negotiate and effect such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

• “Senior executive officer” means the Company’s “senior executive officers” as defined in Q&A 2 of the Interim Final Rule issued by the Treasury at 31 CFR Part 30, effective on October 20, 2008 (the “Interim Final Rule”).

• “Golden parachute payment” shall have the meaning set forth in Q&A 9 of the Interim Final Rule.

• The term “Company” includes any entities treated as a single employer with the Company under Q&A 1 and Q&A 11 of the Interim Final Rule.

• This letter is intended to, and shall be interpreted, administered and construed to comply with Section 111 of the Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations and guidance promulgated thereunder (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be governed by and construed in accordance with the laws of the State of North Carolina. This letter may be executed in two or more counterparts, each of which will be deemed to be an original. A signature transmitted by facsimile will be deemed an original signature.

(6) If the Treasury does not purchase the securities contemplated by the Participation Agreement, then this letter shall be of no force or effect. In addition, upon such time as the Treasury no longer holds securities or debt of the Company acquired under the CPP, this letter shall be of no further force or effect, except to the extent required by the CPP Limitations. If you cease to be a senior executive officer of the Company for purposes of the CPP, you shall be released from the restrictions and obligations set forth in this letter to the extent permissible under the CPP. If it is determined that you are not a senior executive officer of the Company as of the date hereof, this letter shall be of no force or effect.

The Company appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times.

[Signature page follows]

2

Sincerely,
Peoples Bancorp of North Carolina, Inc.
By:
Name:	Robert Abernethy
Title:	Chairman of the Board of Directors

Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.
By:
Name:	Joseph F. Beaman, Jr.
Title:	Executive Vice President and Secretary
Date:	December 23, 2008

3

EX-10.B.II

Exhibit 10(b)(ii)

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made on the      day of         , 2008, between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the “Bank”), and JOSEPH F. BEAMAN, JR. (the “Employee”) and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the “Holding Company”).

W I T N E S S E T H

WHEREAS, the Bank and Employee, joined by the Holding Company, have previously entered into that certain Employment Agreement dated December 1, 1999 (as it may have heretofore been amended, the “Agreement”) to set forth the terms of Employee’s employment with the Bank and to provide for certain benefits upon the termination of such employment;

WHEREAS, Paragraph 13 of the Agreement provides, “No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided”; and

WHEREAS, the Bank and Employee joined in by the Holding Company now desire to amend the Agreement through this Amendment in order to bring the arrangement into compliance with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”).

NOW THEREFORE, the Bank and Employee joined in by the Holding Company hereby agree to amend the Agreement as follows:

I. Paragraph 3 of the Agreement is hereby deleted in its entirety and replaced by the following provisions:

3. Discretionary Bonuses. The Employee shall be entitled to participate with all other key management personnel of the Bank in discretionary bonuses authorized and declared by the Directors of the Bank for all members of Bank management. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as are declared by the Board of Directors, so long as such bonuses are provided for Bank management generally. Payment of the bonus shall be in a lump sum on or before March 15 of the Employee’s first taxable year after the taxable year in which the bonus is declared by the Board.

II. Paragraph 8.A(1) of the Agreement is amended by adding the following sentence as the last sentence of that paragraph:

Said compensation shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

III. Paragraph 8.A.(2) of the Agreement is amended by adding the following sentence as the last subparagraph of that paragraph:

Any payments of compensation and/or benefits required under this paragraph 8.A.(2) shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

IV. A new Paragraph 8.C of the Agreement is added as follows:

C. For purposes of this Agreement and to the extent any payment is triggered by a termination of employment, the terms “terminate” and “termination” shall mean that the Employee has experienced a “separation from service” within the meaning of Section 409A.

V. Paragraph 13 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

13. Amendments.

A. No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided. An amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”). If an amendment to this Agreement is required by any future guidance or regulation issues pursuant to Section 409A, the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A.

B. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes to the extent Section 409A applies to such matters.

VI. Paragraph 14 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

14. Applicable Law. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of North Carolina, without reference to any choice- or conflict-of-laws provisions or principles, except to the extent that federal law shall be deemed to apply.

VII. The following Paragraphs are hereby added to the Agreement:

18. Reimbursements. Any reimbursements provided under this Agreement in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year. The Employee’s right to reimbursement as provided in this Agreement is not subject to liquidation or exchange for any other benefit.

19. Interpretation. It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Employee acknowledges that neither the Bank nor the Holding Company has made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

20. Certain Payments Delayed for a Specified Employee. If the Employee is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Employee’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PEOPLES BANK,
a North Carolina banking institution
By:
	(SEAL)
Tony W. Wolfe,
President/Chief Executive Officer
JOSEPH F. BEAMAN, JR.
	(SEAL)

The Foregoing Amendment is joined in and agreed to by Peoples Bancorp, Inc.

PEOPLES BANCORP, INC.,
a North Carolina corporation
By:
	(SEAL)
Tony W. Wolfe
President/Chief Executive Officer

EX-10.B.III

Exhibit 10(b)(iii)

AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a Bank organized and existing under the laws of the State of North Carolina, hereinafter referred to as “the Bank”, and Joesph F. Beaman, Jr., a Key Employee and the Executive of the Bank, hereinafter referred to as “the Executive.”

W I T N E S S E T H:

WHEREAS, the Bank and the Executive previously entered into an Executive Supplemental Retirement Plan Agreement dated the 1^st day of January, 2002 between Peoples Bank and Joesph F. Beaman, Jr., that provided for the payment of certain benefits; and

WHEREAS, the Bank and the Executive thereafter entered into an Executive Salary Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Executive Supplemental Retirement Plan Agreement and the benefits provided thereunder; and

WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Executive’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of operating efficiency and present position in its field of activity; and

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Executive’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employ during the Executive’s lifetime or until the age of retirement; and

WHEREAS, it is the desire of the Bank that the Executive’s services be retained as herein provided; and

WHEREAS, the Executive is willing to continue in the employ of the Bank provided the Bank agrees to pay the Executive or the Executive’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Executive desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this Amended and Restated Salary Continuation Agreement (the “Agreement”) under which the Bank will agree to make certain payments to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. DEFINITIONS

A. Effective Date:

The “Effective Date” of this Agreement shall be December 31, 2008.

B. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.

C. Retirement Date:

“Retirement Date” shall mean retirement from active employment with the Bank on or after the Executive’s sixty-fifth (65th) birthday.

D. Early Retirement Date:

“Early Retirement Date” shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one half (59 1/2) and is one hundred percent (100%) vested.

E. Termination of Service:

“Termination of Service” shall mean voluntary resignation of service by the Executive or the Bank’s discharge of the Executive without cause [“cause” defined in Subparagraph III (F) hereinafter], prior to the Normal Retirement Age (described in Subparagraph I (J) hereinafter).

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F. Index Retirement Benefit:

The “Index Retirement Benefit” for the Executive for any year shall be equal to the excess of the annual earnings (if any) determined by the Index [Subparagraph I (G)] for that Plan Year less the Cost of Funds Expense [Subparagraph I (H)] for that Plan Year.

G. Index:

The “Index” for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on December 31, 2003.

Insurance Company:	Jefferson Pilot Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	ESP VI
Insured’s Age and Sex:	52, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$222,000
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001
Insurance Company	Mass Mutual Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	Strategic Life Executive
Insured’s Age and Sex:	53, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$230,580
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001

If such contracts of life insurance are actually purchased by the Bank then the actual policies as of the dates they were purchased shall be used in calculations under this Agreement. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased from the above named insurance company(ies) on the Effective Date from which the increase in policy value will be used to calculate the amount of the Index.

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In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured general creditor of the Bank.

Any reference to a specific insurance contract under this Subparagraph I (G) also includes a reference to a replacement contract that has replaced the specifically referenced insurance contract through an exchange qualifying under Section 1035 of the Internal Revenue Code.

H. Cost of Funds Expense:

The “Cost of Funds Expense” for any Plan Year shall be calculated by taking the sum of the amount of premiums set forth in the Indexed policies described above plus the amount of any after-tax benefits paid to the Executive pursuant to this Agreement (Paragraph III hereinafter) plus the amount of all previous years after-tax Costs of Funds Expense, and multiplying that sum by the average after-tax cost of funds of the Bank’s third quarter Call Report for the Plan Year as filed with the Federal Reserve.

I. Separation from Service:

Any reference to “retirement,” “retirement from service,” “early retirement,” or “termination of service” that triggers a payment under this Agreement requires that the Executive has incurred a “separation from service” as interpreted in accordance with Section 409A (“Separation from Service”). The Executive will not be considered to have had a “Separation from Service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Executive has a right to reemployment that is provided by statute or contract.

J. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Executive attains age sixty-five (65).

K. Benefit Accounting:

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

L. Unforeseeable Emergency:

“Unforeseeable Emergency” shall mean that the Executive has experienced an “unforeseeable emergency” within the meaning of Section 409A of the Code.

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II. EMPLOYMENT

The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive’s rights to voluntarily sever his employment at any time.

III. BENEFITS

A. Retirement Benefits:

Should the Executive continue to be employed by the Bank until “Normal Retirement Age” defined in Subparagraph I (J), the Executive shall be entitled to receive an annual benefit as set forth in Exhibit A-1, in equal monthly installments [1/12th of the annual benefit for a period of thirteen (13) years]. Said payments to commence thirty (30) days following the Executive’s Retirement Date. Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

B. Early Retirement Benefits:

Subject to Subparagraph III (F), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (D)], the Executive shall be entitled to receive a reduced annual benefit amount as set forth in Exhibit A-2, commencing thirty (30) days following the Executive’s Early Retirement Date. For benefits received in years prior to age sixty-five (65), the reduced annual benefit as set forth in Exhibit A-2 will apply to the age sixty-six (66) benefit listed on schedule A-1. Such payments shall continue until the participant attains age seventy-eight (78). Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

C. Termination of Service:

Subject to Subparagraph III(F) hereinafter, should the Executive suffer a Termination of Service [defined in Subparagraph I(E)], the Executive shall be entitled to receive the vested balance of the accrued liability account paid to the Executive to be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly

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installments following Normal Retirement Age [Subparagraph I (J)], accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall begin the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total benefit as provide herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit. The vesting schedule is as follows:

Years Employed Since Effective Date of Plan	Percentage That Vests in That Year
1	30%
2-5	17.5%

D. Disability Benefit:

If the Executive becomes disabled as defined herein, he shall become fully vested in and be entitled to receive an amount equal to the accrued liability retirement account established to account for the Executive’s benefits under this Agreement. For purposes of this Agreement, the term “disabled” means that the Executive is

(i) Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of 3 or more months under an accident and health plan covering employees of the Bank, or

(iii) Determined to be disabled by the Social Security Administration.

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Said disability benefit will be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments commencing at the Normal Retirement Age [Subparagraph I (J)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the disability benefit is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment within thirty (30) days following Normal Retirement Age.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Executive may have designated in writing and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall be made on the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total disability benefit as provided herein, then no further benefit shall be due hereunder.

E. Death:

Should the Executive die prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C), and (D) hereinabove, the unpaid accrued liability account balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive’s estate on the first day of the second month following the date of the Executive’s death. If, upon death, the Executive shall have received the total benefit as provided herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit.

F. Discharge for Cause:

Should the Executive be discharged for cause at any time, all Benefits under this Agreement shall be forfeited. The term “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement.

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G. Death Benefit:

Except as set forth above, there is no death benefit provided under this Agreement.

H. Unforeseeable Emergency:

Prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C) and (D) hereinabove, the Executive may make application to the Plan Administrator to receive a distribution in a lump sum of all or a portion of the vested unpaid accrued liability account balance (determined as of the date the distribution, if any, is made under this Paragraph III(H)) because of an Unforeseeable Emergency.

A distribution because of an Unforeseeable Emergency shall not exceed the amount required to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

The Executive’s request for a distribution on account of Unforeseeable Emergency must be made in writing to the Plan Administrator. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the vested unpaid accrued liability account balance, and the total amount of the actual expense incurred or to be incurred on account of the Unforeseeable Emergency.

If a distribution under this Section III(H) is approved by the Plan Administrator, such distribution will be made within thirty (30) days following the date the distribution is approved. The processing of the request shall be completed as soon as practicable from the date on which the Plan Administrator receives the properly completed written request for a distribution on account of an Unforeseeable Emergency.

The Plan Administrator may from time to time adopt additional policies or rules consistent with the requirements of Section 409A to govern the manner in which such distributions may be made so that the Agreement may be conveniently administered.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, the Executive’s beneficiary(ies) or any successor in interest to the Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien or right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph V, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding 12 months) ownership of stock of the Bank possessing 30% or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any 12 month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph V, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding 12 months) assets from the Bank that have a total gross fair market value that is equal to or exceeds 40% of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph V, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than 50% of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own 50% or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph V, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than 50% of the total fair market value and total voting power of the Bank).

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Upon a Change in Control (as defined above), the Executive shall become fully vested in and be entitled to receive the benefits promised in Subparagraph III(A) of this Agreement upon attaining Normal Retirement Age (Subparagraph I[J]), as if the Executive had been employed by the Bank until Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

VI. MISCELLANEOUS

A. Alienation and Assignment Prohibition:

Neither the Executive, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of Bank and Successor in Interest:

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiary(ies), heirs and personal representatives.

C. Revocation:

It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Executive and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

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D. Gender:

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans:

Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law:

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina.

H. Fringe Benefits:

The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase, and shall in no event be construed to effect nor limit the Executive’s current or prospective salary increases, cash bonuses, or profit-sharing distribution or credits. The Executive has no option to take any current payment or bonus in lieu of these benefits except as may be set forth hereinafter.

