10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended:

June 30, 2008

Commission File Number: 000-13823

FNB United Corp.

 (Exact name of Registrant as specified in its Charter)

North Carolina	56-1456589
(State of Incorporation)	(I.R.S. Employer Identification No.)
150 South Fayetteville Street
Asheboro, North Carolina	27203
(Address of principal executive offices)	(Zip Code)

(336) 626-8300

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer o	Accelerated filer x
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company  o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   o   No  x

At August 7, 2008, 11,425,052 shares of the registrant's common stock, $2.50 par value, were outstanding.

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

FNB United Corp. and Subsidiary
CONSOLIDATED BALANCE SHEETS (unaudited)

	June 30,			December 31,
	2008			2007
	(unaudited)
	(in thousands, except share and per share data)
ASSETS
Cash and due from banks	$	36,728		$	37,739
Interest-bearing bank balances		198			836
Federal funds sold		500			542
Investment securities:
Available for sale, at estimated fair value (amortized
cost of $187,484,000 and $160,903,000)		186,213			161,809
Held to maturity (estimated fair value of
$24,969,000 and $35,251,000)		25,360			35,650
Loans held for sale		19,875			17,586
Loans held for investment		1,574,942			1,446,116
Less allowance for loan losses		(18,845	)		(17,381	)
Net loans held for investment		1,556,097			1,428,735
Premises and equipment, net		49,926			46,614
Goodwill		108,395			110,195
Core deposit premiums		6,161			6,564
Other assets		65,567			60,236
Total Assets	$	2,055,020		$	1,906,506
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	164,671		$	158,564
Interest-bearing deposits:
Demand, savings and money market deposits		514,885			464,731
Time deposits of $100,000 or more		375,854			375,419
Other time deposits		430,724			442,328
Total deposits		1,486,134			1,441,042
Retail repurchase agreements		32,297			29,133
Federal Home Loan Bank advances		202,418			131,790
Federal funds purchased		28,000			13,500
Subordinated debt		15,000			-
Junior subordinated debentures		56,702			56,702
Other liabilities		19,587			18,083
Total Liabilities		1,840,138			1,690,250
Shareholders' equity:
Preferred stock - $10.00 par value;
authorized 200,000 shares, none issued		-			-
Common stock - $2.50 par value;
authorized 50,000,000 shares, issued
shares - 11,425,052 and 11,426,902		28,563			28,567
Surplus		114,478			114,119
Retained earnings		73,449			74,199
Accumulated other comprehensive loss		(1,608	)		(629	)
Total Shareholders' Equity		214,882			216,256
Total Liabilities and
Shareholders' Equity	$	2,055,020		$	1,906,506
See accompanying notes to consolidated financial statements.

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FNB United Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
	(in thousands, except share and per share data)
Interest Income
Interest and fees on loans	$	25,858	$	28,569	$	53,394	$	56,438
Interest and dividends on investment securities:
Taxable income		1,959		2,231		4,094		3,887
Non-taxable income		503		491		1,030		1,045
Other interest income		5		423		17		1,241
Total interest income		28,325		31,714		58,535		62,611
Interest Expense
Deposits		10,622		13,245		22,428		26,043
Retail repurchase agreements		163		319		412		624
Federal Home Loan Bank advances		1,829		674		3,521		1,355
Federal funds purchased		174		27		298		27
Other borrowed funds		588		1,390		1,497		2,678
Total interest expense		13,376		15,655		28,156		30,727
Net Interest Income		14,949		16,059		30,379		31,884
Provision for loan losses		1,383		476		2,897		1,000
Net Interest Income After Provision for Loan Losses		13,566		15,583		27,482		30,884
Noninterest Income
Service charges on deposit accounts		2,137		2,279		4,221		4,329
Gains on sale of mortgage loans		804		1,368		2,227		2,506
Trust and investment services		468		461		931		832
Cardholder and merchant services income		638		537		1,119		1,044
Other service charges, commissions and fees		335		319		448		656
Bank owned life insurance		235		215		486		451
Other income		126		247		339		581
Total noninterest income		4,743		5,426		9,771		10,399
Noninterest Expense
Personnel expense		8,908		8,199		17,607		16,618
Net occupancy expense		1,350		1,390		2,649		2,569
Furniture and equipment expense		1,121		1,247		2,257		2,360
Data processing services		726		470		1,183		1,002
Goodwill impairment		1,800		-		1,800		-
Other expense		3,413		4,063		7,361		7,432
Total noninterest expense		17,318		15,369		32,857		29,981
Income Before Income Taxes		991		5,640		4,396		11,302
Income taxes		851		1,949		1,933		3,859
Net Income	$	140	$	3,691	$	2,463	$	7,443
Net income per common share:
Basic	$	0.01	$	0.33	$	0.22	$	0.66
Diluted	$	0.01	$	0.33	$	0.22	$	0.66
Weighted average number of common shares outstanding:
Basic		11,414,330		11,318,908		11,409,630		11,291,270
Diluted		11,416,269		11,343,367		11,411,569		11,319,427
See accompanying notes to consolidated financial statements.

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FNB United Corp. and Subsidiary

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Six Months Ended June 30, 2008 and 2007 (unaudited)

													Accumulated
													Other
	Common Stock									Retained			Comprehensive
	Shares			Amount			Surplus			Earnings			Income (Loss)			Total
	(in thousands, except share and per share data)
Balance, December 31, 2006		11,293,992		$	28,235		$	112,213		$	68,662		$	(1,442	)	$	207,668
Comprehensive income:
Net income		-			-			-			7,443			-			7,443
Other comprehensive income, net of taxes:
Unrealized securities losses		-			-			-			-			(501	)		(501	)
Total comprehensive income		-			-			-			-			-			6,942
Cash dividends declared, $0.30 per share		-			-			-			(3,404	)		-			(3,404	)
Stock options:		-									-			-			-
Proceeds from options exercised		76,314			191			489			-			-			680
Compensation expense recognized		-			-			266			-			-			266
Net tax benefit related to option exercises		-			-			150			-			-			150
Restricted stock:											-			-
Shares issued, subject to restriction		2,000			5			(5	)		-			-			-
Compensation expense recognized		-			-			162			-			-			162
Other compensatory stock issued		432			1			7			-			-			8
Balance, June 30, 2007		11,372,738		$	28,432		$	113,282		$	72,701		$	(1,943	)	$	212,472
Balance, December 31, 2007		11,426,902		$	28,567		$	114,119		$	74,199		$	(629	)	$	216,256
Cumulative effect of a change in accounting
principle - Adoption of EITF 06-4		-			-			-			(357	)		-			(357	)
Comprehensive income:
Net income		-			-			-			2,463			-			2,463
Other comprehensive income, net of taxes:
Unrealized securities losses		-			-			-			-			(1,318	)		(1,318	)
Interest rate swap		-			-			-			-			311			311
Application of SFAS No. 158		-			-			-			-			28			28
Total comprehensive income		-			-			-			-			-			1,484
Cash dividends declared, $0.25 per share		-			-			-			(2,856	)		-			(2,856	)
Stock options:
Proceeds from options exercised		150			1			1			-			-			2
Compensation expense recognized		-			-			219			-			-			219
Restricted stock:
Shares issued/terminated,
subject to restriction		(2,000	)		(5	)		5			-			-			-
Compensation expense recognized		-			-			134			-			-			134
Balance, June 30, 2008		11,425,052		$	28,563		$	114,478		$	73,449		$	(1,608	)	$	214,882
See accompanying notes to consolidated financial statements.

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FNB United Corp. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
	Six months ended,
	June 30,
	2008			2007
	(dollars in thousands)
Operating Activities
Net income	$	2,463		$	7,443
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization  of premises and equipment		1,714			1,800
Provision for loan losses		2,897			1,000
Deferred income taxes		319			341
Deferred loan fees and costs, net		599			(794	)
Premium amortization and discount accretion of investment securities, net		(170	)		19
Amortization of core deposit premiums		403			410
Stock compensation expense		353			436
Income from bank owned life insurance		(486	)		(451	)
Mortgage loans held for sale:
Origination of mortgage loans held for sale		(151,196	)		(213,209	)
Proceeds from sale of mortgage loans held for sale		150,667			209,454
Gain on mortgage loan sales		(2,227	)		(2,506	)
Mortgage servicing rights capitalized		(731	)		(534	)
Mortgage servicing rights amortization and impairment		379			174
Goodwill impairment		1,800			-
Changes in assets and liabilities:
(Increase) decrease in interest receivable		1,341			(817	)
(Increase) decrease in other assets		(1,219	)		4,459
Increase in accrued interest and other liabilities		2,773			545
Net cash provided by operating activities		9,679			7,770
Investing Activities
Available-for-sale securities:
Proceeds from maturities and calls		43,934			27,089
Purchases		(70,299	)		(96,556	)
Held-to-maturity securities:
Proceeds from maturities and calls		10,250			4,378
Net increase in loans held for investment		(134,992	)		(52,259	)
Purchases of  premises and equipment		(5,079	)		(2,145	)
Net cash used in investing activities		(156,186	)		(119,493	)
Financing Activities
Net increase in deposits		45,092			24,350
Increase in retail repurchase agreements		3,164			5,020
Increase (decrease) in Federal Home Loan Bank advances		70,486			(1,195	)
Increase in federal funds purchased		14,500			8,950
Increase in other borrowings		15,000			5,940
Proceeds from exercise of stock options		2			680
Tax benefit from exercise of stock options		-			150
Cash dividends paid		(3,428	)		(3,622	)
Net cash provided by financing activities		144,816			40,273
Net Decrease in Cash and Cash Equivalents		(1,691	)		(71,450	)
Cash and Cash Equivalents at Beginning of Period		39,117			108,340
Cash and Cash Equivalents at End of Period	$	37,426		$	36,890
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	28,487		$	30,243
Income taxes, net of refunds		1,159			329
Noncash transactions:
Foreclosed loans transferred to other real estate		5,047			1,092
Unrealized securities gains (losses), net of income taxes (benefit)		(1,318	)		(501	)
Application of SFAS No. 158 to employee benefit plan costs, net of income taxes		28			-
Interest rate swap		311			-
Adoption of EITF Issue 06-4		(357	)		-
See accompanying notes to consolidated financial statements.

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FNB United Corp. and Subsidiary

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

FNB United Corp. (“FNB United”) is the bank holding company for CommunityOne Bank, National Association (“CommunityOne”), formerly known as First National Bank and Trust Company prior to June 4, 2007. CommunityOne has three wholly owned subsidiaries, Dover Mortgage Company (“Dover”), First National Investor Services, Inc. and Premier Investment Services, Inc.  Through CommunityOne and Dover, FNB United offers a complete line of consumer, mortgage and business banking services, including loan, deposit, cash management, investment management and trust services, to individual and business customers. CommunityOne has offices in Alamance, Alexander, Ashe, Catawba, Chatham, Gaston, Guilford, Iredell, Montgomery, Moore, Orange, Randolph, Richmond, Rowan, Scotland, Watauga and Wilkes counties in North Carolina.  Dover, based in Charlotte, NC, joined FNB United in 2003 and has a retail origination network in key growth markets across the state, in addition to wholesale operations. Effective August 1, 2007, Dover became a subsidiary of CommunityOne. Premier Investment Services, Inc. is an inactive company.

The accompanying consolidated financial statements, prepared without audit, include the accounts of FNB United and its subsidiary (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  Operating results for the three-month and six-month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Certain reclassifications have been made to the prior period consolidated financial statements to place them on a comparable basis with the current period consolidated financial statements. These reclassifications have no effect on net income or shareholders’ equity as previously reported.

The organization and business of FNB United, accounting policies followed by the Company and other relevant information are contained in the notes to the consolidated financial statements filed as part of the Company 's 2007 Annual Report on Form 10-K.  This quarterly report should be read in conjunction with that annual report.

2. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include the balance sheet captions: cash and due from banks, interest-bearing bank balances and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods.

3. Earnings per Share

Basic net income per share, or basic earnings per share (“EPS”), is computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if the Company’s potential common stock and contingently issuable shares, which consist of dilutive stock options and restricted stock, were exercised.  The numerator of the basic EPS computation is the same as the numerator of the diluted EPS computation for

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all periods presented.  A reconciliation of the denominators of the basic and diluted EPS computations is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Basic EPS denominator - weighted average number of common shares outstanding		11,414,330		11,318,908		11,409,630		11,291,270
Dilutive share effect arising from potential common share issuances		1,939		24,459		1,939		28,157
Diluted EPS denominator		11,416,269		11,343,367		11,411,569		11,319,427

For the three months ended June 30, 2008 and 2007 there were 647,004 and 363,221 shares, respectively, related to stock options and restricted stock that were antidilutive since the exercise price exceeded the average market price for the period and were omitted from the calculation of diluted earnings per share for their respective periods. For the six months ended June 30, 2008 and 2007, there were 656,520 and 368,272 shares, respectively, related to stock options and restricted stock that were antidilutive.  These common stock equivalents were omitted from the calculations of diluted EPS for their respective periods.

4. Allowance for Loan Losses

Changes in the allowance for loan losses were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
	(dollars in thousands)
Balance, at beginning of period	$	18,215		$	15,757		$	17,381		$	15,943
Provision for loan losses		1,383			476			2,897			1,000
Net chargeoffs
Chargeoffs		(1,106	)		(1,031	)		(2,152	)		(2,229	)
Recoveries		353			503			719			991
Net chargeoffs		(753	)		(528	)		(1,433	)		(1,238	)
Balance, end of period	$	18,845		$	15,705		$	18,845		$	15,705
Annualized net charge-offs during
the period to average loans		0.19	%		0.16	%		0.19	%		0.18	%
Annualized net charge-offs during
the period to allowance for loan losses		15.98	%		13.45	%		15.21	%		15.77	%
Allowance for loan loss to loans held
for investment		1.20	%		1.16	%		1.20	%		1.16	%

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5. Postretirement Employee Benefit Plans

The accompanying table details the components of the net periodic cost of the Company’s postretirement benefit plans as recognized in the Company’s Consolidated Statements of Income:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Pension Plan	2008			2007			2008			2007
	(dollars in thousands)						(dollars in thousands)
Service cost	$	66		$	67		$	132		$	134
Interest Cost		165			157			330			314
Expected return on plan assets		(235	)		(236	)		(470	)		(472	)
Amortization of prior service cost		1			1			2			2
Amortization of net actuarial loss		2			6			4			12
Net periodic pension cost (income)	$	(1	)	$	(5	)	$	(2	)	$	(10	)
Supplemental Executive Retirement Plan
Service cost	$	34		$	35		$	68		$	70
Interest Cost		36			33			72			66
Expected return on plan assets		-			-			-			-
Amortization of prior service cost		17			17			34			34
Amortization of net actuarial loss		2			7			4			14
Net periodic SERP cost	$	89		$	92		$	178		$	184
Other Postretirement Defined Benefit Plans
Service cost	$	4		$	4		$	8		$	8
Interest Cost		18			17			36			34
Expected return on plan assets		-			-			-			-
Amortization of prior service cost (credit)		(1	)		(1	)		(2	)		(2	)
Amortization of transition obligation		-			-			-			-
Amortization of net actuarial loss (gain)		-			2			-			4
Net periodic postretirement benefit cost	$	21		$	22		$	42		$	44

The Company does not expect to contribute any funds to its pension plan in 2008.  The other postretirement benefit plans are unfunded plans; and consequently, there are no plan assets or cash contribution requirements other than for the direct payment of benefits.

6. Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of SFAS No. 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. While SFAS No. 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a

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requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted the provisions of SFAS No. 157 effective January 1, 2008.  Refer to Note 8 to the consolidated financial statements for additional disclosures.

In September 2006, the Emerging Issues Task Force (EITF) issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF Issue 06-4”).  EITF Issue 06-4 requires that for endorsement split-dollar insurance arrangements that provide a benefit to an employee that extends to postretirement periods, an employer should recognize a liability for future benefits in accordance with FASB Statement No. 106 or Accounting Principles Board (APB) Opinion No. 12 based on the substantive agreement of the employee.  If the employee has effectively agreed to maintain a life insurance policy during postretirement periods, the costs of the life insurance policy during the postretirement periods should be accrued in accordance with either FASB Statement No. 106 or APB Opinion No. 12. EITF Issue 06-4 is effective for fiscal years beginning after December 15, 2007. The adoption of the provisions of EITF Issue 06-4 effective January 1, 2008 resulted in a $357,000 reduction of retained earnings through recognition of the cumulative effect of a change in accounting principle.

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159), which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Subsequent changes in fair value of these financial assets and liabilities would be recognized in earnings when they occur. SFAS 159 further establishes certain additional disclosure requirements. SFAS 159 is effective for the Company’s financial statements for the year beginning on January 1, 2008, with earlier adoption permitted.  The adoption of the provisions of SFAS 159 effective January 1, 2008 had no material effect on financial position or results of operations.

SFAS No. 141 (R), Business Combinations.  This statement requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.  In addition, this statement expands the scope of acquisition accounting to all transactions and circumstances under which control of a business is obtained.  This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Earlier adoption is prohibited.

Staff Accounting Bulletin No. 109.  SAB 109 revises and rescinds portions of the interpretative guidance included in Topic 5:DD of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting literature (principally SFAS 156 and SFAS 159). SAB 109 discusses the staff’s views on the accounting for written loan commitments that are recorded at fair value through earnings under generally accepted accounting principles.  The principal change to current staff guidance is to include the expected net future cash flows relating to the associated servicing of a loan in the fair value measurement of a derivative loan commitment (such as a loan commitment relating to a mortgage loan that will be held for sale).  SAB 109 is effective prospectively to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of the provisions of SAB, 109 effective January 1, 2008, resulted in the initial recognition of $500,000 in written loan commitments recorded at fair value

9

through earnings related to the expected net future cash flows involving the associated servicing of loans in the fair value measurement of derivative loan commitments.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 expands quarterly disclosure requirements in SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The Company is currently assessing the impact of SFAS 161 on its consolidated financial position and results of operations.

From time to time the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

7.            Comprehensive Income

Comprehensive income is defined as the change in equity of an enterprise during a period from transactions and other events and circumstances from nonowner sources and, accordingly, includes both net income and amounts referred to as other comprehensive income.  The items of other comprehensive income are included in the consolidated statement of shareholders’ equity and comprehensive income.  The accumulated balance of other comprehensive income is included in the shareholders’ equity section of the consolidated balance sheet.  The Company’s components of accumulated other comprehensive income at June 30, 2008 include unrealized gains (losses) on investment securities classified as available-for-sale, the effect of the application of SFAS No. 158 to defined benefit pension and other postretirement plans for employees, and the changes in the interest rate swap on one issue of the trust preferred securities.

For the three months ended June 30, 2008 and 2007, total comprehensive income (loss), consisting of net income and the components of other comprehensive income, net of tax benefit, was ($1.3 million) and $3.3 million, respectively. The income tax benefit related to the components of other comprehensive income amounted to $976,000 and $279,000, respectively.

For the six months ended June 30, 2008 and 2007, total comprehensive income, consisting of net income and the components of other comprehensive income, net of tax benefit, was $1.5 million and $6.9 million, respectively. The income tax benefit related to the components of other comprehensive income amounted to $673,000 and $325,000, respectively.

8. Financial Instruments

On March 14, 2008, FNB United entered into a pay fixed, receive variable interest rate swap with SunTrust Bank in the notional amount of $20,000,000, exactly matching the terms of an existing trust preferred security and maturing on the first date on which FNB United may call the security.  As a result, FNB United has locked the rate of interest payable on the trust preferred securities at 4.01% through December 15, 2010.  Holders of the trust preferred are not affected. The swap was effective at June 30, 2008 and is expected to remain so as the cash flows are exactly matched.

On May 27, 2008, FNB United entered into a revolving credit agreement with SunTrust Bank in the original principal amount of $10,000,000. Proceeds of all revolving loans will be used for general corporate purposes, including supporting the capital needs of CommunityOne. The revolving credit facility bears interest at three-month LIBOR plus 1.50% per annum and will terminate on May 22, 2009. It is unsecured. The credit agreement includes customary financial and corporate affirmative and negative covenants and customary provisions for acceleration upon the occurrence of an event of

10

default by FNB United. Prepayments may be made without premium or penalty. FNB United has not drawn down any amounts under the revolving credit facility.

On June 30, 2008, CommunityOne entered into a subordinated debt loan agreement with SunTrust Bank. The agreement provides for a $15 million subordinated term loan that is unsecured and intended to qualify as Tier 2 capital under applicable rules and regulations of the Comptroller of the Currency. The loan will mature on June 30, 2015 and will bear interest at three-month LIBOR plus 3.50%, with interest only payable quarterly. There is no right of acceleration in the case of a default in the payment of the principal of or interest on the subordinated debt loan or the performance of any other obligation of CommunityOne under the note evidencing the loan. Acceleration upon the occurrence of limited events of default is permitted provided that any required prior approval of the Comptroller of the Currency for such acceleration is obtained. CommunityOne has been extended the full amount of the subordinated debt loan.

9. Fair values of assets and liabilities

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under SFAS 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

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Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 2.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investments in such loans. At June 30, 2008, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Derivative Assets and Liabilities

Substantially all derivative instruments held or issued by the Company for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. The Company classifies derivatives instruments held or issued for risk management or customer-initiated activities as Level 2.

Mortgage Servicing Rights

Mortgage servicing rights are subject to impairment testing. A valuation model, which utilizes a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and a discount rate, is used in the completion of impairment testing. If the valuation model reflects a value less than the carrying value, loan servicing rights are adjusted to fair value through a valuation allowance as determined by the model. As such, the Company classifies mortgage servicing rights subjected to nonrecurring fair value adjustments as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table presents the recorded amount of assets and liabilities measured at fair value on a recurring basis.

(in thousands)
June 30, 2008	Total		Level 1		Level 2		Level 3
Investment securities available for sale	$	186,213	$	2,023	$	180,839	$	3,351
Derivative assets		987		-		987		-
Total assets at fair value	$	187,200	$	2,023	$	181,826	$	3,351

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The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended June 30, 2008.

(in thousands)
June 30, 2008	Investment securities available for sale			Total
Beginning balance, March 31, 2008	$	4,265		$	4,265
Total gains/losses (realized'unrealized)
Included in earnings (or changes in net assets)		-			-
Included in other comprehensive income		(905	)		(905	)
Purchases, issuances, and settlements		-			-
Transfers in/out of Level 3		(9	)		(9	)
Ending balance, June 30, 2008	$	3,351		$	3,351

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the following table.

(in thousands)
June 30, 2008	Total		Level 1		Level 2		Level 3
Loans	$	1,213	$	-	$	-	$	1,213
Mortgage servicing rights		3,252		-		-		3,252
OREO		5,645		-		5,645		-
Total assets at fair value	$	10,110	$	-	$	5,645	$	4,465

10. Goodwill

During the second quarter of 2008, FNB United commenced an impairment evaluation of the Dover Mortgage goodwill as a result of changes in the Dover business model, which included the closing of certain offices that were not accretive to earnings. As a result, the impairment evaluation determined the carrying value exceeded fair value. The Company made the decision to take a goodwill impairment charge for the entire remaining carrying value of $1.8 million (pre-tax and after-tax), and this non-cash charge has been recorded as a component of noninterest expense for the second quarter.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the goodwill impairment analysis of Dover Mortgage as of June 30, 2008 necessitates an impairment analysis of the remaining entity-wide goodwill of $108.4 million as of June 30, 2008. This analysis is underway and will be completed by the end of the third quarter of 2008. Even though the fair value of the enterprise reporting unit exceeded its carrying value as of the most recent testing date, December 31, 2007, there can be no assurance that the pending assessment of enterprise goodwill will indicate that its fair value exceeds its carrying value.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of the financial condition, changes in financial condition and results of operations of FNB United Corp. (“FNB United”) and its wholly owned subsidiary, CommunityOne Bank, National Association (“CommunityOne”), formerly known as First National Bank and Trust Company, prior to June 4, 2007. FNB United and its subsidiary are collectively referred to as the “Company.” This discussion should be read in conjunction with the financial statements and related notes included elsewhere in this quarterly report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. This discussion is intended to assist in understanding the financial condition and results of operations of the Company. 

Overview

Description of Operations

FNB United is a bank holding company with a full-service subsidiary bank, CommunityOne, which offers a complete line of consumer, mortgage and business banking services, including loan, deposit, cash management, investment management and trust services, to individual and business customers.  CommunityOne has offices in Alamance, Alexander, Ashe, Catawba, Chatham, Gaston, Guilford, Iredell, Montgomery, Moore, Orange, Randolph, Richmond, Rowan, Scotland, Watauga and Wilkes counties in North Carolina.

Additionally, CommunityOne has a mortgage banking subsidiary, Dover Mortgage Company, which originates, underwrites and closes loans for sale into the secondary market.  Dover, based in Charlotte, NC, joined FNB United in 2003 and has a retail origination network in key growth markets across the state, in addition to wholesale operations in the surrounding states of South Carolina, Tennessee, and Virginia. Effective August 1, 2007, Dover became a subsidiary of CommunityOne.

Executive Summary

The Company earned $140,000 in the second quarter of 2008, a 96% decline from earnings of $3.7 million in the same period of 2007. The decrease in net income resulted from declining levels of net interest income and noninterest income and higher levels of provision for loan losses. Additionally, during the second quarter of 2008, FNB United commenced an impairment evaluation of the Dover Mortgage goodwill as a result of changes in the Dover business model, which included the closing of certain offices that were not accretive to earnings.  As a result, the impairment evaluation determined the carrying value exceeded fair value. The Company made the decision to take a goodwill impairment charge for the entire remaining carrying value of $1.8 million (pre-tax and after-tax) ), or $0.16 per share, and this non-cash charge has been recorded as a component of noninterest expense for the second quarter. Noninterest expense was flat, excluding the effect of the goodwill impairment charge. Quarterly basic and fully diluted earnings per common share decreased from $0.33, to $0.01.

Total assets were $2.06 billion at June 30, 2008, up 10% from June 30, 2007 and 8% from December 31, 2007.  Gross loans held for investment of $1.57 billion at June 30, 2008 represented an increase of $222.4 million, or 16%, from $1.35 billion at June 30, 2007 and an increase of $128.8 million, or 9%, from $1.45 billion at December 31, 2007.  Total deposits of $1.49 billion at June 30, 2008 represented an increase of $40.2 million, or 3%, from $1.45 billion at June 30, 2007 and an increase of $44.5 million, or 3%, from $1.44 billion at December 31, 2007.

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Financial highlights are presented in the accompanying table.

Table 1

Selected Financial Data

	As of / For the Quarter Ended						As of / For the Quarter Ended
	6/30/2008			6/30/2007			6/30/2008			6/30/2007
Selected components income statement data	(dollars in thousands, except per share data)
Interest income	$	28,325		$	31,714		$	58,535		$	62,611
Interest expense		13,376			15,655			28,156			30,727
Net interest income		14,949			16,059			30,379			31,884
Provision for loan losses		1,383			476			2,897			1,000
Net interest income after provision for loan losses		13,566			15,583			27,482			30,884
Noninterest income		4,743			5,426			9,771			10,399
Noninterest expense		17,318			15,369			32,857			29,981
Income before income taxes		991			5,640			4,396			11,302
Income taxes		851			1,949			1,933			3,859
Net income	$	140		$	3,691		$	2,463		$	7,443
Common share data
Basic earnings per share	$	0.01		$	0.33		$	0.22		$	0.66
Diluted earnings per share		0.01			0.33		$	0.22			0.66
Dividends declared per share		0.10			0.15			0.25			0.30
Book value per share		18.81			18.68			18.81			18.68
Weighted average shares outstanding-basic		11,414,330			11,318,908			11,409,630			11,291,270
Weighted average shares outstanding-diluted		11,416,269			11,343,367			11,411,569			11,319,427
Financial condition data
Total assets	$	2,055,020		$	1,863,407		$	2,055,020		$	1,863,407
Securities		211,573			238,559			211,573			238,559
Loans held for sale		19,875			27,123			19,875			27,123
Net loans held for investment		1,556,097			1,336,871			1,556,097			1,336,871
Deposits		1,486,134			1,445,330			1,486,134			1,445,330
Goodwill and core deposit intangible		114,556			117,521			114,556			117,521
Borrowings		334,417			157,436			334,417			157,436
Shareholders' equity		214,882			212,472			214,882			212,472
Average Balances
Total assets	$	2,046,034		$	1,855,436		$	2,003,445		$	1,843,014
Securities		227,524			258,519			221,605			254,824
Loans		1,577,769			1,355,601			1,542,519			1,344,256
Interest-earning assets		1,805,293			1,614,120			1,764,124			1,599,080
Goodwill and core deposit intangible		116,395			118,030			116,521			118,129
Deposits		1,486,829			1,448,022			1,469,779			1,437,390
Total interest-bearing liabilities		1,645,523			1,459,458			1,605,693			1,451,703
Shareholders' equity		217,453			211,679			217,584			210,435
Performance Ratios
Return on average assets		0.03	%		0.80	%		0.25	%		0.81	%
Return on tangible assets		0.03	%		0.85	%		0.26	%		0.87	%
Return on average equity		0.26	%		6.99	%		2.27	%		7.13	%
Return on tangible equity		0.56	%		15.81	%		4.89	%		16.26	%
Net interest margin		3.40	%		4.07	%		3.54	%		4.11	%
Noninterest income to average assets		0.93	%		1.17	%		0.98	%		1.14	%
Noninterest expense to average assets		3.40	%		3.32	%		3.29	%		3.28	%
Efficiency ratio		87.94	%		71.53	%		81.84	%		70.91	%

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Application of Critical Accounting Policies

The Company's accounting policies are in accordance with accounting principles generally accepted in the United States and with general practice within the banking industry and are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company's significant accounting policies are discussed in detail in Note 1 of the consolidated financial statements.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and goodwill impairment. Actual results could differ from those estimates.

Allowance for Loan Losses

The allowance for loan losses, which is utilized to absorb actual losses in the loan portfolio, is maintained at a level consistent with management’s best estimate of probable loan losses incurred as of the balance sheet date.  The Company’s allowance for loan losses is also analyzed quarterly by management.  This analysis includes a methodology that separates the total loan portfolio into homogeneous loan classifications for purposes of evaluating risk.  The required allowance is calculated by applying a risk adjusted reserve requirement to the dollar volume of loans within a homogenous group.  Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines.  Management also analyzes the loan portfolio on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly.  While management uses the best information available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used. See additional discussion under “Asset Quality.”