I. Supersede and Constitute Entire Agreement:

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Executive Supplemental Retirement Plan Agreement dated the 1st day of January 2002; this Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

J. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A,

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and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Executive acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

K. Certain Payments Delayed for a Specified Employee.

If the Executive is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “Separation from Service” shall be made and/or shall begin on the first day of the seventh month following the date of the Executive’s separation from service if such payments are not exempt from Section 409A and the six month delay in payment is required by Section 409A.

L. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Executive for failure to comply with Section 409A, a payment shall be made to the Executive within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph VI (L) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

VII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Executive Plan shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits:

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

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2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries:

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

C. Enforce Your Rights:

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree

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with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

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D. Assistance with Your Questions:

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

VIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits:

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

B. Denial of Claim:

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator

15

will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

16

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure:

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

17

In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

18

(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than 180 days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

IX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on the Bank or this Executive Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in

19

Control (Paragraph V), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	PEOPLES BANK,
	a North Carolina banking institution
(SEAL)	By:
	Name:
	Title:
	JOSEPH F. BEAMAN, JR.
(SEAL)

20

BENEFICIARY DESIGNATION FORM FOR

THE AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

EFFECTIVE             , 20    

I.	DESIGNATIONS (Please refer to the beneficiary designation instructions below prior to completion of this form.)
	A.	Person(s) as a Primary & Secondary Designation: (Please indicate the percentage for each beneficiary.)
	1.	Name:	Relationship:		SS#:		% if living:
		Address:
		(Street)		(City)		(State)	(Zip)
		If deceased, designate             %	to:	Relationship:		SS#:
		Address:
		(Street)		(City)		(State)	(Zip)
	2.	Name:	Relationship:		SS#:		% if living:
		Address:
		(Street)		(City)		(State)	(Zip)
		If deceased, designate             %	to:	Relationship:		SS#:
		Address:
		(Street)		(City)		(State)	(Zip)
	3.	Name:	Relationship:		SS#:		% if living:
		Address:
		(Street)		(City)		(State)	(Zip)
		If deceased, designate             %	to:	Relationship:		SS#:
		Address:
		(Street)		(City)		(State)	(Zip)
	4.	Name:	Relationship:		SS#:		% if living:
		Address:
		(Street)		(City)		(State)	(Zip)
		If deceased, designate             %	to:	Relationship:		SS#:
		Address:
		(Street)		(City)		(State)	(Zip)

21

	B.	Estate as a Primary Designation:
		My Primary Beneficiary is The Estate of                                               As set forth in the last will and Testament dated the      day of          , 200   and any codicils thereto.
	C.	Trust as a Primary Designation:
		Name of the Trust:
		Execution Date of the Trust:	Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Agreement, an Assignment of Rights form must be completed.)
II.	SECONDARY (CONTINGENT) DESIGNATION
	A.	Estate as a Secondary (Contingent) Designation:
		My Primary Beneficiary is The Estate of                                               as set forth in the last will and Testament dated the day      of         , 200   and any codicils thereto.
	B.	Trust as a Secondary (Contingent) Designation:
		Name of the Trust:
		Execution Date of the Trust:	Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)
III.	SIGN AND DATE
	All sums payable under the Amended and Restated Executive Salary Continuation Agreement, by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Executive Date

22

BENEFICIARY DESIGNATION INSTRUCTIONS

• If you make a mistake in completing this form, line out the erroneous information, add the correct information and initial the correction. The printed material on this form should not be deleted or altered in any way.

• In all cases, the relationship of the beneficiary should be included with the beneficiary designations.

• A Secondary Beneficiary will receive benefits only if the Primary Beneficiary(ies) do not survive the Insured. If naming more than one Secondary Beneficiary at 100% each, please indicate on designations 1, 2, 3 or 4 on the designation line which states: “If deceased, designate     %”.

• If a married woman is named beneficiary, her full legal name should be shown.

For Example: Mary J. Smith, not Mrs. John J. Smith. Likewise, if this form is to be signed by a married woman, she should sign her full legal name.

• When two or more beneficiaries are named, and they are not to share the benefits equally, enter the percentage each beneficiary is to receive on the form in the space provided. Dollars and cents should not be specified. When added together, the sum of the percentages going to the two or more named beneficiaries should equal 100%.

• If a trustee is named beneficiary, show the exact name of the trust, date of the trust agreement, and the name and address of the trustee.

For Example: The John J. Smith Revocable Life Insurance Trust dated January 1, 1994, John Smith Trustee, 123 Apple Lane, Hartford, CT 06006.

23

EXHIBIT A-1

For

Joseph F. Beaman, Jr.

End of Year Age	Benefit Amount
65	$16,358
66	$28,042
67	$28,042
68	$28,042
69	$28,042
70	$28,042
71	$28,042
72	$28,042
73	$28,042
74	$28,042
75	$28,042
76	$28,042
77	$28,042
78	$18,684

24

EXHIBIT A-2

For

Joseph F. Beaman, Jr.

Age 59 1/2	50% of age 66 benefit
Age 60 1/2	60% of age 66 benefit
Age 61 1/2	70% of age 66 benefit
Age 62 1/2	80% of age 66 benefit
Age 63 1/2	90% of age 66 benefit
Age 64 1/2	100% of age 66 benefit

25

EX-10.C.I

Exhibit 10(c)(i)

December 23, 2008

William D. Cable, Sr.

518 West C. Street

Newton, NC 28658

Dear Bill,

Peoples Bancorp of North Carolina, Inc. (the “Company”) anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”) with the United States Department of Treasury (the “Treasury”) that provides, among other things, for the purchase by the Treasury of securities issued by the Company. This purchase is anticipated to occur as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program - Capital Purchase Program (the “CPP”).

As a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to take certain actions with respect to compensation arrangements of its senior executive officers. The Company has determined that you are or may be a senior executive officer for purposes of the CPP. To comply with the requirements of the CPP, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you agree as follows:

(1) No Golden Parachute Payments. You will not be entitled to receive from the Company any golden parachute payment (as defined below) during any period in which the Treasury holds an equity or debt position acquired from the Company in the CPP (the “CPP Covered Period”) (or during the year following any acquisition of the Company, to the extent required by the CPP Limitations (as defined below)).

(2) Recovery of Bonus and Incentive Compensation. You will be required to and shall return to the Company any bonus or incentive compensation paid to you by the Company during the CPP Covered Period if such bonus or incentive compensation is paid to you based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements, including golden parachute, severance and employment agreements (all such plans, arrangements and agreements, the “Benefit Plans”) are hereby amended to the extent necessary to give effect to provisions (1) and (2) of this letter.

The Company is also required as a condition to participation in the CPP to review the Benefit Plans to ensure that the Benefit Plans do not encourage its senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent that the Company determines that the Benefit Plans must be revised as a result of such review, or determines that the Benefit Plans must otherwise be revised to comply with Section 111(b) of the EESA (as defined below) as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the closing date of the Company’s issuance of preferred stock and warrants to acquire common stock to the Treasury pursuant to the CPP (the “CPP Limitations”), you and the Company agree to negotiate and effect such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

• “Senior executive officer” means the Company’s “senior executive officers” as defined in Q&A 2 of the Interim Final Rule issued by the Treasury at 31 CFR Part 30, effective on October 20, 2008 (the “Interim Final Rule”).

• “Golden parachute payment” shall have the meaning set forth in Q&A 9 of the Interim Final Rule.

• The term “Company” includes any entities treated as a single employer with the Company under Q&A 1 and Q&A 11 of the Interim Final Rule.

• This letter is intended to, and shall be interpreted, administered and construed to comply with Section 111 of the Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations and guidance promulgated thereunder (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be governed by and construed in accordance with the laws of the State of North Carolina. This letter may be executed in two or more counterparts, each of which will be deemed to be an original. A signature transmitted by facsimile will be deemed an original signature.

(6) If the Treasury does not purchase the securities contemplated by the Participation Agreement, then this letter shall be of no force or effect. In addition, upon such time as the Treasury no longer holds securities or debt of the Company acquired under the CPP, this letter shall be of no further force or effect, except to the extent required by the CPP Limitations. If you cease to be a senior executive officer of the Company for purposes of the CPP, you shall be released from the restrictions and obligations set forth in this letter to the extent permissible under the CPP. If it is determined that you are not a senior executive officer of the Company as of the date hereof, this letter shall be of no force or effect.

The Company appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times.

[Signature page follows]

2

Sincerely,
Peoples Bancorp of North Carolina, Inc.
By:
Name:	Robert Abernethy
Title:	Chairman of the Board of Directors

Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.
By:
Name:	William D. Cable, Sr.
Title:	Executive Vice President and Assistant Corporate Treasurer
Date:	December 23, 2008

3

EX-10.C.II

Exhibit 10(c)(ii)

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made on the      day of         , 2008, between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the “Bank”), and WILLIAM D. CABLE (the “Employee”) and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the “Holding Company”).

W I T N E S S E T H

WHEREAS, the Bank and Employee, joined by the Holding Company, have previously entered into that certain Employment Agreement dated December 1, 1999 (as it may have heretofore been amended, the “Agreement”) to set forth the terms of Employee’s employment with the Bank and to provide for certain benefits upon the termination of such employment;

WHEREAS, Paragraph 13 of the Agreement provides, “No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided”; and

WHEREAS, the Bank and Employee joined in by the Holding Company now desire to amend the Agreement through this Amendment in order to bring the arrangement into compliance with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”).

NOW THEREFORE, the Bank and Employee joined in by the Holding Company hereby agree to amend the Agreement as follows:

I. Paragraph 3 of the Agreement is hereby deleted in its entirety and replaced by the following provisions:

3. Discretionary Bonuses. The Employee shall be entitled to participate with all other key management personnel of the Bank in discretionary bonuses authorized and declared by the Directors of the Bank for all members of Bank management.

No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as are declared by the Board of Directors, so long as such bonuses are provided for Bank management generally. Payment of the bonus shall be in a lump sum on or before March 15 of the Employee’s first taxable year after the taxable year in which the bonus is declared by the Board.

II. Paragraph 8.A(1) of the Agreement is amended by adding the following sentence as the last sentence of that paragraph:

Said compensation shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

III. Paragraph 8.A.(2) of the Agreement is amended by adding the following sentence as the last subparagraph of that paragraph:

Any payments of compensation and/or benefits required under this paragraph 8.A.(2) shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

IV. A new Paragraph 8.C of the Agreement is added as follows:

C. For purposes of this Agreement and to the extent any payment is triggered by a termination of employment, the terms “terminate” and “termination” shall mean that the Employee has experienced a “separation from service” within the meaning of Section 409A.

V. Paragraph 13 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

13. Amendments.

A. No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided. An amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”). If an amendment to this Agreement is required by any future guidance or regulation issues pursuant to Section 409A, the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A.

B. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes to the extent Section 409A applies to such matters.

VI. Paragraph 14 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

14. Applicable Law. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of North Carolina, without reference to any choice- or conflict-of-laws provisions or principles, except to the extent that federal law shall be deemed to apply.

VII. The following Paragraphs are hereby added to the Agreement:

18. Reimbursements. Any reimbursements provided under this Agreement in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year. The Employee’s right to reimbursement as provided in this Agreement is not subject to liquidation or exchange for any other benefit.

19. Interpretation. It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Employee acknowledges that neither the Bank nor the Holding Company has made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

20. Certain Payments Delayed for a Specified Employee. If the Employee is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Employee’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PEOPLES BANK,
a North Carolina banking institution
By:		(SEAL)
	Tony W. Wolfe,
	President/Chief Executive Officer
WILLIAM D. CABLE
		(SEAL)

The Foregoing Amendment is joined in and agreed to by Peoples Bancorp, Inc.

PEOPLES BANCORP, INC.,
a North Carolina corporation
By:		(SEAL)
	Tony W. Wolfe
	President/Chief Executive Officer

EX-10.CIII

Exhibit 10(c)(iii)

AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a Bank organized and existing under the laws of the State of North Carolina, hereinafter referred to as “the Bank”, and William D. Cable, a Key Employee and the Executive of the Bank, hereinafter referred to as “the Executive.”

W I T N E S S E T H:

WHEREAS, the Bank and the Executive previously entered into an Executive Supplemental Retirement Plan Agreement dated the 1^st day of January, 2002 between Peoples Bank and William D. Cable, that provided for the payment of certain benefits; and

WHEREAS, the Bank and the Executive thereafter entered into an Executive Salary Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Executive Supplemental Retirement Plan Agreement and the benefits provided thereunder; and

WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Executive’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of operating efficiency and present position in its field of activity; and

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Executive’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employ during the Executive’s lifetime or until the age of retirement; and

WHEREAS, it is the desire of the Bank that the Executive’s services be retained as herein provided; and

WHEREAS, the Executive is willing to continue in the employ of the Bank provided the Bank agrees to pay the Executive or the Executive’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Executive desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this Amended and Restated Salary Continuation Agreement (the “Agreement”) under which the Bank will agree to make certain payments to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. DEFINITIONS

A. Effective Date:

The “Effective Date” of this Agreement shall be December 31, 2008.

B. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.

C. Retirement Date:

“Retirement Date” shall mean retirement from active employment with the Bank on or after the Executive’s sixty-fifth (65th) birthday.

D. Early Retirement Date:

“Early Retirement Date” shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one half (59 ¹/2) and is one hundred percent (100%) vested.

E. Termination of Service:

“Termination of Service” shall mean voluntary resignation of service by the Executive or the Bank’s discharge of the Executive without cause [“cause” defined in Subparagraph III (F) hereinafter], prior to the Normal Retirement Age (described in Subparagraph I (J) hereinafter).

2

F. Index Retirement Benefit:

The “Index Retirement Benefit” for the Executive for any year shall be equal to the excess of the annual earnings (if any) determined by the Index [Subparagraph I (G)] for that Plan Year less the Cost of Funds Expense [Subparagraph I (H)] for that Plan Year.

G. Index:

The “Index” for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on December 31, 2003.

Insurance Company:	Jefferson Pilot Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	ESP VI
Insured’s Age and Sex:	52, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$222,000
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001
Insurance Company	Mass Mutual Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	Strategic Life Executive
Insured’s Age and Sex:	53, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$230,580
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001

If such contracts of life insurance are actually purchased by the Bank then the actual policies as of the dates they were purchased shall be used in calculations under this Agreement. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased from the above named insurance company(ies) on the Effective Date from which the increase in policy value will be used to calculate the amount of the Index.

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In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured general creditor of the Bank.

Any reference to a specific insurance contract under this Subparagraph I (G) also includes a reference to a replacement contract that has replaced the specifically referenced insurance contract through an exchange qualifying under Section 1035 of the Internal Revenue Code.

H. Cost of Funds Expense:

The “Cost of Funds Expense” for any Plan Year shall be calculated by taking the sum of the amount of premiums set forth in the Indexed policies described above plus the amount of any after-tax benefits paid to the Executive pursuant to this Agreement (Paragraph III hereinafter) plus the amount of all previous years after-tax Costs of Funds Expense, and multiplying that sum by the average after-tax cost of funds of the Bank’s third quarter Call Report for the Plan Year as filed with the Federal Reserve.

I. Separation from Service:

Any reference to “retirement,” “retirement from service,” “early retirement,” or “termination of service” that triggers a payment under this Agreement requires that the Executive has incurred a “separation from service” as interpreted in accordance with Section 409A (“Separation from Service”). The Executive will not be considered to have had a “Separation from Service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Executive has a right to reemployment that is provided by statute or contract.

J. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Executive attains age sixty-five (65).

K. Benefit Accounting:

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

L. Unforeseeable Emergency:

“Unforeseeable Emergency” shall mean that the Executive has experienced an “unforeseeable emergency” within the meaning of Section 409A of the Code.

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II. EMPLOYMENT

The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive’s rights to voluntarily sever his employment at any time.

III. BENEFITS

A. Retirement Benefits:

Should the Executive continue to be employed by the Bank until “Normal Retirement Age” defined in Subparagraph I (J), the Executive shall be entitled to receive an annual benefit as set forth in Exhibit A-1, in equal monthly installments [1/12th of the annual benefit for a period of thirteen (13) years]. Said payments to commence thirty (30) days following the Executive’s Retirement Date. Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

B. Early Retirement Benefits:

Subject to Subparagraph III (F), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (D)], the Executive shall be entitled to receive a reduced annual benefit amount as set forth in Exhibit A-2, commencing thirty (30) days following the Executive’s Early Retirement Date. For benefits received in years prior to age sixty-five (65), the reduced annual benefit as set forth in Exhibit A-2 will apply to the age sixty-six (66) benefit listed on schedule A-1. Such payments shall continue until the participant attains age seventy-eight (78). Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

C. Termination of Service:

Subject to Subparagraph III(F) hereinafter, should the Executive suffer a Termination of Service [defined in Subparagraph I(E)], the Executive shall be entitled to receive the vested balance of the accrued liability account paid to the Executive to be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly

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installments following Normal Retirement Age [Subparagraph I (J)], accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall begin the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total benefit as provide herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit. The vesting schedule is as follows:

Years Employed Since Effective Date of Plan	Percentage That Vests in That Year
1	30%
2-5	17.5%

D. Disability Benefit:

If the Executive becomes disabled as defined herein, he shall become fully vested in and be entitled to receive an amount equal to the accrued liability retirement account established to account for the Executive’s benefits under this Agreement. For purposes of this Agreement, the term “disabled” means that the Executive is

(i) Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of 3 or more months under an accident and health plan covering employees of the Bank, or

(iii) Determined to be disabled by the Social Security Administration.

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Said disability benefit will be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments commencing at the Normal Retirement Age [Subparagraph I (J)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the disability benefit is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment within thirty (30) days following Normal Retirement Age.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Executive may have designated in writing and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall be made on the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total disability benefit as provided herein, then no further benefit shall be due hereunder.

E. Death:

Should the Executive die prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C), and (D) hereinabove, the unpaid accrued liability account balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive’s estate on the first day of the second month following the date of the Executive’s death. If, upon death, the Executive shall have received the total benefit as provided herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit.

F. Discharge for Cause:

Should the Executive be discharged for cause at any time, all Benefits under this Agreement shall be forfeited. The term “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement.

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G. Death Benefit:

Except as set forth above, there is no death benefit provided under this Agreement.

H. Unforeseeable Emergency:

Prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C) and (D) hereinabove, the Executive may make application to the Plan Administrator to receive a distribution in a lump sum of all or a portion of the vested unpaid accrued liability account balance (determined as of the date the distribution, if any, is made under this Paragraph III(H)) because of an Unforeseeable Emergency.

A distribution because of an Unforeseeable Emergency shall not exceed the amount required to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

The Executive’s request for a distribution on account of Unforeseeable Emergency must be made in writing to the Plan Administrator. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the vested unpaid accrued liability account balance, and the total amount of the actual expense incurred or to be incurred on account of the Unforeseeable Emergency.

If a distribution under this Section III(H) is approved by the Plan Administrator, such distribution will be made within thirty (30) days following the date the distribution is approved. The processing of the request shall be completed as soon as practicable from the date on which the Plan Administrator receives the properly completed written request for a distribution on account of an Unforeseeable Emergency.

The Plan Administrator may from time to time adopt additional policies or rules consistent with the requirements of Section 409A to govern the manner in which such distributions may be made so that the Agreement may be conveniently administered.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, the Executive’s beneficiary(ies) or any successor in interest to the Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien or right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph V, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding 12 months) ownership of stock of the Bank possessing 30% or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any 12 month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph V, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding 12 months) assets from the Bank that have a total gross fair market value that is equal to or exceeds 40% of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph V, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than 50% of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own 50% or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph V, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than 50% of the total fair market value and total voting power of the Bank).

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Upon a Change in Control (as defined above), the Executive shall become fully vested in and be entitled to receive the benefits promised in Subparagraph III(A) of this Agreement upon attaining Normal Retirement Age (Subparagraph I[J]), as if the Executive had been employed by the Bank until Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

VI. MISCELLANEOUS

A. Alienation and Assignment Prohibition:

Neither the Executive, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of Bank and Successor in Interest:

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiary(ies), heirs and personal representatives.

C. Revocation:

It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Executive and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

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D. Gender:

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans:

Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law:

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina.

H. Fringe Benefits:

The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase, and shall in no event be construed to effect nor limit the Executive’s current or prospective salary increases, cash bonuses, or profit-sharing distribution or credits. The Executive has no option to take any current payment or bonus in lieu of these benefits except as may be set forth hereinafter.

I. Supersede and Constitute Entire Agreement:

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Executive Supplemental Retirement Plan Agreement dated the 1st day of January 2002; this Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

J. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A,

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and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Executive acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

K. Certain Payments Delayed for a Specified Employee.

If the Executive is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “Separation from Service” shall be made and/or shall begin on the first day of the seventh month following the date of the Executive’s separation from service if such payments are not exempt from Section 409A and the six month delay in payment is required by Section 409A.

L. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Executive for failure to comply with Section 409A, a payment shall be made to the Executive within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph VI (L) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

VII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Executive Plan shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits:

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

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2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries:

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

C. Enforce Your Rights:

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree

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with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

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D. Assistance with Your Questions:

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

VIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits:

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

B. Denial of Claim:

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

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In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

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(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure:

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

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(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than 180 days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

IX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on the Bank or this Executive Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in

19

Control (Paragraph V), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	PEOPLES BANK,
	a North Carolina banking institution
	By:
(SEAL)
	Name:
	Title:
	WILLIAM D. CABLE
(SEAL)

20

BENEFICIARY DESIGNATION FORM FOR

THE AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

EFFECTIVE             , 20    

I. DESIGNATIONS

(Please refer to the beneficiary designation instructions below prior to completion of this form.)

A. Person(s) as a Primary & Secondary Designation:

(Please indicate the percentage for each beneficiary.)

1.	Name:	Relationship:		SS#:		% if living:
	Address:
	(Street)		(City)		(State)	(Zip)
	If deceased, designate             %	to:	Relationship:		SS#:
	Address:
	(Street)		(City)		(State)	(Zip)
2.	Name:	Relationship:		SS#:		% if living:
	Address:
	(Street)		(City)		(State)	(Zip)
	If deceased, designate             %	to:	Relationship:		SS#:
	Address:
	(Street)		(City)		(State)	(Zip)
3.	Name:	Relationship:		SS#:		% if living:
	Address:
	(Street)		(City)		(State)	(Zip)
	If deceased, designate             %	to:	Relationship:		SS#:
	Address:
	(Street)		(City)		(State)	(Zip)
4.	Name:	Relationship:		SS#:		% if living:
	Address:
	(Street)		(City)		(State)	(Zip)
	If deceased, designate             %	to:	Relationship:		SS#:
	Address:
	(Street)		(City)		(State)	(Zip)

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	B.	Estate as a Primary Designation:
		My Primary Beneficiary is The Estate of                                               As set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.
	C.	Trust as a Primary Designation:
		Name of the Trust:
		Execution Date of the Trust:	Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Agreement, an Assignment of Rights form must be completed.)
II.	SECONDARY (CONTINGENT) DESIGNATION
	A.	Estate as a Secondary (Contingent) Designation:
		My Primary Beneficiary is The Estate of                                               as set forth in the last will and Testament dated the day      of         , 200   and any codicils thereto.
	B.	Trust as a Secondary (Contingent) Designation:
		Name of the Trust:
		Execution Date of the Trust:	Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)
III.	SIGN AND DATE
	All sums payable under the Amended and Restated Executive Salary Continuation Agreement, by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Executive Date

22

BENEFICIARY DESIGNATION INSTRUCTIONS

• If you make a mistake in completing this form, line out the erroneous information, add the correct information and initial the correction. The printed material on this form should not be deleted or altered in any way.

• In all cases, the relationship of the beneficiary should be included with the beneficiary designations.

• A Secondary Beneficiary will receive benefits only if the Primary Beneficiary(ies) do not survive the Insured. If naming more than one Secondary Beneficiary at 100% each, please indicate on designations 1, 2, 3 or 4 on the designation line which states: “If deceased, designate     %”.

• If a married woman is named beneficiary, her full legal name should be shown.

For Example: Mary J. Smith, not Mrs. John J. Smith. Likewise, if this form is to be signed by a married woman, she should sign her full legal name.

• When two or more beneficiaries are named, and they are not to share the benefits equally, enter the percentage each beneficiary is to receive on the form in the space provided. Dollars and cents should not be specified. When added together, the sum of the percentages going to the two or more named beneficiaries should equal 100%.

• If a trustee is named beneficiary, show the exact name of the trust, date of the trust agreement, and the name and address of the trustee.

For Example: The John J. Smith Revocable Life Insurance Trust dated January 1, 1994, John Smith Trustee, 123 Apple Lane, Hartford, CT 06006.

23

EXHIBIT A-1

For

William D. Cable

End of Year Age	Benefit Amount
65	$31,936
66	$63,872
67	$63,872
68	$63,872
69	$63,872
70	$63,872
71	$63,872
72	$63,872
73	$63,872
74	$63,872
75	$63,872
76	$63,872
77	$63,872
78	$37,264

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EXHIBIT A-2

For

William D. Cable

Age 59 1/2	50% of age 66 benefit
Age 60 1/2	60% of age 66 benefit
Age 61 1/2	70% of age 66 benefit
Age 62 1/2	80% of age 66 benefit
Age 63 1/2	90% of age 66 benefit
Age 64 1/2	100% of age 66 benefit

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EX-10.D.I

Exhibit 10(d)(i)

December 23, 2008

Lance A. Sellers

518 West C. Street

Newton, NC 28658

Dear Lance,

Peoples Bancorp of North Carolina, Inc.(the “Company”) anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”) with the United States Department of Treasury (the “Treasury”) that provides, among other things, for the purchase by the Treasury of securities issued by the Company. This purchase is anticipated to occur as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program - Capital Purchase Program (the “CPP”).

As a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to take certain actions with respect to compensation arrangements of its senior executive officers. The Company has determined that you are or may be a senior executive officer for purposes of the CPP. To comply with the requirements of the CPP, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you agree as follows:

(1) No Golden Parachute Payments. You will not be entitled to receive from the Company any golden parachute payment (as defined below) during any period in which the Treasury holds an equity or debt position acquired from the Company in the CPP (the “CPP Covered Period”) (or during the year following any acquisition of the Company, to the extent required by the CPP Limitations (as defined below)).

(2) Recovery of Bonus and Incentive Compensation. You will be required to and shall return to the Company any bonus or incentive compensation paid to you by the Company during the CPP Covered Period if such bonus or incentive compensation is paid to you based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements , including golden parachute, severance and employment agreements (all such plans, arrangements and agreements, the “Benefit Plans”) are hereby amended to the extent necessary to give effect to provisions (1) and (2) of this letter.