Goodwill

We have developed procedures to test goodwill for impairment on an annual basis. This testing procedure evaluates possible impairment based on the following:

The test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to a reporting unit and comparing the fair value of this reporting unit to its carrying value including goodwill. The value is determined assuming a freely negotiated transaction between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Accordingly, to derive the fair value of the reporting unit, the following common approaches to valuing business combination transactions involving financial institutions are utilized by the Company: (1) the comparable transactions approach – specifically based on earnings, book, assets and deposit premium multiples received in recent sales of comparable bank franchises; and (2) the discounted cash flow approach. The application of these valuation techniques takes into account the reporting unit’s operating history, the current market environment and future prospects.

If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and no second step is required. If not, a second test is required to measure the amount of goodwill impairment. The second test of the overall goodwill impairment compares the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill. The impairment loss shall equal the excess of carrying value over fair value.

During the second quarter of 2008, FNB United commenced an impairment evaluation of the Dover Mortgage goodwill as a result of changes in the Dover business model, which included the closing of certain offices that were not accretive to earnings.  As a result, the impairment evaluation determined the carrying value exceeded fair value. The Company made the decision to take a goodwill impairment charge for the entire remaining carrying value of $1.8 million (pre-tax and after-tax), and this non-cash charge has been recorded as a component of noninterest expense for the second quarter.

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In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the goodwill impairment analysis of Dover Mortgage as of June 30, 2008 necessitates an impairment analysis of the remaining entity-wide goodwill of $108.4 million as of June 30, 2008. This analysis is underway and will be completed by the end of the third quarter of 2008. Even though the fair value of the enterprise reporting unit exceeded its carrying value as of the most recent testing date, December 31, 2007, there can be no assurance that the pending assessment of enterprise goodwill will indicate that its fair value exceeds its carrying value.

Summary

Management believes the accounting estimates related to the allowance for loan losses and the goodwill impairment test are “critical accounting estimates” because: (1) the estimates are highly susceptible to change from period to period because they require management to make assumptions concerning the changes in the types and volumes of the portfolios and anticipated economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on the Company’s assets reported on the balance sheet as well as its net earnings.

Results of Operations

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits.  Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.  Analyses are presented in Table 2 (three month periods ended June 30, 2008 and 2007) and Table 3 (six month periods ended June 30, 2008 and 2007) of the Company’s net interest income on a taxable-equivalent basis and average balance sheets.

For the three months ended June 30, 2008, net interest income before the provision for loan losses was $15.3 million, a decrease of $1.1 million, or 7%, from $16.4 million for the same quarter in 2007.  The decrease was primarily due to a $191.2 million increase in average earning asset balances and a $186.1 million increase in interest bearing liabilities, offset by the 158 basis point decrease in yield on earning assets, combined with a 103 basis point decrease in interest-bearing liabilities.

The net interest margin (taxable-equivalent net interest income divided by average earning assets) compressed 67 basis points, to 3.40 % for the three months ended June 30, 2008, compared to 4.07% in the same period in 2007.  The decline in the net interest margin can be primarily attributed to the rapid decline in the prime lending rate, from 8.25% at March 31, 2007 to 5.25% at June 30, 2008. The majority of this decline occurred between September 2007 and March 2008. Approximately two-thirds of our loan portfolio reprices based on prime whereas our cost of interest-bearing liabilities does not react as quickly. Another variable impacting the margin was the increased market demand for liquidity which we built into our funding cost beginning in the second half of 2007. While the Company experienced a 158 basis point decrease in the yield on earning assets, the cost of interest bearing liabilities decreased only 103 basis points.  Growth in earning assets was funded by higher cost deposits and wholesale borrowings.

For the six months ended June 30, 2008, net interest income before the provision for loan losses was $31.0 million, a decrease of $1.5 million, or 5%, from $32.6 million for the same period in 2007.  The decrease was primarily due to a $165.0 million increase in average earning asset balances and a $154.0 million increase in interest bearing liabilities, offset by the 123 basis point decrease in yield on earning assets, combined with a 74 basis point decrease in interest-bearing liabilities.

The net interest margin (taxable-equivalent net interest income divided by average earning assets) compressed 57 basis points, to 3.54 % for the six months ended June 30, 2008, compared to 4.11% in the same period in 2007.  While the Company experienced a 123 basis point decrease in the yield on earning assets, the cost of interest bearing liabilities only decreased 74 basis points.  Growth in earning assets was funded by higher cost deposits and wholesale borrowings.

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Table 2

Average Balances and Net Interest Income Analysis

	Three Months Ended June 30,
	2008							2007
			Interest		Average					Interest		Average
	Average		Income /		Yield /			Average		Income /		Yield /
	Balance(3)		Expense		Rate			Balance(3)		Expense		Rate
Interest earning assets:	(Dollars in thousands)
Loans (1)	$	1,577,769	$	25,908		6.60	%	$	1,355,601	$	28,623		8.47	%
Taxable investment securities		173,972		1,959		4.53			172,077		2,231		5.20
Tax-exempt investment securities (1)		52,553		774		5.92			54,528		757		5.57
Other earning assets		999		5		2.01			31,914		423		5.32
Total earning assets		1,805,293		28,646		6.38			1,614,120		32,034		7.96
Non-earning assets:
Cash and due from banks		30,845							31,733
Goodwill and core deposit premiums		116,395							118,030
Other assets, net		93,501							91,553
Total assets	$	2,046,034						$	1,855,436
Interest bearing liabilities:
Interest-bearing demand deposits		170,040		227		0.54			166,362		666		1.61
Savings deposits		42,002		26		0.25			49,628		35		0.28
Money market deposits		286,604		1,843		2.59			258,143		2,678		4.16
Time deposits		823,572		8,526		4.16			811,182		9,866		4.88
Retail repurchase agreements		33,963		163		1.93			28,012		319		4.57
Federal Home Loan Bank advances		201,639		1,829		3.65			64,662		674		4.18
Federal funds purchased		30,293		174		2.31			1,864		27		5.81
Other borrowed funds		57,410		588		4.12			79,605		1,390		7.00
Total interest bearing liabilities		1,645,523		13,376		3.27			1,459,458		15,655		4.30
Other liabilities and shareholders' equity:
Noninterest-bearing demand deposits		164,611							162,707
Other liabilities		18,447							21,592
Shareholders' equity		217,453							211,679
Total liabilities and equity	$	2,046,034						$	1,855,436
Net interest income and net yield on earning assets (3) (4)			$	15,270		3.40	%			$	16,379		4.07	%
Interest rate spread (5)						3.11	%						3.66	%

(1) The fully tax equivalent basis is computed using a federal tax rate of 35%.

(2) The average loan balances include nonaccruing loans.

(3) The average balances for all years include market adjustments to fair value for securities and loans available/held for sale.

(4) Net yield on earning assets is computed by dividing net interest income by average earning assets.

(5) Earning asset yield minus interest bearing liabilities rate.

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Table 3

Average Balances and Net Interest Income Analysis

	Six Months Ended June 30,
	2008							2007
			Interest		Average					Interest		Average
	Average		Income /		Yield /			Average		Income /		Yield /
	Balance(3)		Expense		Rate			Balance(3)		Expense		Rate
Interest earning assets:	(Dollars in thousands)
Loans (1)	$	1,542,519	$	53,497		6.97	%	$	1,344,256	$	56,550		8.48	%
Taxable investment securities		166,344		4,094		4.95			152,303		3,887		5.15
Tax-exempt investment securities (1)		53,997		1,585		5.90			55,621		1,608		5.83
Other earning assets		1,264		17		2.70			46,900		1,241		5.34
Total earning assets		1,764,124		59,193		6.75			1,599,080		63,286		7.98
Non-earning assets:
Cash and due from banks		31,492							32,760
Goodwill and core deposit premiums		116,521							118,129
Other assets, net		91,307							93,045
Total assets	$	2,003,444						$	1,843,014
Interest bearing liabilities:
Interest-bearing demand deposits		165,975		567		0.69			167,603		1,382		1.66
Savings deposits		41,659		52		0.25			49,925		70		0.28
Money market deposits		273,750		3,856		2.83			249,427		5,114		4.13
Time deposits		827,018		17,954		4.37			811,068		19,477		4.84
Retail repurchase agreements		32,073		412		2.58			27,260		624		4.62
Federal Home Loan Bank advances		185,519		3,521		3.82			65,245		1,355		4.19
Federal funds purchased		22,667		298		2.64			937		27		5.81
Other borrowed funds		57,032		1,497		5.28			80,238		2,678		6.73
Total interest bearing liabilities		1,605,693		28,157		3.53			1,451,703		30,727		4.27
Other liabilities and shareholders' equity:
Noninterest-bearing demand deposits		161,377							159,367
Other liabilities		18,790							21,509
Shareholders' equity		217,584							210,435
Total liabilities and equity	$	2,003,444						$	1,843,014
Net interest income and net yield on earning assets (3) (4)			$	31,036		3.54	%			$	32,559		4.11	%
Interest rate spread (5)						3.22	%						3.71	%

(1) The fully tax equivalent basis is computed using a federal tax rate of 35%.

(2) The average loan balances include nonaccruing loans.

(3) The average balances for all years include market adjustments to fair value for securities and loans available/held for sale.

(4) Net yield on earning assets is computed by dividing net interest income by average earning assets.

(5) Earning asset yield minus interest bearing liabilities rate.

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Provision for Loan Losses

The provision for loan losses is charged against earnings in order to maintain the allowance for loan losses at a level that reflects management’s evaluation of the incurred losses inherent in the portfolio. The amount of the provision is based on continuing assessments of nonperforming and “watch list” loans, analytical reviews of loan loss experience in relation to outstanding loans, loan charge offs, nonperforming asset trends and management’s judgment with respect to current and expected economic conditions and their impact on the existing credit portfolio.

During the three-month period ended June 30, 2008, management determined a charge to operations of $1.4 million would bring the allowance for loan losses to a balance considered to be adequate to reflect the growth in loans and to absorb probable losses inherent in the portfolio.  This amount compared to $476,000 for the second quarter of 2007. The level of the provision was primarily driven by growth in the loan portfolio. Net charge offs for the three months ended June 30, 2008 totaled $753,000, or 0.19% annualized of average loans, compared to $528,000, or 0.16% annualized of average loans for the same period in 2007.

For the six-month period ended June 30, 2008, the provision for loan losses was $2.9 million, compared to $1.0 million in the same period of 2007.  The level of the provision was primarily driven by growth in the loan portfolio. Net charge offs for the six months ended June 30, 2008 totaled $1.4 million, or 0.19% annualized of average loans, compared to $1.2 million, or 0.18% annualized of average loans for the same period in 2007.

Noninterest Income

For the three months ended June 30, 2008, total noninterest income was $4.7 million, a decrease of $683,000, or 13%, compared to the same period in 2007. The primary factor impacting this decrease was a decline in mortgage loan sales to the secondary market which generated $564,000 less income in the 2008 second quarter than for the same period a year ago. This was attributable, primarily, to a 32% decline in the volume of mortgage loans originated for sale. The SAB 109 accrual, as discussed below, was adjusted at June 30 to reflect the current fair value of loan commitments and resulted in a decrease of $32,000. The combination of the other areas netted a $119 thousand decrease, compared to the prior year.

For the six months ended June 30, 2008, total noninterest income was $9.8 million, a decrease of $628,000, or 6%, compared to the same period in 2007.  Mortgage loan sales income was $2.2 million in the first half of 2008, compared to $2.5 million for the same period in 2007. The 2008 year-to-date mortgage loan income was impacted by the adoption of the provisions of SAB 109 effective January 1, 2008, which resulted in the initial recognition of $500,000 in written loan commitments, recorded at fair value through earnings, and was more than offset by a decrease in mortgage loan sales income associated with the slowing housing market. The origination of mortgage loans for sale to the secondary market declined 29% in 2008, compared to the same period a year ago. Trust and investment services income was up $99,000. The noninterest income category of other service charges, commissions and fees was down $208,000, compared to 2007, primarily the result of a $99,000 decrease in fees generated by Dover, combined with net $63,000 writedowns of mortgage servicing rights.

Noninterest Expense

Noninterest expense for the second quarter of 2008 was $17.3 million, a $1.9 million, or 13%, increase, compared to the second quarter a year ago.   The second quarter of 2008 includes a $1.8 million writedown of goodwill associated with the acquisition of Dover Mortgage. Excluding the goodwill impairment charge, noninterest expense was flat to the second quarter 2007. During the second quarter of 2008, FNB United commenced an impairment evaluation of the Dover Mortgage goodwill as a result of changes in the Dover

20

business model, which included the closing of certain offices tht were not accretive to earnings.  As a result,the impairment evaluation determined the carrying value exceeded fair value. The Company made the decision to take a goodwill impairment charge for the entire remaining carrying value of $1.8 million (pre-tax and after-tax), and this non-cash charge has been recorded as a component of noninterest expense for the second quarter.  For the second quarter of 2008, losses on sale of foreclosed property, included in other expense, totaled $191,000, compared to $28,000 for the same period in 2007.

For the first six months of 2008, noninterest expense was $32.9 million, a $2.9 million, or 10% increase, compared to the same period in 2007.  This increase included the impact of the Dover goodwill impairment charge of $1.8 million taken in second quarter 2008. Personnel expense increased $989,000, which included $802,000 in incentive plan accruals and accruals related to medical insurance. For the first six months of 2008, losses on sale of foreclosed property, included in other expense, totaled $358,000, compared to $59,000 for the same period in 2007. Other expense was impacted favorably in 2008 by a $336,000 decrease in rebranding expense. These rebranding expenses during 2007 were one-time costs associated with changing the name of First National Bank and Trust Company and all of its divisions to CommunityOne Bank.

Income Taxes

The Company’s provision for income taxes totaled $851,000 for the second quarter of 2008 and $1.9 million for the same period in 2007. The decrease in the provision for 2008, compared to the prior year, results primarily from the decrease in taxable income. Our provision for income taxes, as a percentage of income before income taxes, was 30.5% for the three months ended June 30, 2008, exclusive of the impact of the non tax -deductible $1.8 million writedown of goodwill associated with the acquisition of Dover Mortgage, compared to 34.6% for the three months ended June 30, 2007, reflective of different levels of tax-exempt earnings.

The Company’s provision for income taxes totaled $1.9 million for the first six months of 2008 and $3.9 million for the same period in 2007. The decrease in the provision for 2008, compared to the prior year, results primarily from the decrease in taxable income. Our provision for income taxes, as a percentage of income before income taxes, was 31.2% for the six months ended June 30, 2008, exclusive of the impact of the non tax-deductible $1.8 million writedown of goodwill associated with the acquisition of Dover Mortgage, compared to 34.1% for the six months ended June 30, 2007, reflective of different levels of tax-exempt earnings.

Financial Condition

Since December 31, 2007, the Company’s assets have increased $148.5 million, to $2.06 billion at June 30, 2008. The principal factors impacting this overall increase during the first six months of 2008 were a $128.8 million increase in loans held for investment, combined with a $14.1 million increase in net investments.  Loans held for investment at June 30, 2008 totaled $1.57 billion, compared to $1.45 billion at yearend 2007, an increase of 9%. Investment securities of $211.6 million at June 30, 2008 were 7% higher than the $197.4 million balance at December 31, 2007.