The Company is also required as a condition to participation in the CPP to review the Benefit Plans to ensure that the Benefit Plans do not encourage its senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent that the Company determines that the Benefit Plans must be revised as a result of such review, or determines that the Benefit Plans must otherwise be revised to comply with Section 111(b) of the EESA (as defined below) as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the closing date of the Company’s issuance of preferred stock and warrants to acquire common stock to the Treasury pursuant to the CPP (the “CPP Limitations”), you and the Company agree to negotiate and effect such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

• “Senior executive officer” means the Company’s “senior executive officers” as defined in Q&A 2 of the Interim Final Rule issued by the Treasury at 31 CFR Part 30, effective on October 20, 2008 (the “Interim Final Rule”).

• “Golden parachute payment” shall have the meaning set forth in Q&A 9 of the Interim Final Rule.

• The term “Company” includes any entities treated as a single employer with the Company under Q&A 1 and Q&A 11 of the Interim Final Rule.

• This letter is intended to, and shall be interpreted, administered and construed to comply with Section 111 of the Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations and guidance promulgated thereunder (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be governed by and construed in accordance with the laws of the State of North Carolina. This letter may be executed in two or more counterparts, each of which will be deemed to be an original. A signature transmitted by facsimile will be deemed an original signature.

(6) If the Treasury does not purchase the securities contemplated by the Participation Agreement, then this letter shall be of no force or effect. In addition, upon such time as the Treasury no longer holds securities or debt of the Company acquired under the CPP, this letter shall be of no further force or effect, except to the extent required by the CPP Limitations. If you cease to be a senior executive officer of the Company for purposes of the CPP, you shall be released from the restrictions and obligations set forth in this letter to the extent permissible under the CPP. If it is determined that you are not a senior executive officer of the Company as of the date hereof, this letter shall be of no force or effect.

The Company appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times.

[Signature page follows]

2

Sincerely,
Peoples Bancorp of North Carolina, Inc.
By:
Name:	Robert Abernethy
Title:	Chairman of the Board of Directors

Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.
By:
Name:	Lance A. Sellers
Title:	Executive Vice President and Assistant Corporate Secretary
Date:	December 23, 2008

3

EX-10.D.II

Exhibit 10(d)(ii)

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made on the      day of         , 2008, between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the “Bank”), and LANCE A. SELLERS (the “Employee”) and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the “Holding Company”).

W I T N E S S E T H

WHEREAS, the Bank and Employee, joined by the Holding Company, have previously entered into that certain Employment Agreement dated December 1, 1999 (as it may have heretofore been amended, the “Agreement”) to set forth the terms of Employee’s employment with the Bank and to provide for certain benefits upon the termination of such employment;

WHEREAS, Paragraph 13 of the Agreement provides, “No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided”; and

WHEREAS, the Bank and Employee joined in by the Holding Company now desire to amend the Agreement through this Amendment in order to bring the arrangement into compliance with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”).

NOW THEREFORE, the Bank and Employee joined in by the Holding Company hereby agree to amend the Agreement as follows:

I. Paragraph 3 of the Agreement is hereby deleted in its entirety and replaced by the following provisions:

3. Discretionary Bonuses. The Employee shall be entitled to participate with all other key management personnel of the Bank in discretionary bonuses authorized and declared by the Directors of the Bank for all members of Bank management. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as are declared by the Board of Directors, so long as such bonuses are provided for Bank management generally. Payment of the bonus shall be in a lump sum on or before March 15 of the Employee’s first taxable year after the taxable year in which the bonus is declared by the Board.

II. Paragraph 8.A(1) of the Agreement is amended by adding the following sentence as the last sentence of that paragraph:

Said compensation shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

III. Paragraph 8.A.(2) of the Agreement is amended by adding the following sentence as the last subparagraph of that paragraph:

Any payments of compensation and/or benefits required under this paragraph 8.A.(2) shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

IV. A new Paragraph 8.C of the Agreement is added as follows:

C. For purposes of this Agreement and to the extent any payment is triggered by a termination of employment, the terms “terminate” and “termination” shall mean that the Employee has experienced a “separation from service” within the meaning of Section 409A.

V. Paragraph 13 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

13. Amendments.

A. No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided. An amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”). If an amendment to this Agreement is required by any future guidance or regulation issues pursuant to Section 409A, the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A.

B. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes to the extent Section 409A applies to such matters.

VI. Paragraph 14 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

14. Applicable Law. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of North Carolina, without reference to any choice- or conflict-of-laws provisions or principles, except to the extent that federal law shall be deemed to apply.

VII. The following Paragraphs are hereby added to the Agreement:

18. Reimbursements. Any reimbursements provided under this Agreement in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year. The Employee’s right to reimbursement as provided in this Agreement is not subject to liquidation or exchange for any other benefit.

19. Interpretation. It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Employee acknowledges that neither the Bank nor the Holding Company has made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

20. Certain Payments Delayed for a Specified Employee. If the Employee is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Employee’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PEOPLES BANK,
a North Carolina banking institution
By:		(SEAL)
	Tony W. Wolfe,
	President/Chief Executive Officer
LANCE A. SELLERS
		(SEAL)

The Foregoing Amendment is joined in and agreed to by Peoples Bancorp, Inc.

PEOPLES BANCORP, INC.,
a North Carolina corporation
By:		(SEAL)
	Tony W. Wolfe
	President/Chief Executive Officer

EX-10.D.III

Exhibit 10(d)(iii)

AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a Bank organized and existing under the laws of the State of North Carolina, hereinafter referred to as “the Bank”, and Lance A. Sellers, a Key Employee and the Executive of the Bank, hereinafter referred to as “the Executive.”

W I T N E S S E T H:

WHEREAS, the Bank and the Executive previously entered into an Executive Supplemental Retirement Plan Agreement dated the 1^st day of January, 2002 between Peoples Bank and Lance A. Sellers, that provided for the payment of certain benefits; and

WHEREAS, the Bank and the Executive thereafter entered into an Executive Salary Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Executive Supplemental Retirement Plan Agreement and the benefits provided thereunder; and

WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Executive’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of operating efficiency and present position in its field of activity; and

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Executive’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employ during the Executive’s lifetime or until the age of retirement; and

WHEREAS, it is the desire of the Bank that the Executive’s services be retained as herein provided; and

WHEREAS, the Executive is willing to continue in the employ of the Bank provided the Bank agrees to pay the Executive or the Executive’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Executive desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this Amended and Restated Salary Continuation Agreement (the “Agreement”) under which the Bank will agree to make certain payments to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. DEFINITIONS

A. Effective Date:

The “Effective Date” of this Agreement shall be December 31, 2008.

B. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.

C. Retirement Date:

“Retirement Date” shall mean retirement from active employment with the Bank on or after the Executive’s sixty-fifth (65th) birthday.

D. Early Retirement Date:

“Early Retirement Date” shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one half (59 ¹/2) and is one hundred percent (100%) vested.

E. Termination of Service:

“Termination of Service” shall mean voluntary resignation of service by the Executive or the Bank’s discharge of the Executive without cause [“cause” defined in Subparagraph III (F) hereinafter], prior to the Normal Retirement Age (described in Subparagraph I (J) hereinafter).

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F. Index Retirement Benefit:

The “Index Retirement Benefit” for the Executive for any year shall be equal to the excess of the annual earnings (if any) determined by the Index [Subparagraph I (G)] for that Plan Year less the Cost of Funds Expense [Subparagraph I (H)] for that Plan Year.

G. Index:

The “Index” for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on December 31, 2003.

Insurance Company:	Jefferson Pilot Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	ESP VI
Insured’s Age and Sex:	52, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$222,000
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001
Insurance Company	Mass Mutual Life Insurance Company
Policy Form:	Single Premium Adjustable Life
Policy Name:	Strategic Life Executive
Insured’s Age and Sex:	53, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$230,580
Premiums Paid	$94,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001

If such contracts of life insurance are actually purchased by the Bank then the actual policies as of the dates they were purchased shall be used in calculations under this Agreement. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased from the above named insurance company(ies) on the Effective Date from which the increase in policy value will be used to calculate the amount of the Index.

3

In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured general creditor of the Bank.

Any reference to a specific insurance contract under this Subparagraph I (G) also includes a reference to a replacement contract that has replaced the specifically referenced insurance contract through an exchange qualifying under Section 1035 of the Internal Revenue Code.

H. Cost of Funds Expense:

The “Cost of Funds Expense” for any Plan Year shall be calculated by taking the sum of the amount of premiums set forth in the Indexed policies described above plus the amount of any after-tax benefits paid to the Executive pursuant to this Agreement (Paragraph III hereinafter) plus the amount of all previous years after-tax Costs of Funds Expense, and multiplying that sum by the average after-tax cost of funds of the Bank’s third quarter Call Report for the Plan Year as filed with the Federal Reserve.

I. Separation from Service:

Any reference to “retirement,” “retirement from service,” “early retirement,” or “termination of service” that triggers a payment under this Agreement requires that the Executive has incurred a “separation from service” as interpreted in accordance with Section 409A (“Separation from Service”). The Executive will not be considered to have had a “Separation from Service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Executive has a right to reemployment that is provided by statute or contract.

J. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Executive attains age sixty-five (65).

K. Benefit Accounting:

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

L. Unforeseeable Emergency:

“Unforeseeable Emergency” shall mean that the Executive has experienced an “unforeseeable emergency” within the meaning of Section 409A of the Code.

4

II. EMPLOYMENT

The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive’s rights to voluntarily sever his employment at any time.

III. BENEFITS

A. Retirement Benefits:

Should the Executive continue to be employed by the Bank until “Normal Retirement Age” defined in Subparagraph I (J), the Executive shall be entitled to receive an annual benefit as set forth in Exhibit A-1, in equal monthly installments [1/12th of the annual benefit for a period of thirteen (13) years]. Said payments to commence thirty (30) days following the Executive’s Retirement Date. Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

B. Early Retirement Benefits:

Subject to Subparagraph III (F), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (D)], the Executive shall be entitled to receive a reduced annual benefit amount as set forth in Exhibit A-2, commencing thirty (30) days following the Executive’s Early Retirement Date. For benefits received in years prior to age sixty-five (65), the reduced annual benefit as set forth in Exhibit A-2 will apply to the age sixty-six (66) benefit listed on schedule A-1. Such payments shall continue until the participant attains age seventy-eight (78). Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

C. Termination of Service:

Subject to Subparagraph III(F) hereinafter, should the Executive suffer a Termination of Service [defined in Subparagraph I(E)], the Executive shall be entitled to receive the vested balance of the accrued liability account paid to the Executive to be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments following Normal Retirement Age [Subparagraph I (J)], accruing interest at the one-year Treasury Bill

5

rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall begin the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total benefit as provide herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit. The vesting schedule is as follows:

Years Employed Since Effective Date of Plan	Percentage That Vests in That Year
1	30%
2-5	17.5%

D. Disability Benefit:

If the Executive becomes disabled as defined herein, he shall become fully vested in and be entitled to receive an amount equal to the accrued liability retirement account established to account for the Executive’s benefits under this Agreement. For purposes of this Agreement, the term “disabled” means that the Executive is

(i) Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of 3 or more months under an accident and health plan covering employees of the Bank, or

(iii) Determined to be disabled by the Social Security Administration.

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Said disability benefit will be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments commencing at the Normal Retirement Age [Subparagraph I (J)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the disability benefit is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment within thirty (30) days following Normal Retirement Age.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Executive may have designated in writing and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall be made on the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total disability benefit as provided herein, then no further benefit shall be due hereunder.

E. Death:

Should the Executive die prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C), and (D) hereinabove, the unpaid accrued liability account balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive’s estate on the first day of the second month following the date of the Executive’s death. If, upon death, the Executive shall have received the total benefit as provided herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit.

F. Discharge for Cause:

Should the Executive be discharged for cause at any time, all Benefits under this Agreement shall be forfeited. The term “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement.

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G. Death Benefit:

Except as set forth above, there is no death benefit provided under this Agreement.

H. Unforeseeable Emergency:

Prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C) and (D) hereinabove, the Executive may make application to the Plan Administrator to receive a distribution in a lump sum of all or a portion of the vested unpaid accrued liability account balance (determined as of the date the distribution, if any, is made under this Paragraph III(H)) because of an Unforeseeable Emergency.

A distribution because of an Unforeseeable Emergency shall not exceed the amount required to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

The Executive’s request for a distribution on account of Unforeseeable Emergency must be made in writing to the Plan Administrator. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the vested unpaid accrued liability account balance, and the total amount of the actual expense incurred or to be incurred on account of the Unforeseeable Emergency.

If a distribution under this Section III(H) is approved by the Plan Administrator, such distribution will be made within thirty (30) days following the date the distribution is approved. The processing of the request shall be completed as soon as practicable from the date on which the Plan Administrator receives the properly completed written request for a distribution on account of an Unforeseeable Emergency.

The Plan Administrator may from time to time adopt additional policies or rules consistent with the requirements of Section 409A to govern the manner in which such distributions may be made so that the Agreement may be conveniently administered.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, the Executive’s beneficiary(ies) or any successor in interest to the Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien or right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph V, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding 12 months) ownership of stock of the Bank possessing 30% or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any 12 month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph V, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding 12 months) assets from the Bank that have a total gross fair market value that is equal to or exceeds 40% of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph V, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than 50% of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own 50% or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph V, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than 50% of the total fair market value and total voting power of the Bank).

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Upon a Change in Control (as defined above), the Executive shall become fully vested in and be entitled to receive the benefits promised in Subparagraph III(A) of this Agreement upon attaining Normal Retirement Age (Subparagraph I[J]), as if the Executive had been employed by the Bank until Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

VI. MISCELLANEOUS

A. Alienation and Assignment Prohibition:

Neither the Executive, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of Bank and Successor in Interest:

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiary(ies), heirs and personal representatives.