Deposits totaled $1.49 billion at June 30, 2008, compared to $1.44 billion at December 31, 2007.  At the end of the second quarter 2008, noninterest-bearing deposits were $164.1 million, or 11.0%, of total deposits.  Borrowings at the Federal Home Loan Bank of Atlanta (“FHLB”) totaled $202.4 million at June 30, 2008, compared to $131.8 million at December 31, 2007. On May 27, 2008, FNB United entered into a revolving credit agreement in the original principal amount of $10 million, of which none has been drawn down as of June 30, 2008. Any funds drawn down would be invested in, and quality as, Tier 1 capital of CommunityOne. On June 30, 2008, CommunityOne entered into a subordinated debt loan agreement, providing for a $15 million subordinated term loan that is intended to qualify as Tier 2 capital.  The increase in the FHLB borrowings, combined with the increase of federal funds purchased, was used to fund the growth in the portfolio of loans held for investment. Retail repurchase agreements totaled $32.3 million at June 30, 2008 and $29.1 million at December 31, 2007.

Shareholders’ equity is strong, with all of our regulatory capital ratios at levels that classify the Company as “well capitalized” under bank regulatory capital guidelines. Shareholders’ equity was $214.9 million at the

21

end of the second quarter 2008, compared to $216.3 million at December 31, 2007.  The Company declared dividends of $0.25 per share during the six months ended June 30, 2008.

Investment Securities

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, to determine if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in FSP 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.  In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than book value, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.  If management determines that an investment experienced an OTTI, the loss is recognized in the income statement as a realized loss.  Any recoveries related to the value of these securities are recorded as an unrealized gain (as other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

During the first six months of 2008, the market for Collateralized Debt Obligations (“CDOs”) deteriorated. The Company owns one CDO issue with a current book value as of June 30, 2008 of $5.0 million. With very limited marketability of the security and rates well above the stated rate of this security, the current trading activity is well below par, at the current level of $3.4 million for this security. The credit rating of the CDO is unchanged from its issuance and the Company’s position is superior to other positions within the CDO. After extensive review, and with the expectation that the Company will receive all contractual cash flows, management determined that no OTTI was necessary. Management will continue to monitor this security for future OTTI.

At June 30, 2008, the remainder of the Company’s securities available-for-sale with an unrealized loss position were, in management’s belief, primarily due to differences in market interest rates as compared to those of the underlying securities.  Management does not believe any of these securities are other-than-temporarily impaired.  At June 30, 2008, the Company has both the intent and ability to hold these impaired securities for a period of time necessary to recover the unrealized losses; however, the Company may from time to time dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds could be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Asset Quality

Management considers the asset quality of CommunityOne to be of primary importance.  A formal loan review function, independent of loan origination, is used to identify and monitor problem loans.  As part of the loan review function, a third party assessment group is employed to review the underwriting documentation and risk grading analysis.

Nonperforming assets

Nonperforming assets are comprised of nonaccrual loans, accruing loans past due 90 days or more and other real estate owned (“OREO”).  Loans are placed in nonaccrual status when, in management’s opinion, the collection of all or a portion of interest becomes doubtful.  Loans are returned to accrual status when the factors indicating doubtful collectibility cease to exist and the loan has performed in accordance with its terms for a demonstrated period of time.  OREO represents real estate acquired through foreclosure or deed in lieu of foreclosure and is generally carried at fair value, less estimated costs to sell.

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Nonperforming loans at June 30, 2008 were $12.7 million, or 0.80% of loans held for investment, compared to $11.6 million, or 0.86% of loans held for investment at June 30, 2007, and $18.7 million or 1.29% of loans held for investment at December 31, 2007.  Other real estate owned was $5.8 million at June 30, 2008, compared to $3.1 million at June 30, 2007, and $2.9 million at December 31, 2007.

Allowance for loan losses

In determining the allowance for loan losses and any resulting provision to be charged against earnings, particular emphasis is placed on the results of the loan review process.  Consideration is also given to a review of individual loans, historical loan loss experience, the value and adequacy of collateral and economic conditions in CommunityOne’s market area.  For loans determined to be impaired, the allowance is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review CommunityOne’s allowance for loan losses.  Such agencies may require CommunityOne to recognize changes to the allowance based on their judgments about information available to them at the time of their examinations.  Loans are charged off when, in the opinion of management, they are deemed to be uncollectible.  Recognized losses are charged against the allowance, and subsequent recoveries are added to the allowance.

The adequacy of the allowance for loan losses is measured on a quarterly basis against an allocation model that assigns reserves to various components of the loan portfolio in order to provide for probable inherent losses.  Homogeneous pools of loans are segregated, and classifications of individual loans within certain of these pools are identified using risk grades derived from regulatory risk guidelines and additional internal parameters.  Utilizing the trailing four-year historical loss experience of CommunityOne (prior to the merger with Integrity) combined with recent loss experience with the acquired Integrity loan portfolio and the assessment of portfolio quality and diversification trends and economic factors, a range of appropriate reserves is calculated for each classification and pool of loans.  Allocated to each pool is a reserve amount within the calculated range, as supported by the historical loss ratios.  Additional reserves are estimated and assigned to the most adversely classified loans based upon an individual analysis of present-value repayment and/or liquidation projections of each loan.  A portion of the total reserve may be unallocated to any specific segment of the loan portfolio, but will not exceed the upper limit of the total calculated reserve range when aggregated with allocated portions.  The determination within the allowance model of allocated and unallocated components is not necessarily indicative of future losses or allocations.  The entire balance of the allowance for loan losses is available to absorb losses in any segment of the loan portfolio.

The allowance for loan losses, as a percentage of loans held for investment, amounted to 1.20% at June 30, 2008, 1.20% at December 31, 2007 and 1.16% at June 30, 2007.  The allowance percentage has remained within a range of 1.16% to 1.20% during the twelve-month period ended June 30, 2008, based on the results from application of the allowance model that assigns reserves to various components of the loan portfolio in order to provide for probable inherent losses. Adequate provisions and allowances for loan losses are based upon numerous factors including growth of the loan portfolio, delinquencies, net charge offs, nonperforming loans, and collateral values. Changes in the allowance for loan losses are presented in Note 4 to the Consolidated Financial Statements.

Management believes the allowance for loan losses of $18.8 million at June 30, 2008 is adequate to cover probable losses inherent in the loan portfolio; however, assessing the adequacy of the allowance is a process that requires continuous evaluation and considerable judgment.  Management’s judgments are based on numerous assumptions about current events which it believes to be reasonable, but which may or may not be valid.  Thus, there can be no assurance that loan losses in future periods will not exceed the current allowance

23

or that future increases in the allowance will not be required.  No assurance can be given that management’s ongoing evaluation of the loan portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the allowance, thus adversely affecting the operating results of the Company.

Liquidity Management

Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers.  Deposit withdrawals, loan funding and general corporate activity create a need for liquidity for the Company.  Liquidity is derived from sources such as deposit growth; maturity, calls, or sales of investment securities; principal and interest payments on loans; access to borrowed funds or lines of credit; and profits.

Consistent with the general approach to liquidity, loans and other assets of CommunityOne are based primarily on a core of local deposits and CommunityOne’s capital position.  To date, the steady increase in deposits, retail repurchase agreements and capital, supplemented by Federal Home Loan Bank advances and a modest amount of brokered deposits, has been adequate to fund loan demand in CommunityOne’s market area, while maintaining the desired level of immediate liquidity and a substantial investment securities portfolio available for both immediate and secondary liquidity purposes.

Commitments, Contingencies and Off-Balance Sheet Risk

In the normal course of business, various commitments are outstanding that are not reflected in the consolidated financial statements.  Significant commitments at June 30, 2008 are discussed below.

Commitments by CommunityOne to extend credit and undisbursed advances on customer lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  At June 30, 2008, total commitments to extend credit and undisbursed advances on customer lines of credit amounted to $470.7 million.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many commitments expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, upon extension of credit is based on the credit evaluation of the borrower.

CommunityOne issues standby letters of credit whereby it guarantees the performance of a customer to a third party if a specified triggering event or condition occurs.  The guarantees generally expire within one year and may be automatically renewed depending on the terms of the guarantee.  All standby letters of credit provide for recourse against the customer on whose behalf the letter of credit was issued, and this recourse may be further secured by a pledge of assets.  The maximum potential amount of undiscounted future payments related to standby letters of credit was $2.4 million at June 30, 2008, $2.7 million at December 31, 2007 and $2.9 million at June 30, 2007.

Dover Mortgage Company originates certain fixed rate residential mortgage loans with the intention of selling these loans.  Between the time that Dover enters into an interest rate lock or a commitment to originate a fixed rate residential mortgage loan with a potential borrower and the time the closed loan is sold, the Company is subject to variability in market prices related to these commitments.  The Company believes that it is prudent to limit the variability of expected proceeds from the future sales of these loans by entering into forward sales commitments and commitments to deliver loans into a mortgage-backed security.  The commitments to originate fixed rate residential mortgage loans and the forward sales commitments are freestanding derivative instruments.  They do not qualify for hedge accounting treatment so their fair value adjustments are recorded through the income statement in income from mortgage loan sales.  The commitments to originate fixed rate

24

residential mortgage loans totaled $15.7 million at June 30, 2008, and the related forward sales commitments totaled $15.7 million.  Loans held for sale by Dover totaled $14.7 million at June 30, 2008, and the related forward sales commitments totaled $14.7 million.

CommunityOne had loans held for sale of $5.1 million at June 30, 2008.  Commitments of CommunityOne for the origination of mortgage loans intended to be held for sale at June 30, 2008 were $13.2 million. The Company does not have any special purpose entities or other similar forms of off-balance sheet financing.

Asset/Liability Management and Interest Rate Sensitivity

One of the primary objectives of asset/liability management is to maximize the net interest margin while minimizing the earnings risk associated with changes in interest rates.  One method used to manage interest rate sensitivity is to measure, over various time periods, the interest rate sensitivity positions, or gaps; however, this method addresses only the magnitude of timing differences and does not address earnings or market value.  Therefore, management uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of interest rate scenarios in order to more accurately measure interest rate risk.

The Company’s balance sheet was asset-sensitive at June 30, 2008.  An asset-sensitive position means that, for cumulative gap measurement periods of one year or less, there are more assets than liabilities subject to immediate repricing as market rates change.  Because immediately rate sensitive assets exceed rate sensitive interest-bearing liabilities, the earnings position could improve in a rising rate environment and could deteriorate in a declining rate environment, depending on the correlation of rate changes in these two categories.  Included in interest-bearing liabilities subject to rate changes within 90 days is a portion of the interest-bearing demand, savings and money market deposits.  These types of deposits historically have not repriced coincidentally with or in the same proportion as general market indicators.

Capital Resources

Banks and bank holding companies, as regulated institutions, must meet required levels of capital.  The Commissioner and the Federal Reserve, which are the primary regulatory agencies for CommunityOne and FNB United, respectively, have adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets.  Financial institutions are required to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with the guidelines.

On May 27, 2008, FNB United entered into a revolving credit agreement in the original principal amount of $10 million, of which none has been drawn down as of June 30, 2008. Any funds drawn down would be invested in, and qualify as, Tier 1 capital of CommunityOne. On June 30, 2008, CommunityOne entered into a subordinated debt loan agreement, providing for a $15 million subordinated term loan that qualifies as Tier 2 capital.  The loan will mature on June 30, 2015 and bears interest at three-month LIBOR plus 3.50%.  See Note 8 – Financial Instruments for additional information.

As shown in the accompanying table, FNB United and its wholly owned banking subsidiary have capital levels exceeding the minimum levels for “well capitalized” bank holding companies and banks as of June 30, 2008.

25

	Regulatory Guidelines
	Well Capitalized	Adequately Capitalized	FNB United	CommunityOne
Total Capital	10.0%	8.0%	10.54%	10.38%
Tier 1 Capital	6.0	4.0	7.46	8.46
Leverage Capital	5.0	4.0	6.99	7.93

Non-GAAP Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”).  The Company’s management uses these non-GAAP measures in their analysis of the Company’s performance. These non-GAAP measures exclude average goodwill and core deposit premiums from the calculations of return on average assets and return on average equity.  Management believes presentations of financial measures excluding the impact of goodwill and core deposit premiums provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. In addition, certain designated net interest income amounts are presented on a taxable equivalent basis.  Management believes that the presentation of net interest income on a taxable equivalent basis aids in the comparability of net interest income arising from taxable and tax-exempt sources.  These disclosures should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Cautionary Statement for Purpose of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking terminology such as “believes,” “expects,” “plans,” “projects,” “goals,” “estimates,” “may,” “could,” “should,” or “anticipates” or the negative thereof or other variations thereon of comparable terminology, or by discussions of strategy that involve risks and uncertainties.  In addition, from time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing.  Such forward-looking statements may be included in, but are not limited to, various filings made by the Company with the Securities and Exchange Commission, or press releases or oral statements made by or with the approval of an authorized executive officer of the Company.  Forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results.  The Company wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect the Company’s actual results, causing actual results to differ materially from those in any forward-looking statement.   These factors include, without limitation:  (i) competitive pressure in the banking industry or in the Company’s markets may increase significantly, (ii) changes in the interest rate environment may reduce margins, (iii) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, (iv) changes may occur in banking legislation and regulation, (v) changes may occur in general business conditions, (vi) changes may occur in the securities markets, and (vii) changes in real estate markets. Readers should also consider information on risks and uncertainties contained in the discussions of competition, supervision and regulation, and effect of governmental policies contained in the Company’s most recent Annual Report on Form 10-K. All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any statement,

26

whether written or oral, to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk is the possible chance of loss from unfavorable changes in market prices and rates.  These changes may result in a reduction of current and future period net interest income, which is the favorable spread earned from the excess of interest income on interest-earning assets, over interest expense on interest-bearing liabilities.

The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities.  The structure of the Company’s loan and deposit portfolios is such that a significant decline in interest rates may adversely impact net market values and net interest income.  The Company does not maintain a trading account nor is the Company subject to currency exchange risk or commodity price risk.  Interest rate risk is monitored as part of the Company’s asset/liability management function, which is discussed above in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Asset/Liability Management and Interest Rate Sensitivity.”

The Company considers interest rate risk to be its most significant market risk, which could potentially have the greatest impact on operating earnings. The Company is asset sensitive, which means that falling interest rates could result in a reduced amount of net interest income.  The monitoring of interest rate risk is part of the Company’s overall asset/liability management process.  The primary oversight of asset/liability management rests with the Company’s Asset and Liability Committee.  The Committee meets on a regular basis to review asset/liability activities and to monitor compliance with established policies.

Management does not believe there has been any significant change in the overall analysis of financial instruments considered market risk sensitive, as measured by the factors of contractual maturities, average interest rates and estimated fair values, since the analysis prepared and presented in conjunction with the Form 10-K Annual Report for the fiscal year ended December 31, 2007.

Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures

As of June 30, 2008, the end of the period covered by this report, FNB United carried out an evaluation under the supervision and with the participation of the Company’s management, including FNB United’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of FNB United’s disclosure controls and procedures.  In designing and evaluating the Company’s disclosure controls and procedures, FNB United and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and FNB United’s management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.  Based upon the evaluation, the Chief Executive Officer, and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective to provide reasonable assurance that information required to be disclosed by FNB United in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

As of December 31, 2007, FNB United did not have controls designed and in place for the proper recording of nonroutine transactions, such as the restructuring of the Company’s investment portfolio and the sale of the Company’s credit card portfolio that occurred in the third quarters of 2006 and 2007, respectively. FNB United has adopted policies and procedures for the proper recording of nonroutine transactions and is in the process of implementing, utilizing and evaluating these remedial measures. FNB United reviews its disclosure controls and procedures, which may include its internal control over financial reporting, on an ongoing basis and may from time to time make changes aimed at enhancing their effectiveness. No control enhancements during the quarter ended June 30, 2008 have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

27

PART II.                      OTHER INFORMATION

Item 1.	Legal Proceedings
	None.
Item 1.A.	Risk Factors
	No material changes.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Not Applicable.
Item 3.	Defaults Upon Senior Securities
	Not Applicable.
Item 4.	Submission of Matters to a Vote of Security Holders

(a) The annual meeting of the Corporation was held on Tuesday, May 13, 2008.