C. Revocation:

It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Executive and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

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D. Gender:

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans:

Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law:

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina.

H. Fringe Benefits:

The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase, and shall in no event be construed to effect nor limit the Executive’s current or prospective salary increases, cash bonuses, or profit-sharing distribution or credits. The Executive has no option to take any current payment or bonus in lieu of these benefits except as may be set forth hereinafter.

I. Supersede and Constitute Entire Agreement:

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Executive Supplemental Retirement Plan Agreement dated the 1st day of January 2002; this Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

J. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements

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of Section 409A. The Executive acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

K. Certain Payments Delayed for a Specified Employee.

If the Executive is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “Separation from Service” shall be made and/or shall begin on the first day of the seventh month following the date of the Executive’s separation from service if such payments are not exempt from Section 409A and the six month delay in payment is required by Section 409A.

L. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Executive for failure to comply with Section 409A, a payment shall be made to the Executive within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph VI (L) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

VII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Executive Plan shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits:

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

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2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries:

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

C. Enforce Your Rights:

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support

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order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

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D. Assistance with Your Questions:

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

VIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits:

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

B. Denial of Claim:

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the

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Administrator will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

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(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure:

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

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(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than 180 days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

IX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on the Bank or this Executive Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in Control (Paragraph V), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	PEOPLES BANK, a North Carolina banking institution
(SEAL)	By:
	Name:
	Title:
	LANCE A. SELLERS
(SEAL)

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BENEFICIARY DESIGNATION FORM FOR

THE AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

EFFECTIVE             , 20    

I. DESIGNATIONS   (Please refer to the beneficiary designation instructions below prior to completion of this form.)

A. Person(s) as a Primary & Secondary Designation:   (Please indicate the percentage for each beneficiary.)

1.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
2.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
3.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
4.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)

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B. Estate as a Primary Designation:

My Primary Beneficiary is The Estate of                              As set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.

C. Trust as a Primary Designation:

Name of the Trust:
Execution Date of the Trust:	Name of the Trustee:
Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
Name(s):
Name(s):

Is this an Irrevocable Life Insurance Trust? ¨  Yes   ¨  No

(If yes and this designation is for a Joint Beneficiary Agreement, an Assignment of Rights form must be completed.)

II. SECONDARY (CONTINGENT) DESIGNATION

A. Estate as a Secondary (Contingent) Designation:

My Primary Beneficiary is The Estate of                              as set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.

B. Trust as a Secondary (Contingent) Designation:

Name of the Trust:
Execution Date of the Trust:	Name of the Trustee:
Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
Name(s):
Name(s):

Is this an Irrevocable Life Insurance Trust? ¨  Yes   ¨  No

(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)

III. SIGN AND DATE

All sums payable under the Amended and Restated Executive Salary Continuation Agreement, by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

Executive Date

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BENEFICIARY DESIGNATION INSTRUCTIONS

• If you make a mistake in completing this form, line out the erroneous information, add the correct information and initial the correction. The printed material on this form should not be deleted or altered in any way.

• In all cases, the relationship of the beneficiary should be included with the beneficiary designations.

• A Secondary Beneficiary will receive benefits only if the Primary Beneficiary(ies) do not survive the Insured. If naming more than one Secondary Beneficiary at 100% each, please indicate on designations 1, 2, 3 or 4 on the designation line which states: “If deceased, designate     %”.

• If a married woman is named beneficiary, her full legal name should be shown.

For Example: Mary J. Smith, not Mrs. John J. Smith. Likewise, if this form is to be signed by a married woman, she should sign her full legal name.

• When two or more beneficiaries are named, and they are not to share the benefits equally, enter the percentage each beneficiary is to receive on the form in the space provided. Dollars and cents should not be specified. When added together, the sum of the percentages going to the two or more named beneficiaries should equal 100%.

• If a trustee is named beneficiary, show the exact name of the trust, date of the trust agreement, and the name and address of the trustee.

For Example: The John J. Smith Revocable Life Insurance Trust dated January 1, 1994, John Smith Trustee, 123 Apple Lane, Hartford, CT 06006.

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EXHIBIT A-1

For

Lance A. Sellers

End of Year Age	Benefit Amount
65	$66,997
66	$100,495
67	$100,495
68	$100,495
69	$100,495
70	$100,495
71	$100,495
72	$100,495
73	$100,495
74	$100,495
75	$100,495
76	$100,495
77	$100,495
78	$47,529

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EXHIBIT A-2

For

Lance A. Sellers

Age 59 1/2	50% of age 66 benefit
Age 60 1/2	60% of age 66 benefit
Age 61 1/2	70% of age 66 benefit
Age 62 1/2	80% of age 66 benefit
Age 63 1/2	90% of age 66 benefit
Age 64 1/2	100% of age 66 benefit

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EX-10.F.I

Exhibit 10(f)(i)

                                         December 23, 2008

A. Joseph Lampron

518 West C. Street

Newton, NC 28658

Dear Joe,

Peoples Bancorp of North Carolina, Inc.(the “Company”) anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”) with the United States Department of Treasury (the “Treasury”) that provides, among other things, for the purchase by the Treasury of securities issued by the Company. This purchase is anticipated to occur as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program - Capital Purchase Program (the “CPP”).

As a condition to the closing of the investment contemplated by the Participation Agreement, the Company is required to take certain actions with respect to compensation arrangements of its senior executive officers. The Company has determined that you are or may be a senior executive officer for purposes of the CPP. To comply with the requirements of the CPP, and in consideration of the benefits that you will receive as a result of the Company’s participation in the CPP and for other good and valuable consideration, the sufficiency of which you hereby acknowledge, you agree as follows:

(1) No Golden Parachute Payments. You will not be entitled to receive from the Company any golden parachute payment (as defined below) during any period in which the Treasury holds an equity or debt position acquired from the Company in the CPP (the “CPP Covered Period”) (or during the year following any acquisition of the Company, to the extent required by the CPP Limitations (as defined below)).

(2) Recovery of Bonus and Incentive Compensation. You will be required to and shall return to the Company any bonus or incentive compensation paid to you by the Company during the CPP Covered Period if such bonus or incentive compensation is paid to you based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.

(3) Compensation Program Amendments. Each of the Company’s compensation, bonus, incentive and other benefit plans, arrangements and agreements , including golden parachute, severance and employment agreements (all such plans, arrangements and agreements, the “Benefit Plans”) are hereby amended to the extent necessary to give effect to provisions (1) and (2) of this letter.

The Company is also required as a condition to participation in the CPP to review the Benefit Plans to ensure that the Benefit Plans do not encourage its senior executive officers to take unnecessary and excessive risks that threaten the value of the Company. To the extent that the Company determines that the Benefit Plans must be revised as a result of such review, or determines that the Benefit Plans must otherwise be revised to comply with Section 111(b) of the EESA (as defined below) as implemented by any guidance or regulation thereunder that has been issued and is in effect as of the closing date of the Company’s issuance of preferred stock and warrants to acquire common stock to the Treasury pursuant to the CPP (the “CPP Limitations”), you and the Company agree to negotiate and effect such changes promptly and in good faith.

(4) Definitions and Interpretation. This letter shall be interpreted as follows:

• “Senior executive officer” means the Company’s “senior executive officers” as defined in Q&A 2 of the Interim Final Rule issued by the Treasury at 31 CFR Part 30, effective on October 20, 2008 (the “Interim Final Rule”).

• “Golden parachute payment” shall have the meaning set forth in Q&A 9 of the Interim Final Rule.

• The term “Company” includes any entities treated as a single employer with the Company under Q&A 1 and Q&A 11 of the Interim Final Rule.

• This letter is intended to, and shall be interpreted, administered and construed to comply with Section 111 of the Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations and guidance promulgated thereunder (and, to the maximum extent consistent with the preceding, to permit operation of the Benefit Plans in accordance with their terms before giving effect to this letter).

(5) Miscellaneous. To the extent not subject to federal law, this letter will be governed by and construed in accordance with the laws of the State of North Carolina. This letter may be executed in two or more counterparts, each of which will be deemed to be an original. A signature transmitted by facsimile will be deemed an original signature.

(6) If the Treasury does not purchase the securities contemplated by the Participation Agreement, then this letter shall be of no force or effect. In addition, upon such time as the Treasury no longer holds securities or debt of the Company acquired under the CPP, this letter shall be of no further force or effect, except to the extent required by the CPP Limitations. If you cease to be a senior executive officer of the Company for purposes of the CPP, you shall be released from the restrictions and obligations set forth in this letter to the extent permissible under the CPP. If it is determined that you are not a senior executive officer of the Company as of the date hereof, this letter shall be of no force or effect.

The Company appreciates the concessions you are making and looks forward to your continued leadership during these financially turbulent times.

[Signature page follows]

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Sincerely,
Peoples Bancorp of North Carolina, Inc.
By:
Name:	Robert Abernethy
Title:	Chairman of the Board of Directors

Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.
By:
Name:	A. Joseph Lampron
Title:	Executive Vice President and CFO
Date:	December 23, 2008

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EX-10.F.II

Exhibit 10(f)(ii)

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made on the      day of         , 2008, between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the “Bank”), and A. JOSEPH LAMPRON (the “Employee”) and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the “Holding Company”).

W I T N E S S E T H

WHEREAS, the Bank and Employee, joined by the Holding Company, have previously entered into that certain Employment Agreement dated December 1, 2001 (as it may have heretofore been amended, the “Agreement”) to set forth the terms of Employee’s employment with the Bank and to provide for certain benefits upon the termination of such employment;

WHEREAS, Paragraph 13 of the Agreement provides, “No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided”; and

WHEREAS, the Bank and Employee joined in by the Holding Company now desire to amend the Agreement through this Amendment in order to bring the arrangement into compliance with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”) and to make certain other amendments as set forth herein.

NOW THEREFORE, the Bank and Employee joined in by the Holding Company hereby agree to amend the Agreement as follows:

I. Paragraph 3 of the Agreement is hereby deleted in its entirety and replaced by the following provisions:

3. Discretionary Bonuses. The Employee shall be entitled to participate with all other key management personnel of the Bank in discretionary bonuses authorized and declared by the Directors of the Bank for all members of Bank management.

No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such discretionary bonuses when and as are declared by the Board of Directors, so long as such bonuses are provided for Bank management generally. Payment of the bonus shall be in a lump sum on or before March 15 of the Employee’s first taxable year after the taxable year in which the bonus is declared by the Board.

II. Paragraph 5 of the Agreement is deleted in its entirety and is replaced by the following provisions:

5. Term. The initial term of employment under this Agreement shall be for the period commencing December 1, 2001 and ending three (3) calendar years after such date. At the end of each one-year period following such commencing date, this Agreement shall automatically be extended for an additional one (1) year period beyond the then-effective expiration date, unless written notice from the Bank or the Employee is received sixty (60) days prior to an anniversary date advising the other party that this Agreement shall not be further extended.

III. Paragraph 8.A(1) of the Agreement is amended by adding the following sentence as the last sentence of that paragraph:

Said compensation shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

IV. Paragraph 8.A.(2) of the Agreement is amended by adding the following sentence as the last subparagraph of that paragraph:

Any payments of compensation and/or benefits required under this paragraph 8.A.(2) shall be paid according to the Bank’s customary schedule for paying such benefits to employees.

V. A new Paragraph 8.C of the Agreement is added as follows:

C. For purposes of this Agreement and to the extent any payment is triggered by a termination of employment, the terms “terminate” and “termination” shall mean that the Employee has experienced a “separation from service” within the meaning of Section 409A.

VI. Paragraph 13 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

13. Amendments.

A. No amendments or additions to this Agreement shall be binding unless in writing by both parties, except as herein otherwise provided. An amendment of this Agreement shall not be adopted if its adoption would be

inconsistent with Internal Revenue Code Section 409A, including regulations and guidance issued thereunder (“Section 409A”). If an amendment to this Agreement is required by any future guidance or regulation issues pursuant to Section 409A, the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A.

B. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes to the extent Section 409A applies to such matters.

VII. Paragraph 14 of the Agreement is hereby deleted in its entirety and is replaced by the following provisions:

14. Applicable Law. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of North Carolina, without reference to any choice- or conflict-of-laws provisions or principles, except to the extent that federal law shall be deemed to apply.

VIII. The following Paragraphs are hereby added to the Agreement:

18. Reimbursements. Any reimbursements provided under this Agreement in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year. The Employee’s right to reimbursement as provided in this Agreement is not subject to liquidation or exchange for any other benefit.

19. Interpretation. It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Employee acknowledges that neither the Bank nor Holding Company has made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

20. Certain Payments Delayed for a Specified Employee. If the Employee is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Employee’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PEOPLES BANK,
a North Carolina banking institution
By:		(SEAL)
	Tony W. Wolfe,
	President/Chief Executive Officer
A. JOSEPH LAMPRON
		(SEAL)

The Foregoing Amendment is joined in and agreed to by Peoples Bancorp, Inc.

PEOPLES BANCORP, INC.,
a North Carolina corporation
By:		(SEAL)
	Tony W. Wolfe
	President/Chief Executive Officer

EX-10.F.III

Exhibit 10(f)(iii)

AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a Bank organized and existing under the laws of the State of North Carolina, hereinafter referred to as “the Bank”, and Anthony J. Lampron, a Key Employee and the Executive of the Bank, hereinafter referred to as “the Executive.”