(b) No response is required.

(c) At the annual meeting, the shareholders voted upon the election of directors.

The shareholders voted in favor of electing the following persons as directors of the Corporation:

		Votes
		Withheld/
	Votes For	Abstentions
For Term Ending 2009
Suzanne B. Rudy	8,519,863	367,768
For Terms Ending 2010
Jacob F. Alexander III	8,539,915	347,716
Darrell L. Frye	8,465,166	422,466
Hal F. Huffman, Jr.	8,546,932	340,700
Lynn S. Lloyd	8,546,907	350,724
J. M. Ramsay III	8,545,576	342,056

Item 5.	Other Information
	None.
Item 6.	Exhibits
	Exhibits to this report are listed in the index to exhibits on pages 26, 27, 28 and 29 of this report.

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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 thereunto duly authorized.

	FNB United Corp.
	(Registrant)
August 8, 2008	/s/ Mark A. Severson
	Mark A. Severson
	Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit
3.10	Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form S-14 Registration Statement (No. 2-96498) filed March 16, 1985.
3.11	Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988, incorporated herein by reference to Exhibit 19.10 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 1988.
3.12	Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 12, 1998, incorporated herein by reference to Exhibit 3.12 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 1998.
3.13	Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 23, 2003, incorporated herein by reference to Exhibit 3.13 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2003.
3.14	Articles of Amendment to Articles of Incorporation of the Registrant, adopted March 15, 2006, incorporated herein by reference to Exhibit 3.14 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2006.
3.15	Articles of Merger, setting forth amendment to Articles of Incorporation of the Registrant, effective April 28, 2006, incorporated herein by reference to Exhibit 3.15 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2006.
3.20	Amended and Restated Bylaws of the Registrant, adopted March 18, 2004, incorporated herein by reference to Exhibit 3.20 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2004.
4.10	Specimen of Registrant’s Common Stock Certificate, incorporated herein by reference to Exhibit 4 to Amendment No. 1 to the Registrant’s Form S-14 Registration Statement (No. 2-96498) filed April 19, 1985.
4.20	Indenture dated as of November 4, 2005, between FNB Corp. and U.S. Bank, National Association, as trustee, incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-K Current Report dated November 4, 2005.

30

Exhibit No.	Description of Exhibit
4.21	Amended and Restated Declaration of Trust of FNB United Statutory Trust I dated as of November 4, 2005, among FNB Corp., as sponsor, U.S. Bank, National Association, as institutional trustee, and Michael C. Miller and Jerry A. Little, as administrators, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Form 8-K Current Report dated November 4, 2005.
4.30	Junior Subordinated Indenture dated as of April 27, 2006, between FNB Corp. and Wilmington Trust Company, as trustee, incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-K Current Report dated April 27, 2006 and filed April 28, 2006.
4.31	Amended and Restated Trust Agreement of FNB United Statutory Trust II dated as of April 27, 2006, among FNB Corp., as sponsor, Wilmington Trust Company, as institutional trustee, and Michael C. Miller and Jerry A. Little, as administrators, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Form 8-K Current Report dated April 27, 2006 and filed April 28, 2006.
10.10*	Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank and Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit 19.20 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 1988.
10.11*	Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First National Bank and Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit 10.11 to the Registrant’s Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.20*	Stock Compensation Plan as amended effective May 12, 1998, incorporated herein by reference to Exhibit 10.30 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 1998.
10.21*	Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the Registrant’s Stock Compensation Plan, incorporated herein by reference to Exhibit 10.31 to the Registrant’s Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.22*	Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the Registrant’s Stock Compensation Plan, incorporated herein by reference to Exhibit 10.32 to the Registrant’s Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.23*	FNB United Corp. 2003 Stock Incentive Plan, as amended, incorporated herein by reference to Exhibit 10.23 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2007.

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Exhibit No.	Description of Exhibit
10.24*	Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to the Registrant’s 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.24 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2003.
10.25*	Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuant to the Registrant’s 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.25 to the Registrant’s Form 10-K Annual Report for the fiscal year ended December 31, 2003.
10.26*	Form of Restricted Stock Agreement between FNB United Corp. and certain of its key employees and non-employee directors, pursuant to the Registrant’s 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.26 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2006.
10.30*	Employment Agreement dated as of January 1, 2006 among FNB Corp., First National Bank and Trust Company and Michael C. Miller, incorporated herein by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K filed on January 6, 2006.
10.31*	Carolina Fincorp, Inc. Stock Option Plan (assumed by the Registrant on April10, 2000), incorporated herein by reference to Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-54702).
10.32*	Employment Agreement dated as of April 10, 2000 between First National Bank and Trust Company and R. Larry Campbell, incorporated herein by reference to Exhibit 10.32 to the Registrant’s Form 10-K Annual Report for the fiscal year ended December 31, 2000.
10.33*	First Amendment to Employment Agreement dated as of June 30, 2006 between First National Bank and Trust Company and R. Larry Campbell, incorporated herein by reference to Exhibit 10 to the Registrant’s Form 8-K Current Report dated June 30, 2006 and filed July 7, 2006.
10.34*	Nonqualified Supplemental Retirement Plan with R. Larry Campbell, incorporated herein by reference to Exhibit 10(c) to the Annual Report on Form 10-KSB of Carolina Fincorp, Inc. for the fiscal year ended June 30, 1997.
10.35*	Form of Change of Control Agreement between FNB United Corp. and certain of its key employees and officers, incorporated herein by reference to Exhibit 10.35 to the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2006.

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Exhibit No.	Description of Exhibit
10.40	Guarantee Agreement dated as of November 4, 2006, by FNB Corp. for the benefit of the holders of trust preferred securities, incorporated herein byreference to Exhibit 10.1 to the Registrant’s Form 8-K Current Report dated November 4, 2005 and filed November 8, 2005.
10.41	Guarantee Agreement dated as of April 27, 2006, between FNB Corp. and Wilmington Trust Company, as guarantee trustee, for the benefit of the holders of trust preferred securities, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K Current Report dated April 27, 2006 and filed April 28, 2006.
10.42	Revolving Credit Agreement dated as of May 27, 2008, between FNB United Corp. and SunTrust Bank.
10.43	Subordinated Debt Loan Agreement dated as of June 30, 2008, between CommunityOne Bank, National Association and SunTrust Bank.
31.10	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.11	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

______________

* Management contract, or compensatory plan or arrangement.

33

EX-10.42

Exhibit 10.42

CONFORMED COPY

REVOLVING CREDIT AGREEMENT

dated as of May 27, 2008

between

FNB UNITED CORP.

as Borrower

and

SUNTRUST BANK

as Lender

TABLE OF CONTENTS

		Page
ARTICLE I.  DEFINITIONS; CONSTRUCTION		1
Section 1.1.	Definitions	1
Section 1.2.	Accounting Terms and Determination	8
Section 1.3.	Terms Generally	9
ARTICLE II.  AMOUNT AND TERMS OF THE REVOLVING COMMITMENT		9
Section 2.1.	Revolving Loans and Revolving Credit Note	9
Section 2.2.	Procedure for Revolving Loans	9
Section 2.3.	Optional Reduction and Termination and/or Extension of  Revolving Commitment	9
Section 2.4.	Repayment and Prepayments of Revolving Loans	10
Section 2.5.	Interest on Loans	10
Section 2.6.	Intentionally Omitted	11
Section 2.7.	Computation of Interest	11
Section 2.8.	Inability to Determine Interest Rates	11
Section 2.9.	Illegality	11
Section 2.10.	Increased Costs	11
Section 2.11.	Payments Generally	12
Section 2.12.	Funding Indemnity	12
ARTICLE III. CONDITIONS PRECEDENT TO REVOLVING LOANS		12
Section 3.1.	Conditions to Initial Revolving Loan	12
Section 3.2.	Each Revolving Loan	13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES		13
Section 4.1.	Existence; Power	14
Section 4.2.	Organizational Power; Authorization	14
Section 4.3.	Governmental Approvals; No Conflicts	14
Section 4.4.	Financial Statements	14
Section 4.5.	Litigation Matters	14
Section 4.6.	Compliance with Laws and Agreements	14
Section 4.7.	Investment Company Act, Etc.	15
Section 4.8.	Taxes	15
Section 4.9.	Margin Regulations	15
Section 4.10.	ERISA	15
Section 4.11.	Disclosure	15
Section 4.12.	Subsidiaries	15
Section 4.13.	Dividend Restrictions; Other Restrictions	15
Section 4.14.	Capital Measures	16
Section 4.15.	FDIC Insurance	16
Section 4.16.	OFAC	16
Section 4.17.	Patriot Act.	16

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ARTICLE V.  AFFIRMATIVE COVENANTS		16
Section 5.1.	Financial Statements and Other Information	16
Section 5.2.	Notices of Material Events	18
Section 5.3.	Existence; Conduct of Business	18
Section 5.4.	Compliance with Laws, Etc.	18
Section 5.5.	Books and Records.	18
Section 5.6.	Visitation, Inspection, Etc.	19
Section 5.7.	Maintenance of Properties; Insurance	19
Section 5.8.	Use of Proceeds	19
ARTICLE VI.  FINANCIAL COVENANTS		19
Section 6.1.	Return on Average Assets	19
Section 6.2.	Ratio of Nonperforming Assets to Total Loans and OREO	19
Section 6.3.	Capital Measures	19
ARTICLE VII.  NEGATIVE COVENANTS		20
Section 7.1.	Indebtedness	20
Section 7.2.	Negative Pledge	21
Section 7.3.	Fundamental Changes	21
Section 7.4.	Restricted Payments	22
Section 7.5.	Restricted Agreements	22
Section 7.6	Investments, Etc	22
ARTICLE  VIII.  EVENTS OF DEFAULT		23
Section 8.1.	Events of Default	23
ARTICLE IX.  MISCELLANEOUS		25
Section 9.1.	Notices	25
Section 9.2.	Waiver; Amendments	26
Section 9.3.	Expenses; Indemnification	27
Section 9.4.	Successors and Assigns	28
Section 9.5.	Governing Law; Jurisdiction; Consent to Service of Process	29
Section 9.6.	Waiver of Jury Trial	29
Section 9.7.	Right of Setoff	29
Section 9.8.	Counterparts; Integration	29
Section 9.9.	Survival	29
Section 9.10.	Severability	29
Section 9.11.	Interest Rate Limitation	30
Section 9.12.	Patriot Act	30

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Schedules
Schedule 4.5	-	Litigation Matters
Schedule 4.12	-	Financial Institution Subsidiaries
Exhibits
Exhibit A	-	Revolving Credit Note
Exhibit 2.2	-	Notice of Revolving Borrowing

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REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this "Agreement")is made and entered into as of May 27, 2008, by and between FNB UNITED CORP.,   a North Carolina corporation (the “Borrower”), and SUNTRUST BANK, a Georgia banking corporation (the "Lender").

W I T N E S S E T H:

WHEREAS, the Borrower has requested the Lender, and the Lender has agreed, subject to the terms and conditions of this Agreement, to establish a 364-day revolving credit facility in an original principal amount of $10,000,000;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower and the Lender agree as follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

Section 1.1.  Definitions.  In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

“Acquisition” shall mean any transaction or a series of related transactions for the purpose of, or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of any Person, (b) the acquisition of greater than 50% of the capital stock, partnership interest, membership interest or other equity of any Person, or otherwise causing a Person to become a Subsidiary, or (c) a merger or consolidation of, or any other combination with, another Person (other than a Person that is a Subsidiary), provided that the Borrower or any Subsidiary is the surviving entity.

 “Affiliate” shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

“Availability Period” shall mean the period from the Closing Date to the Commitment Termination Date.

 “Base Rate” shall mean the higher of (i) the per annum rate which the Lender publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers.  The Lender may make commercial loans or other loans at rates of inter­est at, above or below the Lender's prime lend­ing rate.  Each change in the Lender’s prime lending rate shall be effective from and including the date such change is publicly announced as being effective.

“Base Rate Loan” shall mean a Revolving Loan which bears interest at the Base Rate.

“Business Day” shall mean (i) any day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia are authorized or required by law to close and (ii) if such day relates to a borrowing or continuation of, a payment or prepayment of principal or interest on, or an Interest Period for, a

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Eurodollar Loan or a notice with respect thereto, any day on which dealings in Dollars are carried on in the London interbank market.

“Call Report” shall mean, with respect to Financial Institution Subsidiary, the “Consolidated Reports of Condition and Income” (FFIEC Form 031 or 041 or any successor form of the Federal Financial Institutions Examination Council).

“Change in Control” shall mean (a) with respect to the Borrower,  the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Commission thereunder in effect on the date hereof),  (ii) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Commission thereunder as in effect on the date hereof) of 25% or more of the outstanding shares of the voting stock of the Borrower or (iii) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (A) nominated by the current board of directors or (B) appointed by directors so nominated, or (b) the Borrower shall own, directly or indirectly, less than 100% of the voting stock of any Financial Institution Subsidiary.

“Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by the Lender (or for purposes of Section 2.10(b), by the Lender’s holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 9.2, and unless otherwise indicated, shall be the date of this Agreement.

“Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

“Commission” shall mean the Securities and Exchange Commission, and any successor thereto.

“Commitment Termination Date” shall mean May 22, 2009, or such later date as the Revolving Commitment has been extended pursuant to Section 2.3,or earlier if terminated pursuant to Section 2.3 or Section 8.1.

“Control” shall mean the power, directly or indi­rectly, to direct or cause the direction of the man­agement and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "Controlling", "Controlled by", and "under common Control with" have meanings correlative thereto.

“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of De­fault.

"Default Interest" shall have the meaning set forth in Section 2.5(b).

“Dollar(s)” and the sign "$" shall mean lawful money of the United States of America.

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“Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

“Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” shall mean the Employee Retirement Income Secu­rity Act of 1974, as amended from time to time, and any successor statute.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section  412 of the Code, is treated as a single employer under Section 414 of the Code.

"ERISA Event" shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar Loan” shall mean a Revolving Loan which bears interest at a rate determined by reference to LIBOR.

“Event of Default” shall have the meaning provided in Article VIII.

 “Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender.

3

“Financial Institution Subsidiary” shall mean each of (a) CommunityONE Bank, National Association, a national banking association, and (b) each other Subsidiary of the Borrower existing on the Closing Date or thereafter formed or acquired that is a depository institution with FDIC-insured deposits.

“Fiscal Quarter” shall mean each fiscal quarter (including the fiscal quarter at the fiscal year-end) of the Borrower and its Subsidiaries.

“FR Report Y-9C” shall mean the “Consolidated Financial Statements for Bank Holding Companies-FR Y-9C” submitted by the Borrower as required by Section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844) and Section 225.5(b) of Regulation Y [12 CFR 225.5(b)], or any successor or similar replacement report.

“FR Report Y9-LP” shall mean the “Parent Company Only Financial Statements for Large Bank Holding Companies-FR Y-9LP” submitted by the Borrower as required by Section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844) and Section 225.5(b) of Regulation Y [12 CFR 225.5(b)], or any successor or similar replacement report.

 “GAAP” shall mean generally accepted accounting prin­ciples in the United States applied on a consistent basis and subject to the terms of Section 1.2.

“Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hedging Agreements” shall mean interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, foreign exchange contracts (forward and/or spot), commodity agreements and other similar agreements or arrangements designed to protect against fluctuations in interest rates, currency values or commodity values.

“Indebtedness” of any Person shall mean, without dupli­cation (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all obligations of such Person under capital leases and all monetary obligations of such Person under Synthetic Leases, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all guarantees by such Person of Indebtedness of others, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any common stock of such Person, and (x) all net obligations incurred by such Person under Hedging Agreements.

“Interest Period” shall mean, with respect to any Eurodollar Loan, a period of three months, provided that:

4

(i) the initial Interest Period for any such Loan shall commence on the date of such Loan and each Interest Period occurring thereafter in respect of such Loan shall commence on the day on which the next preceding Interest Period expires;

(ii)           if any Interest Period would otherwise end on a day other than a Business Day, such Interest Pe­riod shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii)           any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no nu­merically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such subsequent calendar month;

(iv) no Interest Period may extend beyond the Commitment Termination Date.

“Investments” shall have the meaning set forth in Section 7.6 hereof.

"LIBOR " shall mean for any applicable Interest Period with respect to a Eurodollar Loan,  that rate per annum that is equal to the quotient of:

(i) the rate per annum equal to the London interbank offered rate for deposits in U.S. dollars for a three-month period, which rate appears on Reuters Screen LIBOR01 Page (or any successor page), or such similar service as determined by the Lender that displays British Bankers' Association interest settlement rates for deposits in U.S. Dollars, as of 11:00 A.M. (London, England time) two (2) Business Days prior to the first day of such Interest Period; provided, that if no such offered rate appears on such page, the rate used will be the per annum rate of interest determined by the Lender to be the rate at which U.S. dollar deposits for a three-month period are offered to the Lender in the London Inter-Bank Market as of 10:00 A.M. (Atlanta, Georgia   time), on the day which is two (2) Business Days prior to the first day of such Interest Period, divided by

(ii) a percentage equal to 1.00 minus the maximum reserve percentages (including any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upward to the next 1/100th of 1%) in effect on any day to which the Bank is subject with respect to any Eurodollar loan pursuant to regulations issued by the Board of Governors of the Federal Reserve System with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities" under Regulation D).  This percentage will be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Lien” shall mean any mortgage, pledge, security inter­est, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of the foregoing or any preference, priority or other security agree­ment or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing).

"Loan Documents" shall mean, collectively, this Agree­ment, the Revolving Credit Note, any Hedging Agreemententered into with Lender in connection with the Indebtedness under this Agreement or the Revolving Credit Note and any and all other instruments, agreements, documents and writings executed by the Borrower in connection with any of the foregoing.

5

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, results of operations, finan­cial condition, assets, or liabilities  of the Borrower and of the Borrower and its Subsidiaries taken as a whole , (ii) the ability of the Borrower to perform any of its obligations under the Loan Documents, (iii) the rights and remedies of the Lender under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of ERISA.

"Nonperforming Assets" shall mean the sum of (a) Nonperforming Loans, (b) nonaccrual investment securities and (c) Other Real Estate Owned (determined in accordance with, and as set forth on, Borrower’s FR Report Y-9C).

“Nonperforming Loans” shall mean the sum of (a) nonaccrual loans and lease financing receivables, (b) loans and lease financing receivables that are contractually past due 90 days or more as to interest or principal and are still accruing interest and (c) loans for which the terms have been modified due to a deterioration in the financial position of the Borrower (determined in accordance with, and as set forth on, Borrower’s FR Report Y-9C).

“Notice of Borrowing” shall have the meaning as set forth in Section 2.2.

“Obligations” shall mean all amounts owing by the Borrower to the Lender pursuant to or in connection with this Agreement or any other Loan Document, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations,  all net obligations under Hedging Agreements, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliqui­dated, now existing or hereafter arising hereunder or thereunder, together with all renew­als, extensions, modifications or refinancings thereof.

“Other Real Estate Owned” shall mean the sum of (a) real estate acquired in satisfaction of debts previously contracted and (b) other real estate owned, as set forth on Schedule HC-M of Borrower’s FR Report Y-9C.

“Participant” shall have the meaning set forth in Section 9.4(c).

 “Payment Office” shall mean the office of the Lender located at 303 Peachtree Street, Atlanta, Georgia 30308, or such other location as to which the Lender shall have given written notice to the Borrower.

“PBGC”shall mean the Pension Benefit Guaranty Corpora­tion referred to and defined in ERISA, and any successor entity performing similar functions.

 “Permitted Encumbrances” shall mean

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(i)           Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations;

(iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obli­gations of a like nature, in each case in the ordinary course of business;

(v) judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; and

(vi) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower and its Subsidiaries taken as a whole;

provided, that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

 “Person” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 “Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Release” means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

“Responsible Officer" shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Lender; and, with respect to the financial covenants only, the chief financial officer or the treasurer of the Borrower.

“Revolving Commitment” shall mean the obligation of the Lender to make Revolving Loans to the Borrower in an aggregate principal amount not exceeding $10,000,000.

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                        “Revolving Loan” shall mean a loan made by the Lender to the Borrower under its Revolving Commitment, which will at all times be a Eurodollar Loan except under circumstances set forth in Section 2.8 or Section 2.9 hereof.

“Revolving Credit Note” shall mean a promissory note of the Borrower payable to the order of the Lender in the principal amount of the Revolving Commitment, in substantially the form of Exhibit A.

                        “Subsidiary” shall mean, with respect to any Person (the “parent”), any corporation, part­nership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, part­nership, joint venture, limited liability company, association or other entity (i) of which securities  or other ownership interests representing more than 30% of the equity  or more than 30% of  the ordinary voting power, or in the case of a partnership, more than 30% of the general partnership interests are, as of such date, owned, Controlled or held, or (ii) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to "Subsidiary" hereunder shall mean a Subsidiary of the Borrower.

“Synthetic Lease” of any Person shall mean (a) a lease designed to have the characteristics of a loan for federal income tax purposes while obtaining operating lease treatment for financial accounting purposes, or (b) an agreement for the use or possession of property creating obligations that are not required to appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person would be characterized by a court of competent jurisdiction as indebtedness of such Person.

“Tangible Net Worth” shall mean, as of any date, the total shareholders’ equity of the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP, minus the amount of all assets of the Borrower and its Subsidiaries that would be classified as intangible assets (including without limitation goodwill and net core deposit intangible) on the Borrower’s consolidated balance sheet as of such date prepared in accordance with GAAP.

“Total Loans” shall mean for the Borrower on a consolidated basis the line item  “Loans net of unearned income” set forth on the Borrower’s consolidated balance sheet delivered pursuant to Section 5.1(a) and (b).

“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Section 1.2.  Accounting Terms and Determination.  Un­less otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for such changes approved by the Borrower's independent public accountants) with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1(a); provided, that if the Borrower notifies the Lender that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Lender notifies  the Borrower that it wishes to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Lender.

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Section 1.3.  Terms Generally.The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  The words "include", "includes" and "including" shall be deemed to be followed by the phase "without limitation".  In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Lender's principal office, unless otherwise indicated.

ARTICLE II

AMOUNT AND TERMS OF THE REVOLVING COMMITMEN

Section 2.1.  Revolving Loans and Revolving Credit Note.  (a) Subject to the terms and conditions set forth herein, the Lender agrees to make Revolving Loans to the Borrower, from time to time during theAvailability Period, in an aggregate principal amount outstanding at any time not to exceed the Revolving Commitment. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Revolving Loans in accordance with the terms and conditions of this Agreement; pro­vided, that the Borrower may not borrow or reborrow should there exist a Default or Event of Default.

(b)           The Borrower's obligation to pay the principal of, and interest on, Revolving Loans shall be evidenced by the records of the Lender and by the Revolving Credit Note.  The entries made in such records and/or on the schedule annexed to the Revolving Credit Note shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded;provided, that the failure or delay of the Lender in maintaining or making entries into any such record or on such schedule or any error therein shall not in any manner affect the obligation of the Borrower to repay the Revolving Loans (both principal and unpaid accrued interest) in accordance with the terms of this Agreement.

Section 2.2.   Procedure for Revolving Loans.  The Borrower shall give the Lender written notice (or telephonic notice promptly confirmed in writing) of each Revolving Loan substantially in the form of Exhibit 2.2 (a "Notice of Borrowing") prior to 11:00 a.m. two (2) Business Days prior to which a Revolving Loan is being requested. Each Notice of Borrowing shall be irrevocable andshall specify: (i) the principal amount of the Revolving Loan, (ii) the proposed date of the Revolving Loan (which shall be a Business Day), and  (iii) if the Revolving Loan is $1,000,000 or greater, its purpose (provided in sufficient detail  that is  reasonably satisfactory to the Lender).  The aggregate principal amount of each Revolving Loan shall be not less than $500,000 or a larger multiple of $100,000, or in such lesser amounts equal to the amount of the unused Revolving Commitment. Upon the satisfaction of the applicable conditions set forth in Article III hereof, the Lender will make the proceeds of each Revolving Loan available to the Borrower at the Payment Office on the date specified in the applicable Notice of Borrowing by crediting an account maintained by the Borrower with the Lender or at the Borrower’s option, by effecting a wire transfer of such amount to an account designated by the Borrower to the Lender.

Section 2.3.  Optional Reduction and Termination and/or Extension of Revolving Commitment.

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(a)           The Revolving Commitment shall terminate on the Commitment Termination Date; provided, that the Commitment Termination Date may be extended by the Lender for additional 364-day periods in its sole discretion upon receiving a written request from the Borrower not earlier than 60 days and not later than 45 days prior to then existing Commitment Termination Date for an extension. Upon the receipt of such request, the Lender shall use its best efforts to notify the Borrower not later than 30 days prior to any Commitment Termination Date whether it will extend the then existing Commitment Termination Date for an additional 364-day period; provided, that the failure of the Lender to give any such notice to the Borrower shall mean that the then existing Commitment Termination Date will not be so extended.

(b)           Upon at least two (2) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Lender (which notice shall be irrevocable), the Borrower may reduce the Revolving Commitment in part or terminate the Revolving Commitment in whole; provided, that (i) any partial reduction pursuant to this Section 2.3 shall be in an amount of at least $100,000 and any larger multiple of $50,000 and (ii) no such reduction shall be permitted which would reduce the Revolving Commitment (after giving effect thereto and any concurrent prepayments made under Section 2.4) to an amount less than the outstanding Revolving Loans.

Section 2.4.  Repayment and Prepayments of Revolving Loans.

(a)           The outstanding principal amount of all Revolving Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Commitment Termination Date.

(b)           The Borrower shall have the right at any time and from time to time to prepay any Eurodollar Loan, in whole or in part, without premium or penalty, subject to Section 2.12 hereof. Each partial prepayment shall be in an amount not less than $100,000 and integral multiples thereof.

(c)           Subject to Sections 2.8 and 2.9, each Eurodollar Loan shall automatically continue on the last day of an Interest Period for another three-month Interest Period unless the Borrower elects to repay in whole or in part such Eurodollar Loan on the last day of such Interest Period. In the case of a partial repayment, such Eurodollar Loan shall be continued for another one-month Interest Period in the principal amount designated by the Borrower, subject to the minimum amounts specified in Section 2.2.

Section 2.5.  Interest on Loans.

(a)           The Borrower shall pay interest on each Eurodollar Loan at LIBOR, plus 1.50% per annum. If a Base Rate Loan shall be outstanding under the circumstances set forth in Section 2.8 or 2.9, then the Borrower shall pay interest on each Base Rate Loan at the Base Rate in effect from time to time.

(b)           While an Event of Default exists or after acceleration, at the option of the Lender, the Borrower shall pay interest ("Default Interest") with respect to all Eurodollar Loans at the rate otherwise applicable for the then-current Interest Pe­riod plus an additional 2% per annum until the last day of such Interest Period, and thereafter, and with respect to all Base Rate Loans and all other Obligations hereunder, at the Base Rate, plus 2% per annum.

(c)           Interest on the principal amount of all Revolving Loans shall accrue from and includ­ing the date such Revolving Loans are made to but excluding the date of any repay­ment thereof. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto and on the Commitment Termination Date. Interest on any Base Rate Loans shall be payable on the last day of each calendar month and on the Commitment Termination Date. All Default Interest shall be payable on demand.

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(d)           The Lender shall determine each interest rate applicable to the Revolving Loans hereunder and shall promptly notify the Borrower of such rate in writing (or by telephone, promptly con­firmed in writing).  Any such determination shall be conclusive and binding for all purposes, absent manifest error.

Section 2.6.  Intentionally Omitted.

Section 2.7.  Computation of Interest. All computations of interest hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Each determination by the Lender of an interest amount hereunder shall be made in good faith and, except for manifest error, shall be final, con­clusive and binding for all purposes.

Section 2.8.   Inability to Determine Interest Rates.  If prior to the commencement of any Interest Period for any Eurodollar Loan, the Lender shall have determined (which determination shall be conclusive and binding upon the Borrower) that (a) by reason of circumstances affecting the relevant interbank market, ad­equate means do not exist for ascertaining LIBOR, or (b) LIBOR does not adequately and fairly reflect the cost to the Lender of making, funding or maintaining its Eurodollar Loans, the Lender shall give written notice (or telephonic notice, promptly confirmed in writing) to the Borrower as soon as practicable thereafter. Until the Lender notifies the Borrower that the circumstances giv­ing rise to such notice no longer exist, (x) the obligation of the Lender to make Eurodollar Loans or to continue outstanding Revolving Loans as Eurodollar Loans shall be suspended and (y) all such affected Eurodollar Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period unless the Borrower elects to prepay such Revolving Loans in accordance with this Agreement.

Section 2.9.  Illegality.  If any Change in Law shall make it unlawful or impossible for the Lender to make, maintain or fund any Eurodollar Loan, the Lender shall promptly give notice thereof to the Borrower, whereupon until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lender to make Eurodollar Loans, or to continue any outstanding Revolving Loans as Eurodollar Loans, shall be suspended. Any new Revolving Loan shall be made as a Base Rate Loan and all then outstanding Eurodollar Loans shall be converted to a Base Rate Loan either (x) on the last day of the then current Interest Period if the Lender may lawfully continue to maintain such Eurodollar Loans to such date or (y) immediately if the Lender shall determine that it may not lawfully continue to maintain such Eurodollar Loans to such date.

Section 2.10.  Increased Costs.

(a) If any Change in Law shall:

(i)            impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of LIBOR hereunder against assets of, deposits with or for the account of, or credit extended by, the Lender (except any such reserve requirement reflected in the calculation of LIBOR); or

(ii)           impose on the Lender or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by the Lender; and the result of the foregoing is to increase the cost to the Lender of making, continuing or maintaining a Eurodollar Loan or to reduce the amount received or receivable by the Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by the Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate the Lender for such additional costs incurred or reduction suffered.

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(b)           If the Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the ef­fect of reducing the rate of return on the Lender's capital (or on the capital of the Lender's parent corporation) as a consequence of its obligations here­under to a level below that which the Lender or the Lender's parent corporation could have achieved but for such Change in Law (taking into consideration the Lender's policies or the policies of the Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written de­mand by the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender or the Lender's parent corporation for any such reduction suffered.