W I T N E S S E T H:

WHEREAS, the Bank and the Executive previously entered into an Executive Supplemental Retirement Plan Agreement dated the 1^st day of January, 2002 between Peoples Bank and Anthony J. Lampron, that provided for the payment of certain benefits; and

WHEREAS, the Bank and the Executive thereafter entered into an Executive Salary Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Executive Supplemental Retirement Plan Agreement and the benefits provided thereunder; and

WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Executive’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status of operating efficiency and present position in its field of activity; and

WHEREAS, the Executive’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Executive’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure the Executive remains in the Bank’s employ during the Executive’s lifetime or until the age of retirement; and

WHEREAS, it is the desire of the Bank that the Executive’s services be retained as herein provided; and

WHEREAS, the Executive is willing to continue in the employ of the Bank provided the Bank agrees to pay the Executive or the Executive’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Executive desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this Amended and Restated Salary Continuation Agreement (the “Agreement”) under which the Bank will agree to make certain payments to the Executive at retirement or the Executive’s beneficiary(ies) in the event of the Executive’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. DEFINITIONS

A. Effective Date:

The “Effective Date” of this Agreement shall be December 31, 2008.

B. Plan Year:

Any reference to “Plan Year” shall mean a calendar year from January 1 to December 31. In the year of implementation, the term “Plan Year” shall mean the period from the effective date to December 31 of the year of the effective date.

C. Retirement Date:

“Retirement Date” shall mean retirement from active employment with the Bank on or after the Executive’s sixty-fifth (65th) birthday.

D. Early Retirement Date:

“Early Retirement Date” shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one half (59 ¹/2) and is one hundred percent (100%) vested.

E. Termination of Service:

“Termination of Service” shall mean voluntary resignation of service by the Executive or the Bank’s discharge of the Executive without cause [“cause” defined in Subparagraph III (F) hereinafter], prior to the Normal Retirement Age (described in Subparagraph I (J) hereinafter).

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F. Index Retirement Benefit:

The “Index Retirement Benefit” for the Executive for any year shall be equal to the excess of the annual earnings (if any) determined by the Index [Subparagraph I (G)] for that Plan Year less the Cost of Funds Expense [Subparagraph I (H)] for that Plan Year.

G. Index:

The “Index” for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on December 31, 2003.

Insurance Company:	Jefferson Pilot Life Insurance Company
Policy Form:	Flexible Premium Adjustable Life
Policy Name:	ESP VI
Insured’s Age and Sex:	47, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$268,000
Premiums Paid	$98,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001
Insurance Company	Mass Mutual Life Insurance Company
Policy Form:	Flexible Premium Adjustable Life
Policy Name:	Strategic Life Executive
Insured’s Age and Sex:	48, Male
Riders:	None
Ratings:	None
Option:	Level
Face Amount:	$280,725
Premiums Paid	$98,500
Number of Premium Payments	Single
Assumed Purchase Date	December 28, 2001

If such contracts of life insurance are actually purchased by the Bank then the actual policies as of the dates they were purchased shall be used in calculations under this Agreement. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased from the above named insurance company(ies) on the Effective Date from which the increase in policy value will be used to calculate the amount of the Index.

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In either case, references to the life insurance contract are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive’s beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured general creditor of the Bank.

Any reference to a specific insurance contract under this Subparagraph I (G) also includes a reference to a replacement contract that has replaced the specifically referenced insurance contract through an exchange qualifying under Section 1035 of the Internal Revenue Code.

H. Cost of Funds Expense:

The “Cost of Funds Expense” for any Plan Year shall be calculated by taking the sum of the amount of premiums set forth in the Indexed policies described above plus the amount of any after-tax benefits paid to the Executive pursuant to this Agreement (Paragraph III hereinafter) plus the amount of all previous years after-tax Costs of Funds Expense, and multiplying that sum by the average after-tax cost of funds of the Bank’s third quarter Call Report for the Plan Year as filed with the Federal Reserve.

I. Separation from Service:

Any reference to “retirement,” “retirement from service,” “early retirement,” or “termination of service” that triggers a payment under this Agreement requires that the Executive has incurred a “separation from service” as interpreted in accordance with Section 409A (“Separation from Service”). The Executive will not be considered to have had a “Separation from Service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Executive has a right to reemployment that is provided by statute or contract.

J. Normal Retirement Age:

“Normal Retirement Age” shall mean the date on which the Executive attains age sixty-five (65).

K. Benefit Accounting:

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

L. Unforeseeable Emergency:

“Unforeseeable Emergency” shall mean that the Executive has experienced an “unforeseeable emergency” within the meaning of Section 409A of the Code.

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II. EMPLOYMENT

The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

No provision of this Agreement shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive’s rights to voluntarily sever his employment at any time.

III. BENEFITS

A. Retirement Benefits:

Should the Executive continue to be employed by the Bank until “Normal Retirement Age” defined in Subparagraph I (J), the Executive shall be entitled to receive an annual benefit as set forth in Exhibit A-1, in equal monthly installments [1/12th of the annual benefit for a period of thirteen (13) years]. Said payments to commence thirty (30) days following the Executive’s Retirement Date. Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

B. Early Retirement Benefits:

Subject to Subparagraph III (F), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (D)], the Executive shall be entitled to receive a reduced annual benefit amount as set forth in Exhibit A-2, commencing thirty (30) days following the Executive’s Early Retirement Date. For benefits received in years prior to age sixty-five (65), the reduced annual benefit as set forth in Exhibit A-2 will apply to the age sixty-six (66) benefit listed on schedule A-1. Such payments shall continue until the participant attains age seventy-eight (78). Upon completion of the aforestated payments and commencing the next month subsequent thereto, the Index Retirement Benefit [Subparagraph I (F)] shall be paid to the Executive until his death at which time said benefit shall cease.

C. Termination of Service:

Subject to Subparagraph III(F) hereinafter, should the Executive suffer a Termination of Service [defined in Subparagraph I(E)], the Executive shall be entitled to receive the vested balance of the accrued liability account paid to the Executive to be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly

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installments following Normal Retirement Age [Subparagraph I (J)], accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall begin the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total benefit as provide herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit. The vesting schedule is as follows:

Years Employed Since Effective Date of Plan	Percentage That Vests in That Year
1	30%
2-5	17.5%

D. Disability Benefit:

If the Executive becomes disabled as defined herein, he shall become fully vested in and be entitled to receive an amount equal to the accrued liability retirement account established to account for the Executive’s benefits under this Agreement. For purposes of this Agreement, the term “disabled” means that the Executive is

(i) Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or

(ii) By reason of any medically determinable physical or mental impairment (which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months) receiving income replacement benefits for a period of 3 or more months under an accident and health plan covering employees of the Bank, or

(iii) Determined to be disabled by the Social Security Administration.

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Said disability benefit will be paid in equal monthly installments (1/12^th of the annual benefit) for a period of one hundred twenty (120) monthly installments commencing at the Normal Retirement Age [Subparagraph I (J)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following Normal Retirement Age. Provided, however, that if the disability benefit is $10,000 or less, the Executive shall be paid the entire vested balance of the accrued liability account in a lump sum payment within thirty (30) days following Normal Retirement Age.

Should the Executive die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Executive may have designated in writing and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Executive shall be made on the first day of the second month following the date of the Executive’s death to the duly qualified executor or administrator of the Executive’s estate. If, upon death, the Executive shall have received the total disability benefit as provided herein, then no further benefit shall be due hereunder.

E. Death:

Should the Executive die prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C), and (D) hereinabove, the unpaid accrued liability account balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. The payment shall be made on the first day of the second month following the date of the Executive’s death. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive’s estate on the first day of the second month following the date of the Executive’s death. If, upon death, the Executive shall have received the total benefit as provided herein, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive’s beneficiary shall not be entitled to receive any Index Retirement Benefit.

F. Discharge for Cause:

Should the Executive be discharged for cause at any time, all Benefits under this Agreement shall be forfeited. The term “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement.

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G. Death Benefit:

Except as set forth above, there is no death benefit provided under this Agreement.

H. Unforeseeable Emergency:

Prior to having received the total amount of payments the Executive may be entitled to receive as set forth in Subparagraphs III (A), (B), (C) and (D) hereinabove, the Executive may make application to the Plan Administrator to receive a distribution in a lump sum of all or a portion of the vested unpaid accrued liability account balance (determined as of the date the distribution, if any, is made under this Paragraph III(H)) because of an Unforeseeable Emergency.

A distribution because of an Unforeseeable Emergency shall not exceed the amount required to satisfy the Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution, after taking into account the extent to which the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

The Executive’s request for a distribution on account of Unforeseeable Emergency must be made in writing to the Plan Administrator. The request must specify the nature of the financial hardship, the total amount requested to be distributed from the vested unpaid accrued liability account balance, and the total amount of the actual expense incurred or to be incurred on account of the Unforeseeable Emergency.

If a distribution under this Section III(H) is approved by the Plan Administrator, such distribution will be made within thirty (30) days following the date the distribution is approved. The processing of the request shall be completed as soon as practicable from the date on which the Plan Administrator receives the properly completed written request for a distribution on account of an Unforeseeable Emergency.

The Plan Administrator may from time to time adopt additional policies or rules consistent with the requirements of Section 409A to govern the manner in which such distributions may be made so that the Agreement may be conveniently administered.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Executive, the Executive’s beneficiary(ies) or any successor in interest to the Executive shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

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The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien or right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph V, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding 12 months) ownership of stock of the Bank possessing 30% or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any 12 month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph V, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding 12 months) assets from the Bank that have a total gross fair market value that is equal to or exceeds 40% of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph V, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than 50% of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own 50% or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph V, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than 50% of the total fair market value and total voting power of the Bank).

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Upon a Change in Control (as defined above), the Executive shall become fully vested in and be entitled to receive the benefits promised in Subparagraph III(A) of this Agreement upon attaining Normal Retirement Age (Subparagraph I[J]), as if the Executive had been employed by the Bank until Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

VI. MISCELLANEOUS

A. Alienation and Assignment Prohibition:

Neither the Executive, his/her surviving spouse nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of Bank and Successor in Interest:

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agree, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiary(ies), heirs and personal representatives.

C. Revocation:

It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Executive and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

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D. Gender:

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans:

Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings:

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law:

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina.

H. Fringe Benefits:

The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase, and shall in no event be construed to effect nor limit the Executive’s current or prospective salary increases, cash bonuses, or profit-sharing distribution or credits. The Executive has no option to take any current payment or bonus in lieu of these benefits except as may be set forth hereinafter.

I. Supersede and Constitute Entire Agreement:

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Executive Supplemental Retirement Plan Agreement dated the 1st day of January 2002; this Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

J. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of

11

Section 409A. The Executive acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

K. Certain Payments Delayed for a Specified Employee.

If the Executive is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “Separation from Service” shall be made and/or shall begin on the first day of the seventh month following the date of the Executive’s separation from service if such payments are not exempt from Section 409A and the six month delay in payment is required by Section 409A.

L. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Executive for failure to comply with Section 409A, a payment shall be made to the Executive within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph VI (L) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

VII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Executive Plan shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits:

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

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2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries:

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

C. Enforce Your Rights:

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support

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order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

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D. Assistance with Your Questions:

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

VIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits:

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

B. Denial of Claim:

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator

15

will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

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(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure:

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

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In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

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(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than 180 days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

IX. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on the Bank or this Executive Plan, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in

19

Control (Paragraph V), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	PEOPLES BANK, a North Carolina banking institution
	By:
(SEAL)
	Name:
	Title:
	ANTHONY J. LAMPRON
(SEAL)

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BENEFICIARY DESIGNATION FORM FOR

THE AMENDED AND RESTATED

EXECUTIVE SALARY CONTINUATION AGREEMENT

EFFECTIVE             , 20    

I. DESIGNATIONS (Please refer to the beneficiary designation instructions below prior to completion of this form.)

A. Person(s) as a Primary & Secondary Designation: (Please indicate the percentage for each beneficiary.)

1.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
2.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
3.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)
4.	Name:		Relationship:		SS#:		% if living:
	Address:
		(Street)		(City)		(State)	(Zip)
	If deceased, designate    %    to:			Relationship:		SS#:
	Address:
		(Street)		(City)		(State)	(Zip)

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	B.	Estate as a Primary Designation:
		My Primary Beneficiary is The Estate of                              As set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.
	C.	Trust as a Primary Designation:
		Name of the Trust:
		Execution Date of the Trust:                                                     Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Agreement, an Assignment of Rights form must be completed.)
II.	SECONDARY (CONTINGENT) DESIGNATION
	A.	Estate as a Secondary (Contingent) Designation:
		My Primary Beneficiary is The Estate of                              as set forth in the last will and Testament dated the      day of         , 200   and any codicils thereto.
	B.	Trust as a Secondary (Contingent) Designation:
		Name of the Trust:
		Execution Date of the Trust:                                                     Name of the Trustee:
		Beneficiary(ies) of the Trust: (please indicate the percentage for each beneficiary):
		Name(s):
		Name(s):
		Is this an Irrevocable Life Insurance Trust?    ¨  Yes    ¨  No
		(If yes and this designation is for a Joint Beneficiary Designation Agreement, an Assignment of Rights form must be completed.)
III.	SIGN AND DATE
	All sums payable under the Amended and Restated Executive Salary Continuation Agreement, by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

  Executive   Date

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BENEFICIARY DESIGNATION INSTRUCTIONS

• If you make a mistake in completing this form, line out the erroneous information, add the correct information and initial the correction. The printed material on this form should not be deleted or altered in any way.

• In all cases, the relationship of the beneficiary should be included with the beneficiary designations.

• A Secondary Beneficiary will receive benefits only if the Primary Beneficiary(ies) do not survive the Insured. If naming more than one Secondary Beneficiary at 100% each, please indicate on designations 1, 2, 3 or 4 on the designation line which states: “If deceased, designate     %”.