(c)           A certifi­cate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be con­clusive, absent manifest error.  The Borrower shall pay the Lender such amount or amounts within 10 days after receipt thereof.

(d)           Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender's right to demand such compensation.

Section 2.11.   Payments Generally. The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, or of amounts payable under Section 2.10or otherwise) prior to 12:00 noon, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Lender at its Payment Office.  If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension.  All payments hereunder shall be made in Dollars.

Section 2.12. Funding Indemnity.  In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), or (b) the failure by the Borrower to borrow, prepay, or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event,  the Borrower shall compensate the Lender, within five (5) Business Days after written demand from the Lender,  for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by the Lender to be the excess, if any, of  (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at LIBOR applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to borrow or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if LIBOR were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow or continue such  Eurodollar Loan.  A certifi­cate as to any additional amount payable under this Section 2.12 submitted to the Borrower by the Lender shall be con­clusive, absent manifest error.

ARTICLE III

CONDITIONS PRECEDENT TO REVOLVING LOANS

Section 3.1.   Conditions To Initial Revolving Loan.  The obligation of the Lender to make the initial Revolving Loan hereunder is subject to the receipt by the Lender of the following documents in form and substance reasonably satisfactory to the Lender:

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(a) this Agreement duly executed and delivered by the Borrower;

(b) a duly executed Revolving Credit Note;

(c)           a certificate of the Secretary or Assistant Secre­tary of the Borrower, attaching and certifying copies of its bylaws and of the resolutions of its board of directors, authorizing the execution, delivery and performance of the Loan Documents and certifying the name, title and true signature of each officer of the Borrower authorized to execute the Loan Documents;

(d)           certified copies of the articles of incorporation of the Borrower, together with good standing certificates (or the equivalent) as may be avail­able from the Secretary of State of the jurisdiction of incorporation of the Borrower and each Subsidiary (and in the case of a Financial Institution Subsidiary which is a national bank, from the Office of the Comptroller of the Currency) and each other jurisdiction where the Borrower or such Subsidiary (other than a Financial Institution Subsidiary which is a national bank) is required to be qualified to do business as a foreign corporation;

(e)           a favorable written opinion of  Schell Bray Aycock Abel & Livingston PLLC, counsel to the Borrower, addressed to the Lender, and covering such matters relating to the Borrower, the Loan Documents and the transactions contemplated therein as the Lender shall reasonably request; and

(f)           a duly executed funds disbursement agreement.

Section 3.2.   Each Revolving Loan.   The obligation of the Lender to make each Revolving Loan is subject to the satisfaction of the following conditions:

(a)           at the time of and immediately after giving effect to such Revolving Loan, no Default or Event of Default shall exist;

(b)           all representations and warranties of the Borrower  herein shall be true and correct in all material respects on and as of the date of such Revolving Loan both before and after giving effect thereto;

(c)           since December 31, 2007, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;

(d)           the Lender shall have received a duly executed Notice of Borrowing in accordance with Section 2.2 hereof; and

(e)           the Lender shall have received such other docu­ments,  certificates, information or legal opinions as it may reasonably request, all in form and substance reasonably sat­isfactory to the Lender.

The making of each Revolving Loan shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section 3.2.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

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Section 4.1.  Existence; Power. (a) Each of the Borrower and its Subsidiaries (other than Community ONE Bank, any subsidiary organized as a Delaware or Connecticut statutory trust in connection with the issuance of trust preferred securities and Premier Investment Services, Inc. which is in the process of being dissolved)  (i) is duly orga­nized, validly existing and in good standing as a corporation under the laws of the jurisdiction of its organization, (ii) ­has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

(b) CommunityONE Bank, National Association, is a national bank chartered under the laws of the United States and has all requisite power and authority to carry on its business as now conducted.

Section 4.2.  Organizational Power; Authorization.  The execution, delivery and performance by the Borrower of each of the Loan Documents are within the Borrower’s corporate powers and have been duly authorized by all necessary corporate, and if required, stockholder, action. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document when executed and delivered by the Borrower will constitute, valid and binding obligations of the Borrower, en­forceable against it in accordance with their re­spective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

Section 4.3. Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents  (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the articles of incorporation or by-laws of the Borrower or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding on the Borrower or any of its Subsidiaries or any of its assets or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, except Liens (if any) created under the Loan Documents.

Section 4.4.  Financial Statements.  The Borrower has furnished to the Lender the con­solidated balance sheet of the Borrower and its Subsidiaries as of December 31, 2007 and the related consolidated statements of income, of shareholders' equity and comprehensive income and of cash flows for the fiscal year then ended, each as audited by Dixon Hughes PLLC.  Such financial statements fairly present, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as of such date and the consolidated results of op­erations and cash flows for such period in conformity with GAAP consistently applied. Since December 31, 2007, there have been no changes with respect to the Borrower and its Subsidiaries which have had or couldreasonably be expected to have, singly or in the aggregate, a Material Adverse Effect.

Section 4.5.  Litigation Matters.  Except as set forth on Schedule 4.5 attached hereto, no litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against, or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document.

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Section 4.6. Compliance with Laws and Agreements.  The Borrower and each Subsidiary is in compliance with (a) all applicable laws (including without limitation all federal and state banking statutes) and all rules, regulations (including without limitation all federal and state banking regulations) and orders of any Governmental Authority, and (b) all indentures, agreements or other instruments binding upon it or its properties, except in each case where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 4.7.  Investment Company Act.  Neither the Borrower nor any of its Subsidiaries is an "investment company", as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.

Section 4.8.  Taxes.  The Borrower and its Subsidiaries have timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are re­quired to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except (i) to the extent the failure to do so would not have a Material Adverse Effect or (ii)where the same are currently being contested in good faith by ap­propriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves.

Section 4.9.  Margin Regulations.  None of the pro­ceeds of any of the Revolving Loans will be used for "purchasing" or "carrying" any "margin stock" with the respective meanings of each of such terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of Regulation U.

Section 4.10.  ERISA.  No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.  The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts,  exceed by more than $500,000  the fair market value of the assets of all such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not,  as of the date of the most recent financial statements reflecting such amounts, exceed by more than $500,000the fair market value of the assets of all such underfunded Plans.

Section 4.11.  Disclosure. The Borrower has disclosed to the Lender all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  None of the reports (including without limitation all reports that the Borrower is required to file with the Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading.

Section 4.12.  Subsidiaries. Schedule 4.12 sets forth the name of, the ownership interest of the Borrower in, and the jurisdiction of incorporation of, each Financial Institution Subsidiary and each other Subsidiary (other than any subsidiary organized as a Delaware or Connecticut statutory trust in connection with the issuance of trust preferred securities and Premier Investment Services, Inc. which is in the process of being dissolved), in each case as of the Closing Date.

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Section 4.13. Dividend Restrictions; Other Restrictions.  (a)No Financial Institution Subsidiary has violated any applicable regulatory restrictions on dividends, and no Governmental Authority has taken any action to restrict the payment of dividends by any Financial Institution Subsidiary.

(b) Neither the Borrower nor any Subsidiary is under investigation by, or is operating under any restrictions (excluding any restrictions on the payment of dividends referenced in subsection (a) above) imposed by or agreed to with, any Governmental Authority, other than routine examinations by such Governmental Authorities.

Section 4.14.  Capital Measures.  On the Closing Date, both the Borrower and each Financial Institution Subsidiary have been, or are deemed to have been, notified by the appropriate Governmental Authority having regulatory authority over each of them that each of them is “adequately capitalized”,  as determined in accordance with any regulations established by such Governmental Authority.

Section 4.15. FDIC Insurance. The deposits of each Financial Institution Subsidiary that is an “insured depository institution” (within the meaning of § 12 U. S. C. 1831(c)) are insured by the FDIC and no act has occurred that would adversely affect the status of such Financial Institution Subsidiary as an FDIC insured bank.

Section 4.16. OFAC. Neither the Borrower nor any of its Subsidiaries (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2 or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

Section 4.17. Patriot Act. Each of the Borrower and its Subsidiaries is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001).  No part of the proceeds of the Revolving Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

ARTICLE V

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that so long as the Lender has a Revolving Commitment hereunder or the principal of and interest on any Revolving Loan or any fee remains unpaid:

Section 5.1.  Financial Statements and Other Information. The Borrower will deliver to the Lender:

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                      (a)           as soon as available and in any event within 90 days after the end of each fiscal year of Borrower, a copy of the annual audited report for such fiscal year for the Borrower and its Subsidiaries, containing a consolidated balance sheet and the related consolidated statements of income, of shareholders' equity and comprehensive income, and of cash flows (together with all footnotes thereto), setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and reported on by independent public accountants of nationally recognized standing (without a "going concern" or like qualification, exception or explanation  and without any qualification or exception as to scope of such audit) to the effect that  such financial statements present fairly in all material respects the financial condition and the results of operations and cash flows on a consolidated basis of the Borrower for such fiscal year in accordance with GAAP and that the exami­nation by such accountants in connection with such  financial statements has been made in accordance with generally accepted auditing standards; provided, that the requirements set forth in this clause (a) may be fulfilled by providing to the Lender the report of the Borrower to the Commission on Form 10-K for the applicable fiscal year;

(b)           as soon as avail­able and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, an unaudited balance sheet of the Borrower and its Subsidiaries on a consolidated basis as of the end of such fiscal quarter and the related unaudited statements of in­come and cash flows of the Borrower and its Subsidiaries on a consolidated basis for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous fiscal year, all certified by the chief financial officeror treasurerof the Borrower as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; provided, that the requirements set forth in this clause (b) may be fulfilled by providing to the Lender the report of the Borrower to the Commission on Form 10-Q for the applicable fiscal quarter;

(c)           concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, a certificate of a Responsible Officer, (i) certifying as to whether there exists a Default or Event of De­fault on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action which the Borrower has taken or proposes to take with respect thereto, and (ii) setting forth in reasonable detail calculations demonstrating compliance with Article VI;

(d)           concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, duly executed copies of the Borrower’s then-current FR Report Y-9C and FR Report Y-9LP and a duly executed copy of the then-current Call Report for each Financial Institution Subsidiary;

(e)           promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and

(f)           promptly following any request therefor, such other information regarding the results of operations, business affairs and  financial condition of the Borrower or any Subsidiary as the Lender may reasonably request.

Documents required to be delivered pursuant to Section 5.1(a) or (b) or Section 5.1(e) that are filed with, or furnished to, the Commission electronically shall be deemed to have been delivered to the Lender on the date (i) on which the Borrower posts such documents or provides a link thereto on the Borrower’s website on the internet at the website address set forth in Section 9.1 or (ii) on which such documents are posted on the Borrower’s behalf on an internet or intranet website, if any, to which the Lender has access; provided, that (A) the Borrower shall deliver paper copies of such documents to the Lender if the Lender so requests in writing

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until a further written notice is received by the Borrower from the Lender to cease delivering paper copies and (B) the Borrower shall notify (which may be by facsimile or electronic mail) the Lender of the posting of any such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of  the certificates required to be delivered pursuant to Section 5.1(c) hereof.

Section 5.2.  Notices of Material Events.  The Borrower will furnish to the Lender prompt written notice of the following:

(a) the occurrence of any Default or Event of Default;

(b)           the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which could reasonably be expected to result in a Material Adverse Effect;

(c)           the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $500,000;

(d)           any material investigation of the Borrower or any Subsidiary by any Governmental Agency having regulatory authority over the Borrower or any such Subsidiary (other than routine examinations of the Borrower and/or any such Subsidiary);

(e)           the issuance of any cease and desist order, written agreement, cancellation of insurance or other public enforcement action by the FDIC or other Governmental Authority having regulatory authority over the Borrower or any Subsidiary;

(f)           the issuance of any memorandum of understanding or proposed disciplinary action by or from any Governmental Authority having regulatory authority over the Borrower or any Subsidiary, to the extent that the Borrower or any such Subsidiary is permitted to disclose such information (provided that the Borrower shall take all reasonable efforts to obtain any necessary regulatory consents);

(g)           any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.3.  Existence; Conduct of Business.  The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, fran­chises, patents, copyrights, trademarks and trade names material to the conduct of its business and will continue to engage in the same business as presently conducted or such other businesses that are reasonably related thereto; provided, that nothing in this Section shall prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.3.

Section 5.4.  Compliance with Laws, Etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority (including without limitation all federal and state banking statutes and regulations) applicable to its assets, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

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Section 5.5.  Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep properbooks of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP.

Section 5.6.  Visitation, Inspection, Etc.  The Borrower will, and will cause each of its Subsidiaries to, permit any representative of the Lender to visit and inspect its properties, to examine its books and records and to make copies and take ex­tracts therefrom, and to discuss its affairs, finances and ac­counts with any of its officers and with its independent certified public accountants, all at such reasonable times and as of­ten as the Lender may reasonably request after rea­sonable prior notice to the Borrower.

Section 5.7.  Maintenance of Properties;Insurance. (a) The Borrower will, and will cause each of its Subsidiaries to, (i) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted,  except where the failure to do so, either individually or it the aggregate, could not reasonably be expected to result in a Material Adverse Effect and (ii) maintain with financially sound and reputable insurance companies, insurance with respect to its prop­erties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations.

(b) The deposits of each Financial Institution Subsidiary will at all times be insured by the Federal Deposit Insurance Corporation (“FDIC”).

Section 5.8.  Use of Proceeds .  The Borrower will use the proceeds of all Revolving Loans for general working capital purposes. No part of the proceeds of any Revolving Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulation T, U or X.

ARTICLE VI

FINANCIAL COVENANTS

The Borrower covenants and agrees that so long as the Lender has its Revolving Commitment hereunder or the principal of or interest on or any Revolving Loan remains unpaid or any fee remains unpaid:

Section 6.1. Return on Average Assets. The Borrower on a consolidated basis will have at the end of each Fiscal Quarter a Return on Average Assets (determined by reference to the Borrower’s Form 10-Q or 10-K) of not less than 0.50%, determined by taking the sum of the Return on Average Assets for such Fiscal Quarter and the previous three Fiscal Quarters, divided by four (4).

Section 6.2.  Ratio of Nonperforming Assets to Total Loans and OREO. The Borrower on a consolidated basis will not permit at the end of each Fiscal Quarter Nonperforming Assets (determined by reference to the Borrower’s FRY-9C Report) to be greater than 2.00% of the sum of Total Loans (excluding loans held for sale and determined by reference to the Borrower’s Form 10-Q or 10-K) and Other Real Estate Owned (determined by reference to the Borrower’s FRY-9C Report).

Section 6.3.  Capital Measures. (a) The Borrower will have a Total Risk-based Capital Ratio of 9.50% or greater, a Tier 1 Risk-based Capital Ratio of 6.0% or greater, and a Tier 1Leverage Capital Ratio of 5.0% or greater (each as defined by applicable  federal and state regulations or orders), and will not be subject to any written agreement, order, capital directive or prompt corrective action directive by any

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Governmental Authority having regulatory authority over the Borrower or (ii) if required by any Governmental Authority having regulatory authority over the Borrower, will have such higher amounts of Total Risk-based Capital and Tier 1 Risk-based Capital and/or such greater Leverage Capital Ratio as specified by such Governmental Authority.