• If a married woman is named beneficiary, her full legal name should be shown.

For Example: Mary J. Smith, not Mrs. John J. Smith. Likewise, if this form is to be signed by a married woman, she should sign her full legal name.

• When two or more beneficiaries are named, and they are not to share the benefits equally, enter the percentage each beneficiary is to receive on the form in the space provided. Dollars and cents should not be specified. When added together, the sum of the percentages going to the two or more named beneficiaries should equal 100%.

• If a trustee is named beneficiary, show the exact name of the trust, date of the trust agreement, and the name and address of the trustee.

For Example: The John J. Smith Revocable Life Insurance Trust dated January 1, 1994, John Smith Trustee, 123 Apple Lane, Hartford, CT 06006.

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EXHIBIT A-1

For

Anthony J. Lampron

End of Year Age	Benefit Amount
65	$34,916
66	$46,554
67	$46,554
68	$46,554
69	$46,554
70	$46,554
71	$46,554
72	$46,554
73	$46,554
74	$46,554
75	$46,554
76	$46,554
77	$46,554
78	$22,764

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EXHIBIT A-2

For

Anthony J. Lampron

Age 59 1/2	50% of age 66 benefit
Age 60 1/2	60% of age 66 benefit
Age 61 1/2	70% of age 66 benefit
Age 62 1/2	80% of age 66 benefit
Age 63 1/2	90% of age 66 benefit
Age 64 1/2	100% of age 66 benefit

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EX-10.N

Exhibit 10(n)

AMENDED AND RESTATED

DIRECTOR SUPPLEMENTAL RETIREMENT AGREEMENT

THIS AGREEMENT, made and entered into this      day of         , 2008, by and between Peoples Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the “Bank”), and          member of the Board of Directors of the Bank (hereinafter referred to as the “Director”).

W I T N E S S E T H:

WHEREAS, the Bank and the Director entered a Director Supplemental Retirement Plan Director Agreement dated the 1st day of January, 2002 between Peoples Bank and James S. Abernethy that provides for the payment of certain benefits;

WHEREAS, the Bank and the Director thereafter entered into a Director Fee Continuation Agreement dated December 31, 2003 (the “2003 Agreement”), which replaced and superseded the Director Supplemental Retirement Plan Director Agreement dated January 1, 2002 and the benefits provided thereunder;

WHEREAS, it is the consensus of the Board of Directors (hereinafter referred to as the “Board”) that the Director’s services to the Bank in the past have been of exceptional merit and have constituted an invaluable contribution to the general welfare of the Bank and in bringing it to its present status of operating efficiency, and its present position in its field of activity;

WHEREAS, the Director’s experience, knowledge of the affairs of the Bank, reputation, and contacts in the industry are so valuable that assurance of the Director’s continued services is essential for the future growth and profits of the Bank and it is in the best interests of the Bank to arrange terms of continued service for the Director so as to reasonably assure the Director’s remaining in the Bank’s service during the Director’s lifetime or until the age of retirement;

WHEREAS, it is the desire of the Bank that the Director’s services be retained as herein provided;

WHEREAS, the Director is willing to continue to serve the Bank provided the Bank agrees to pay the Director or the Director’s beneficiary(ies), certain benefits in accordance with the terms and conditions hereinafter set forth; and

WHEREAS, the Bank and the Director desire to amend and restate the 2003 Agreement in order to bring it into compliance with Section 409A of the Internal Revenue Code, as amended, including regulations and guidance issued thereunder (“Section 409A”).

ACCORDINGLY, it is the desire of the Bank and the Director to enter into this Agreement under which the Bank will agree to make certain payments to the Director at retirement or the Director’s beneficiary(ies) in the event of the Director’s death pursuant to this Agreement;

FURTHERMORE, it is the intent of the parties hereto that this Agreement be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and to be considered a non-qualified benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Director is fully advised of the Bank’s financial status and has had substantial input in the design and operation of this benefit plan.

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows:

I. SERVICE

The Director will continue to serve the Bank in such capacity and with such duties and responsibilities as may be assigned, and with such compensation as may be determined from time to time by the Board of Directors of the Bank.

II. FRINGE BENEFITS

The fee continuation benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Director and are not part of any fee reduction plan or an arrangement deferring a bonus or a fee increase. The Director has no option to take any current payment or bonus in lieu of these fee continuation benefits except as set forth hereinafter.

III. RETIREMENT DATE AND NORMAL RETIREMENT AGE

A. Retirement Date:

If the Director continuously serves the Bank, the Director shall retire from active service with the Bank on the December 31st nearest the Director’s seventieth (70th) birthday.

B. Normal Retirement Age

Normal Retirement Age shall mean the date on which the Director attains age seventy (70).

IV. RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT

Upon said retirement, the Bank, commencing with the first (1st) day of the month following the date of such retirement, shall pay the Director an annual benefit amount equal to Twelve Thousand and 00/100 Dollars ($12,000.00). Said benefit shall be paid in equal monthly installments (1/12th of the annual benefit) for a period of one hundred eighty (180) months; provided, that if less than one hundred eighty (180) of such monthly payments have been made prior to the death of the Director, the Bank shall make the total

2

amount of said payments due in a lump sum reduced to present value as set forth in Subparagraph XI(K) to such individual or individuals as the Director may have designated in writing and filed with the Bank. Said payment shall be made on the first day of the second month following the death of the Director. In the absence of any effective beneficiary designation, any such amount becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment shall be made on the first day of the second month following the death of the Director.

V. DEATH BENEFIT PRIOR TO RETIREMENT

In the event the Director should die while actively serving the Bank at any time after the date of this Agreement but prior to the Director attaining the age of seventy (70) years, the Bank will pay the balance of the Pre-Retirement Account in a lump sum reduced to present value as set forth in Subparagraph XI(K), to such individual or individuals as the Director may have designated in writing and filed with the Bank. Said payment shall be made on the first day of the second month following the death of the Director. In the absence of any effective beneficiary designation, any such amount becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment shall be made on the first day of the second month following the death of the Director.

VI. BENEFIT ACCOUNTING

The Bank shall account for this benefit using the regulatory accounting principles of the Bank’s primary federal regulator and the Generally Accepted Accounting Principles. The Bank shall establish an accrued liability retirement account (a bookkeeping entry) for the Executive into which appropriate reserves shall be accrued.

VII. VESTING

Director’s interest in the benefits that are the subject of this Agreement shall be subject to a vesting schedule over the five (5) full years of service with the Bank from the date first elected to the Board of the Bank (to a maximum of 100%).

Years of Service Completed Since First Elected as Director	Total Percentage Vested
1	20%
2	40%
3	60%
4	80%
5	100%

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VIII. OTHER TERMINATION OF SERVICE

Subject to Subparagraph VIII(ii) hereinbelow, should the Director suffer a Termination of Service, the Director shall be entitled to receive the vested balance of the accrued liability account paid to the Director in equal monthly installments (1/12th of the annual benefit) for a period of one hundred eighty (180) monthly installments commencing at the Normal Retirement Age [Subparagraph III(B)] accruing interest at the one-year Treasury Bill rate. Said payments will commence thirty (30) days following the Normal Retirement Age. Provided, however, that if the vested balance of the accrued liability account is $10,000 or less, the Director shall be paid the entire vested balance of the accrued liability account in a lump sum payment.

Should the Director die prior to having received the total amount of payments due, the unpaid balance shall be paid in a lump sum to such individual or individuals as the Director may have designated in writing and filed with the Bank. In the absence of any effective beneficiary designation, any such amounts becoming due and payable upon the death of the Director shall be payable to the duly qualified executor or administrator of the Director’s estate. Said payment hereunder shall be made on the first day of the second month following the death of the Director. If, upon death, the Director shall have received the total annual benefit as provided herein, then no further benefit shall be due hereunder.

(i) Termination of Service. Termination of Service shall be defined as voluntary resignation of service by the Director or the Bank’s discharge of the Director without cause [“cause” defined in Subparagraph (VIII)(ii) below], prior to the Normal Retirement Age (described in Subparagraph III(B)).

(ii) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term “cause” includes termination because of the Director’s personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses), or final cease and desist order, or any material breach of any provision of this Agreement. Discharge for “cause” shall also include any termination pursuant to a resolution of the Board of Directors approved by a vote of at least eighty-five percent (85%) of directors entitled to vote, finding that termination^-of the Director’s Agreement is in the best interests of the Bank or the Holding Company.

IX. CHANGE IN CONTROL

For purposes of this Agreement, the term “Change in Control” shall mean: (i) a Change of Ownership; (ii) a Change in Effective Control; or (iii) a Change of Asset Ownership; in each case, as defined herein and as further defined and interpreted in Section 409A.

(i) For purposes of this Paragraph IX, “Change in Effective Control” shall mean the date either (A) one person (or group) acquires (or has acquired during the proceeding twelve (12) months) ownership of stock of the Bank possessing thirty

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percent (30%) or more of the total voting power of the Bank’s stock or (B) a majority of the Bank’s board of directors is replaced during any twelve (12) month period by directors whose election is not endorsed by a majority of the members of the Bank’s board of directors prior to such election.

(ii) For purposes of this Paragraph IX, “Change of Asset Ownership” shall mean the date one person (or group) acquires (or has acquired during the preceding twelve (12) months) assets from the Bank that have a total gross fair market value that is equal to or exceeds forty percent (40%) of the total gross fair market value of all the Bank’s assets immediately prior to such acquisition.

(iii) For purposes of this Paragraph IX, “Change of Ownership” shall mean the date one person (or group) acquires ownership of stock of the Bank that, together with stock previously held, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Bank; provided that such person (or group) did not previously own fifty percent (50%) or more of the value or voting power of the stock of the Bank.

For purposes of determining whether the Bank has undergone a Change in Control under this Paragraph IX, the term Bank shall include any corporation that is a majority shareholder of the Bank within the meaning of Section 409A (owning more than fifty percent (50%) of the total fair market value and total voting power of the Bank).

Upon a Change in Control (as defined above), the Director shall become fully vested in and be entitled to receive the benefits promised in Subparagraph IV of this Agreement upon attaining Normal Retirement Age (Subparagraph III[B]), as if the Director had served the Bank until Normal Retirement Age. Payments will commence thirty (30) days following the Executive’s attainment of Normal Retirement Age. The Director will also remain eligible for all promised death benefits in this Agreement. In addition, no sale, merger, consolidation or conversion of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Agreement and agrees to abide by its terms.

X. RESTRICTIONS ON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement. The Directors, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

XI. MISCELLANEOUS

A. Alienability and Assignment Prohibition.

Neither the Director, nor the Director’s surviving spouse, nor any other beneficiary(ies) under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the

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benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or the Director’s beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Director or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of the Bank and any Successor in Interest.

The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. This Agreement shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives.

C. Amendment or Revocation.

Subject to Paragraph XIV, it is agreed by and between the parties hereto that, during the lifetime of the Director, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Director and the Bank. Amendment of this Agreement shall not be adopted if its adoption would be inconsistent with Section 409A. If an amendment to this Agreement is required by any future guidance or regulations issued pursuant to Section 409A, then the parties agree to adopt an amendment to bring the Agreement into compliance with Section 409A. The benefits provided under this Agreement shall not be subject to change, renegotiation, acceleration or deferral beyond the payment time set forth herein (the “Changes”) except to the extent that the Changes comply with Section 409A at the time the parties agree to the Changes.

D. Gender.

Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans.

Nothing contained in this Agreement shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

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F. Headings.

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law.

The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina without respect to any choice-of-law or conflict-of-laws principles or provisions that would cause another jurisdiction’s laws to apply and except to the extent preempted by federal law.

H. 12 U.S.C. § 1828(k).

Any payments made to the Director pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) or any regulations promulgated thereunder.

I. Partial Invalidity.

If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

J. Continuation as Director.

Neither this Agreement nor the payments of any benefits hereunder shall be construed as giving to the Director any right to be retained as a member of the Board of Directors of the Bank.

K. Present Value.

All present value calculations under this Agreement shall be based on the following discount rate: The discount rate as used in the FASB 87 calculations for the Agreement.

L. Supersede and Constitute Entire Agreement.

This Agreement shall supersede the 2003 Agreement, which, in turn, superseded the Director Supplemental Retirement Plan Director Agreement dated the 1st day of January, 2002. This Agreement shall, along with any amendments executed thereto, constitute the entire agreement of the parties pertaining to retirement benefits provided hereunder.

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M. Interpretation.

It is intended that this Agreement shall conform with Section 409A. Accordingly, in interpreting, construing or applying any provisions of the Agreement, the same shall be construed in such manner as shall meet and comply with Section 409A, and in the event of any inconsistency with Section 409A, the same shall be reformed so as to meet the requirements of Section 409A. The Director acknowledges that the Bank has not made any representation or warranty regarding the treatment of this Agreement or the benefits payable under this Agreement under federal, state or local income tax laws, including Section 409A.

N. Certain Payments Delayed for a Specified Employee.

If the Director is a “specified employee” as defined in Section 409A, then any payment(s) under this Agreement on account of a “separation from service” as defined in Section 409A shall be made and/or shall begin on the first day of the seventh month following the date of the Director’s separation from service to the extent such payments are not exempt from Section 409A, and the six month delay in payment is required by Section 409A.

O. Payments Upon Income Inclusion.

If at any time any amount or payment under the Agreement becomes taxable to the Director for failure to comply with Section 409A, a payment shall be made to the Director within 60 days of the determination by the Internal Revenue Service that the amount or payment is includible in income. The payment under this Paragraph XI(O) shall be equal to the amount required to be included in income as a result of the failure to comply with Section 409A as determined by the Internal Revenue Service.

P. Separation from Service.

Any reference to “retirement,” “retirement from service,” “early retirement,” “termination of service,” or any variations thereof requires that the Director has incurred a “separation from service” as interpreted in accordance with Section 409A. The Director will not be considered to have had a “separation from service” if he is on military leave, sick leave or other bona fide leave of absence if the period of such absence does not exceed six (6) months or, if longer, so long as the Director has a right to reemployment that is provided by statute or contract.

XII. ERISA PROVISION

The “Named Fiduciary and Plan Administrator” of this Agreement shall be Peoples Bank until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Agreement. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Agreement including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA provides that all Plan participants shall be entitled to:

A. Receive Information About Your Plan and Benefits.

1. Examine, without charge, at the Plan Administrator’s office and at other specified locations (such as work sites and union halls) all documents governing the Plan, including insurance contracts and collective bargaining agreements (if any), and a copy of the latest annual report (Form 5500 Series) (if applicable) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

2. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) (if applicable) and an updated summary plan description (if applicable). The Plan Administrator may make a reasonable charge for the copies.

3. Receive a summary of the Plan’s annual financial report (if applicable). The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

4. Obtain a statement telling you that you have a right to receive a retirement benefit at the normal retirement age under the Plan (age 65) and what your benefit could be at normal retirement age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will advise you of the number of additional years you must work to receive a retirement benefit. You must request this statement in writing. The law does not require the Plan Administrator to give this statement more than once a year. The Plan must provide the statement free of charge.

B. Prudent Actions by Plan Fiduciaries.

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate this Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a retirement benefit or from exercising your rights under ERISA.

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C. Enforce Your Rights.

If your claim for a retirement benefit is denied in whole or in part, you have the right to know why this was done, to obtain documents relating to the decision without charge and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights.

For instance, if you request materials from the Plan and do not receive the materials within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical support order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

D. Assistance with Your Questions.

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

XIII. CLAIMS PROCEDURE

The following Claims Procedure shall control the determination of benefit payments under the Plan.

A. Filing of a Claim for Benefits.

Any insured, beneficiary or other individual (“Claimant”) entitled to benefits under the Plan will file a claim request with the Administrator. The Administrator will, upon request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. A Claimant’s request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review.

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B. Denial of Claim.

If a Claimant’s claim is wholly or partially denied, the Administrator will furnish the Claimant with a written or electronic notification of the Plan’s adverse determination. This written or electronic notification must be provided within a reasonable period of time, but not later than 90 days after the receipt of the claim by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90-day period. In no event will such extension exceed a period of 90 days from the end of such initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefit determination.

In the case of a claim for disability benefits, if disability is determined by a physician chosen by the Administrator (rather than relying upon a determination of disability for Social Security purposes), then instead of the above, the Administrator will provide the Claimant with written or electronic notification of the Plan’s adverse benefit determination within a reasonable period of time, but not later than 45 days after receipt of the claim by the Plan. This period may be extended by the Plan for up to 30 days, provided that the Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 45-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If, prior to the end of the first 30-day extension period the Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional 30 days, provided that the Administrator notifies the Claimant, prior to the expiration of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any such extension, the notice of extension will specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues, and the Claimant will be afforded at least 45 days within which to provide the specified information.

C. Content of Notice.

The Administrator’s written or electronic notification of any adverse benefit determination must contain the following information:

(1) The specific reason or reasons for the adverse determination.

(2) Reference to the specific Plan provisions on which the denial is based.

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(3) A description of any additional information or material necessary to correct the claim and an explanation of why such material or information is necessary.

(4) Appropriate information as to the steps to be taken if the Claimant or beneficiary wishes to submit the claim for review.

(5) In the case of disability benefits where the disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided to the Claimant free of charge upon request.

If the claim has been denied or deemed denied, and the Claimant wants to submit the claim for review, the Claimant must follow the Claims Review Procedure below.

D. Claims Review Procedure.

Upon the denial of a claim for benefits, the Claimant may file a claim for review, in writing, with the Administrator.

(1) THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER THE CLAIMANT HAS RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF THE CLAIM FOR BENEFITS.

HOWEVER, IF THE CLAIM IS FOR DISABILITY BENEFITS AND DISABILITY IS DETERMINED BY A PHYSICIAN CHOSEN BY THE ADMINISTRATOR, THEN INSTEAD OF THE ABOVE, THE CLAIMANT MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 180 DAYS FOLLOWING RECEIPT OF NOTIFICATION OF AN ADVERSE BENEFIT DETERMINATION.

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(2) The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits.

(3) The Claimant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Administrator.

(4) The Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(5) The claim for review must be given a full and fair review. This review will take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

In addition to the Claims Review Procedure above, if the claim is for disability benefits and disability is determined by a physician chosen by the Administrator, then the Claims Review Procedure provides that:

(1) The claim will be reviewed without deference to the initial adverse benefit determination and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.

(2) In deciding an appeal of any adverse benefit determination that is based in whole or in part on medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment.

(3) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination will be identified, without regard to whether the advice was relied upon in making the benefit determination.

(4) The health care professional engaged for purposes of a consultation in (2) above will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

The Administrator will provide the Claimant with written or electronic notice of the Plan’s benefit determination on review. The Administrator must provide the Claimant with notification of this denial within 60 days after the Administrator’s receipt of the written claim for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time for processing is required, written notice of the extension will be

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furnished to the Claimant prior to the termination of the initial 60-day period. In no event will such extension exceed a period of 60 days from the end of the initial period. The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the determination on review. However, if the claim relates to disability benefits and disability is determined by a physician chosen by the Administrator, then 45 days will apply instead of 60 days in the preceding sentences. In the case of an adverse benefit determination, the notification will set forth:

(a) The specific reason or reasons for the adverse determination.

(b) Reference to the specific Plan provisions on which the benefit determination is based.

(c) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits.

(d) In the case of disability benefits where disability is determined by a physician chosen by the Administrator:

(i) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to you free of charge upon request.

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

If the Claimant has a claim for benefits that is denied or ignored, in whole or in part, the Claimant may file suit in a state or federal court. However, in order to do so, the Claimant must file the suit no later than one hundred eighty (180) days after the Administrator makes a final determination to deny the claim.

E. For Questions or If Rights Are Violated.

If the Claimant has any questions about the Plan, the Claimant should contact the Administrator. If the Claimant has any questions about this statement, or about the Claimant’s rights under ERISA, or if the Claimant needs assistance in obtaining documents from the Administrator, the Claimant should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries,

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Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210. The Claimant may also obtain certain publications about the Claimant’s rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

XIV. TERMINATION OR MODIFICATION OF AGREE NT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS

The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect to the Bank or the Agreement, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change in Control (Paragraph IX), this paragraph shall become null and void effective immediately upon said Change in Control. Provided, however, that no amendment or termination will be adopted unless it complies with Section 409A.

XV. EFFECTIVE DATE

The Effective Date of this Agreement shall be December 31, 2008.

IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy

	PEOPLES BANK
	By:	(SEAL)
	Name:
Witness:	Title:
	[NAME OF DIRECTOR]
Witness:		(SEAL)

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BENEFICIARY DESIGNATION FORM FOR THE

AMENDED AND RESTATED DIRECTOR SUPPLEMENTAL RETIREMENT

I. PRIMARY DESIGNATION

                (You may refer to the beneficiary designation information prior to completion.)

A. Person(s) as a Primary Designation:

(Please indicate the percentage for each beneficiary.)

Name                                                                                                        Relationship                                                                 /            %

Address:                                                                                                                                                                                                         

                                                 (Street)                                                                (City)                                (State)                     (Zip)

Name                                                                                                        Relationship                                                                   /            %

Address:                                                                                                                                                                                                         

                                                 (Street)                                                                 (City)                                (State)                     (Zip)

Name                                                                                                          Relationship                                                              /            %

Address:                                                                                                                                                                                                         

                                                 (Street)                                                                (City)                                (State)                     (Zip)

Name                                                                                                        Relationship                                                                 /            %

Address:                                                                                                                                                                                                         

                                                 (Street)                                                                (City)                                (State)                     (Zip)

B. Estate as a Primary Designation:

My Primary Beneficiary is The Estate of                              as set forth in the last will and testament dated the      day of                  and any codicils thereto.

C. Trust as a Primary Designation:

Name of the Trust:                                                                                                                                                                                         

Execution Date of the Trust:                     

Name of the Trustee:                                                                                                                                                                                     

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

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Is this an Irrevocable Life Insurance Trust?              Yes              No

(If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.)

II. SECONDARY (CONTINGENT) DESIGNATION

A. Person(s) as a Secondary (Contingent) Designation:

(Please indicate the percentage for each beneficiary.)

Name                                                                                                        Relationship                                                                

Address:                                                                                                                                                                                                         

                                                 (Street)                                                               (City)                                 (State)                     (Zip)

Name                                                                                                        Relationship                                                                

Address:                                                                                                                                                                                                         

                                                 (Street)                                                               (City)                                 (State)                     (Zip)

Name                                                                                                        Relationship                                                                 /            %

Address:                                                                                                                                                                                                         

                                                 (Street)                                                               (City)                                 (State)                     (Zip)

Name                                                                                                        Relationship                                                                

Address:                                                                                                                                                                                                         

                                                 (Street)                                                               (City)                                 (State)                     (Zip)

B. Estate as a Secondary (Contingent) Designation:

My Secondary Beneficiary is The Estate of                              as set forth in my last will and testament dated the      day                  of and any codicils thereto.

C. Trust as a Secondary (Contingent) Designation:

Name of the Trust:                                                                                                                                                                                         

Execution Date of the Trust:      /         /        

Name of the Trustee:                                                                                                                                                                                     

Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary):

All sums payable under the Director Salary Continuation Plan Agreement that supercedes and replaces the Director Supplemental Retirement Plan Director Agreement by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing.

JAMES S. ABERNETHY DATE

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EX-99.1

Exhibit 99.1

December 23, 2008

Peoples Bancorp of North Carolina, Inc. announces it has received $25.1 million as an

approved participant in the U.S. Treasury Department TARP Capital Purchase Program.

(NEWTON, NC). Peoples Bancorp of North Carolina, Inc. (the “Company”) (Nasdaq: PEBK), the parent company of Peoples Bank (the “Bank”) announced today that it has received $25.1 million as an approved participant in the U.S. Treasury Department’s TARP Capital Purchase Program. The Company issued 25,054 shares of, senior preferred stock and a related warrant for 357,234 shares of PEBK common stock, which represents 15% of the senior preferred stock or $3.8 million to the U.S. Treasury.

The CPP, created by the U.S. Treasury, is a voluntary program in which selected, healthy financial institutions are encouraged to participate. Approved use of the funds includes providing credit to qualified borrowers, either as companies or individuals, among other things. Such participation is intended to support the economic development of the community and thereby restore the health of the local and national economy.

Tony W. Wolfe, President and Chief Executive Officer of Peoples Bancorp, characterized the Company’s participation in the program by saying, “We are pleased that our financial strength qualified our Company to participate in the program. We view this as a vote of confidence in our Company, our management and our employees. Peoples Bank has been an active, community-based lender for 96 years. The TARP money will enable us to provide even greater support for the economic development of our communities.”

Before receiving the TARP funds, Peoples Bank was well-capitalized as measured by all regulatory guidelines. On September, 30, 2008, the Company’s Tier 1 Leverage Capital Ratio was 9.92%, and its Total Risk-Based Capital Ratio was 12.10%. Based on the September 30, 2008, financial statements, the addition of new capital through the Treasury’s CPP will increase the Company’s Tier 1 Leverage Capital Ratio to approximately 12.64% and Total Risk-Based Capital Ratio to approximately 15.10%.

The preferred stock issued by the Company will pay a 5% dividend for the first 5 years, after which the rate will increase to 9% if the Company does not redeem the preferred shares. These preferred shares do not carry voting rights, except in certain limited circumstances. The Company issued the preferred shares and warrants only to the U. S. Treasury, not to any other third parties. Terms and conditions of the transaction and the preferred stock will conform to those provided by the U.S. Treasury. A summary of the Capital Purchase Program can be found at the Treasury’s web site: www.ustreas.gov/initiatives/eesa.

Peoples Bank operates entirely in North Carolina, with 11 offices in Catawba County, one in Alexander County, three in Lincoln County, three in Mecklenburg County, one in Union County, one in Iredell County and one in Wake County. The Company’s common stock is publicly traded and is quoted on Nasdaq under the symbol “PEBK.”

For further information contact: Tony W. Wolfe, President and Chief Executive Officer, or A. Joseph Lampron, Executive Vice President and Chief Financial Officer of Peoples Bancorp of North Carolina, Inc. Phone: 828-464-5620. Fax: 828-465-6780.

Statements made in this press release, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time this release was prepared. These statements should be recognized by the use of words like “expect,” “anticipate,” “estimate,” and “believe,” or variations of these words and similar expressions. Readers should not place undue reliance on forward-looking statements, as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by Peoples Bank; (2) changes in the interest rate environment; (3) general national, regional or local economic conditions being less favorable than expected that may result in, among other things, a deterioration in credit quality and the possible impairment of collectability of loans; (4) legislative or regulatory changes, including changes in accounting standards; (5) significant changes in the federal and state legal and regulatory environment and tax laws; (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations, and (7) other risks and factors identified in the Company’s other filings with the Securities and Exchange Commission, including but not limited to, those described in the Peoples Bancorp of North Carolina, Inc. annual report on Form 10-K for the year ended December 31, 2007.