(b) Not later than three (3) months after the Closing Date, each Financial Institution Subsidiary will be “well capitalized” for all applicable state and federal regulatory purposes at all times, and such Financial Institution Subsidiary  (i) will have a Total Risk-based Capital Ratio of 10.0% or greater,  a Tier 1 Risk-based Capital Ratio of 6.0% or greater, and a Tier 1 Leverage Capital Ratio of 5.0% or greater (each as defined by applicable federal and state regulations or orders) and not be subject to any written agreement, order, capital directive or prompt corrective action directive by any Governmental Authority having regulatory authority over such Financial Institution Subsidiary or (ii) if required by any Governmental Authority having regulatory authority over such Financial Institution Subsidiary  in order to remain “well capitalized” and in compliance with all applicable regulatory requirements, will have such higher amounts of Total Risk-based Capital and Tier 1 Risk-based Capital and/or such greater Leverage Ratio as specified by such Governmental Authority. For the period beginning on the Closing Date and ending three (3) months thereafter, each Financial Institution Subsidiary  (i) will have a Total Risk-based Capital Ratio of 9.5% or greater,  a Tier 1 Risk-based Capital Ratio of 6.0% or greater, and a Tier 1 Leverage Capital Ratio of 5.0% or greater (each as defined by applicable federal and state regulations or orders) and not be subject to any written agreement, order, capital directive or prompt corrective action directive by any Governmental Authority having regulatory authority over such Financial Institution Subsidiary.

(c) Notwithstanding the foregoing, if at any time any such Governmental Authority changes the definition of “well capitalized” either by amending such ratios or otherwise, such amended definition, and any such amended or new ratios, shall automatically be incorporated by reference into this Agreement as the minimum standard for the Borrower (except with respect to it Total Risk-based Capital Ratio, in which case the Lender has the right to amend such ratio in subparagraph (a) above in its sole discretion) or any Financial Institution Subsidiary, as the case may be, on and as of the date that any such amendment becomes effective by applicable statute, regulation, order or otherwise.

ARTICLE  VII

NEGATIVE COVENANTS

The Borrower covenants and agrees that so long as the Lender has its Revolving Commitment hereunder or the principal of or interest on any Revolving Loan remains unpaid or any fee remains unpaid:

Section 7.1.  Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:

(a)           Indebtedness created pursuant to the Loan Documents;

(b)           Indebtedness of Financial Institution Subsidiaries (i) to the Federal Reserve Board or to the Federal Home Loan Bank Board, (ii) constituting federal funds purchased and securities sold under agreements to repurchase incurred in the ordinary course of business, or  (iii) otherwise incurred in the ordinary course of their banking business;

(c)           Indebtedness constituting obligations of the Borrower and any Financial Institution Subsidiary under debentures, indentures, trust agreements and guarantees in connection with the issuance by such Persons of trust preferred securities;

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(d)           (i) Indebtedness owed by the Borrower or any “affiliate” of the Borrower (as defined in Regulation W of the FRB and sections 23A and 23B of the Federal Reserve Act) to any Financial Institution Subsidiary not in violation of Regulation W of the FRB (as amended, supplemented or otherwise modified), or (ii) Indebtedness owed by any Subsidiary to the Borrower or (iii) Indebtedness owed by the Borrower or any Subsidiary to a Subsidiary other than a Financial Institution Subsidiary;

(e)           Any other Indebtedness that is subordinated to the Indebtedness under this Agreement which contains terms, covenants and conditions in form and substance reasonably satisfactory to the Lender as evidenced by its prior written approval thereof;

(f)           Indebtedness incurred under (i) Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities and (ii) Hedging Agreements entered into by any Financial Institution Subsidiary as a counterparty in the ordinary course of its business; and

(g)           Indebtedness of any Person purchased in a permitted Acquisition as long as the Borrower is in compliance both before and after such Acquisition with the covenants contained in Article VI and no Default or Event of Default exists or would result from such Acquisition, provided that the amount of such Indebtedness together with the amount of such Indebtedness permitted in Section 7.1(c)(iii) shall not exceed $5,000,000 in the aggregate.

Section 7.2.  Negative Pledge .  The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets or property now owned or hereafter acquired, except:

 (a)           Liens (if any) created in favor of the Lender pursuant to the Loan Documents;

(b) Permitted Encumbrances;

(c)           Liens granted to secure any Indebtedness incurred pursuant to Section 7.1(c) ( as long as in the case of Section 7.1(c)(ii), such Lien shall only extend to those securities sold) and Section 7.1(e); and

(d)           extensions, renewals, or replacements of any Lien referred to in paragraphs (a), (b) and (c) of this Section.

Provided, that at no time and under no circumstances will the Borrower permit any Lien on the capital stock of any Financial Institution Subsidiary.

Section 7.3.  Fundamental Changes.

(a)           The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets (other than in the ordinary course of business) or all or substantially all of the stock of any of its Subsidiariesor liquidate or dissolve; provided, that if at the time thereof and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, (i) the Borrower or any Subsidiary may merge with a Person which is not affiliated with the Borrower if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary provided that in the case of a Financial Institution Subsidiary, a Financial Institution Subsidiary is the surviving Person, (iii) any Subsidiary may sell, lease, transfer or dispose of its assets to (A)

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the Borrower,  (B) in the case of any Subsidiary that is not a Financial Institution Subsidiary, to any other Subsidiary and (C) in the case of a Financial Institution Subsidiary, to another  Financial Institution Subsidiary or to a Subsidiary which is not a Financial Institution Subsidiary provided that such Subsidiary is a direct or indirect Subsidiary of the selling Financial Institution Subsidiary, (iv) any Subsidiary (other than a Financial Institution Subsidiary) or the assets of any Subsidiary may be sold or otherwise transferred so long as the aggregate value of such assets or of such Subsidiary shall not exceed $500,000 in any fiscal year, provided, that any Financial Institution Subsidiary may sell loans, investments or other assets in the ordinary course of its business and (v) notwithstanding anything to the contrary in any of the foregoing, the Borrower or any Subsidiary may enter into a sale leaseback transaction of any of its real property, now owned or hereafter acquired.

(b)           The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto and any types of businesses that are expressly permitted by any Governmental Authority having jurisdiction over the Borrower and/or any Financial Institutions Subsidiary.

Section 7.4.  Restricted Payments.Upon the occurrence and during the continuation of any Default or Event of Default, the Borrowerwill not,and will not permit its Subsidiaries to,declare or make, or agree to pay or make, directly or indirectly, any dividend on any class of its stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any shares of common stock or Indebtedness subordinated to the Obligations of the Borrower or any options, warrants, or other rights to purchase such common stock or such Indebtedness, whether now or hereafter outstanding; provided, that any Subsidiary may pay dividends to the Borrower or to its parent company at any time.

Section 7.5.  Restrictive Agreements.  The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its common stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its prop­erty or assets to the Borrower or any Subsidiary of the Borrower; provided, that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, and (iii) clause (a) shall not apply to customary provisions in leases restricting the assignment thereof.

Section 7.6.  Investments, Etc  The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any common stock, Indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called "Investments"), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, except:

(a)           Investments existing on the date hereof (including Investments in Subsidiaries) that have been disclosed to the Lender and/or that are set forth on the most current financial statements that have been delivered to the Lender;

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(b)           Investments purchased in the ordinary course of business by any Financial Institution Subsidiary;

(c)           Investments made by the Borrower in or to any Subsidiary and by any Subsidiary in or to the Borrower or in or to another Subsidiary, including without limitation any such Investment made in a Subsidiary established in connection with the issuance of trust preferred securities;

(d)           Investments made for the purpose of making or consummating an Acquisition; provided, that (i) after giving effect to such Acquisition, no Default or Event of Default shall have occurred and be continuing, (ii) such Acquisitions are undertaken in accordance with all applicable laws, and (iii) the prior written consent or approval of such Acquisition of the board of directors or equivalent governing body of the Person being acquired. Upon the Borrower or any Subsidiary’s Investment of fifty percent or more of the voting stock any Person that is a regulated financial institution, such Person shall become a Financial Institution Subsidiary for purposes of this Agreement; and

(e) Other Investments permitted by applicable laws and regulations.

ARTICLE VIII

EVENTS OF DEFAULT

Section 8.1.  Events of Default.If any of the following events (each an "Event of Default") shall occur:

(a)           the Borrower shall fail to pay any principal of any Revolving Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or

(b)           the Borrower shall fail to pay any interest on any Revolving Loan or any other amount (other than an amount payable under clause (a) of this Article) pay­able under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) days; or

(c)           any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Sched­ules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document sub­mitted to the Lender by the Borrower  or any representative of the Borrower  pursuant to or in connection with this Agreement shall prove to be incorrect in any material respectwhen made or deemed made or submitted; or

(d)           the Borrower shall fail to observe or perform any covenant or agreement contained in Section 5.2 (a) or (e), Section 5.3 (with respect to the Borrower’s existence), or Articles VI or VII; or

(e)           the Borrower shall fail to observe or perform any covenant or agreement contained (i) in this Agreement (other than those referred to in clauses (a), (b) and (d) above), and such failure shall remain unremedied for 30 days after the earlier of (x) any Responsible Officer of the Borrower becomes aware of such failure, or (y)  notice thereof shall have been given to the Borrower by the Lender or any Lender or (ii) in any other Loan Document (after taking into consideration any applicable grace periods); or

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(f)           the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any principal of or premium or interest on any Indebtedness owed to the Bank (including without limitation any Hedging Agreement or any letter of credit) in any amount or any other Indebtedness owed to any other Person greater than $500,000  that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness (without regard to whether such holders or other Person shall have exercised or waived their right to do so); or any such Indebtedness shall be declared to be due and payable; or required to be prepaid or redeemed (other  than by a regularly scheduled required prepayment or redemption), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or

(g)           the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect  or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of , or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting  any of the foregoing; or

(h)           an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any  Subsidiary or its debts, or any substantial part of its assets,  under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect  or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such  proceeding or petition shall remain undismissed for a period of 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

(i)           the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or

(j)           an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together with other ERISA Events that have occurred, could reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $500,000; or

(k)           anyjudgment or order for the payment of money in excess of $500,000 in the aggregate shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(l)           anynon-monetaryjudgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

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                    (m)           a Change in Control shall occur or exist; or

(n)           any Governmental Authority having regulatory authority over the Borrower or any Subsidiary shall impose any restriction upon the payment of dividends from any such Subsidiary to the Borrower; or

(o)           any Financial Institution Subsidiary shall cease for any reason to be an insured bank under the Federal Deposit Insurance Act, as amended; or

(p)           the FDIC or any other federal or state regulatory authority shall issue a cease and desist order or take other action of a disciplinary or remedial nature against the Borrower or any Financial Institution Subsidiary  and such order or other action could reasonably be expected to have a Material Adverse Effect or there shall occur with respect to any Financial Institution Subsidiary any event that is grounds for the required submission of a capital restoration plan under 12 U. S. C. §1831o (e)(2) and the regulations thereunder; or

(q)           the Borrower or any Financial Institution Subsidiary shall enter into a punitive written agreement with any Governmental Authority having regulatory authority over such Person for any reason;

then, and in every such event (other than an event with respect to the Borrower or any Subsidiary described in clause (g) or (h) of this Section) and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrower, take any or all of the follow­ing actions, at the same or different times: (i) terminate its Revolving Commitment; (ii) declare the principal of and any accrued interest on the Revolving Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (iii) exercise all remedies contained in any other Loan Document; and  that, if an Event of Default specified in either clause (g) or (h)  shall occur, the Revolving Commitment  shall automatically terminate and the principal of the Revolving Loans then outstanding, together with accrued interest thereon, and  all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE IX

MISCELLANEOUS

Section 9.1.  Notices.

(a)           Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

To the Borrower:	FNB United Corp.
	150 South Fayetteville Street
	Asheboro, North Carolina 27203
	Attn: Mark A. Severson, Treasurer
	Telephone Number: (336) 626-8351
	Fax Number: (336) 328-1633

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	Email: mark.severson@myyesbank.com
	Website: www.myyesbank.com
To the Lender:	SunTrust Bank
	303 Peachtree Street, 3rd Floor
	Atlanta, Georgia 30308
	Attn: Susan Thigpen
	Telephone Number: (404) 588-7270
	Fax Number: (404) 581-1775
	Email: Susan.Thigpen@suntrust.com

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient).

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.  All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to the Lender shall not be effective until actually received by the Lender at its address specified in this Section 9.1. With respect to any communications delivered or furnished by electronic communication under Section 5.1, such communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided, that if such communications are not sent during the normal business hours of the recipient, such communications shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii)  communications posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such communication is available and identifying the website address therefor.

(b)           Any agreement of the Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower.  The Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Lender shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Lender in reliance upon such telephonic or facsimile notice.  The obligation of the Borrower to repay the Revolving Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Lender to receive written confirmation of any telephonic or facsimile notice or the receipt by the Lender of a confirmation which is at variance with the terms understood by the Lender to be contained in any such telephonic or facsimile notice.

Section 9.2.  Waiver; Amendments.

(a)           No failure or delay by the Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Lender, shall oper­ate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or  discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exer­cise of any other right or power hereunder or thereunder.  The rights and remedies of the Lender hereunder

26

and under the other Loan Documents are cumulative and are not exclu­sive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Revolving Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Lender may have had notice or knowledge of such Default or Event of Default at the time.

(b)           No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Lender and then such waiver or consent shall be effective only in the specific instance and for the spe­cific purpose for which given.

Section 9.3.  Expenses; Indemnification.

(a)           The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Lender (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) in connection with the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), and (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside coun­sel and the allocated cost of inside counsel) incurred by the Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Revolving Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Revolving Loans.

                          (b)The Borrower shall indemnify the Lender and each Affiliate of the Lender, and each officer, director, employee, agents and advisors of the Lender and each Affiliate of the Lender (each, an "Indemnitee") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by any Indemnitee,  or asserted against any Indemnitee by the Borrower or any third Person, arising out of, in connection with or as a result of (i) the execution or delivery of any this Agreement or any other agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation  of any of the transactions contemplated hereby, (ii) any Revolving Loan or any actual or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned by the Borrower  or any Subsidiary or any Environmental Liability  related in any way to the Borrower or any Subsidiaryor (iv)any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether brought by the Borrower or any third Person and whether based on contract, tort, or any other theory  and regardless of whether any Indemnitee is a party thereto; provided, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined  by a court of competent jurisdiction in a final and nonappealable judgment to have resulted from the  gross negligence or willful misconduct of such Indemnitee.

                          (c)The Borrower shall pay, and hold the Lender harmless from and against, any and all present and future stamp, documentary, and other similar taxes with re­spect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

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(d)           To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or the Letter of Credit  or the use of proceeds thereof.

(e)           All amounts due under this Section shall be payable promptly after written demand therefor.

Section 9.4. Successors and Assigns.

(a)           The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void).

(b)           The Lender may at any time sell participations or assignments in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Revolving Commitment and the Revolving Loans at the time owing to it).

(c) The Lender may at any time pledge or assign a security interest in all or any por­tion of its rights under this Agreement and the Revolving Credit Note to secure its obligations to a Federal Reserve Bank without complying with this Section; provided, that no such pledge or assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

Section 9.5.  Governing Law; Jurisdic­tion; Consent to Service of Process.

(a)           This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of North Carolina.

(b)           The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of any Federal and/or state court (including without limitation the North Carolina Business Court, if applicable)  located in the State of North Carolina and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such North Carolina state court (including the North Carolina Business Court) or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final nonappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.

(c)           The Borrower ir­­revocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

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(d)           Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 9.1.  Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 9.6.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

Section 9.7.   Right of Setoff.  In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, the Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by the Lender to or for the credit or the account of the Borrower against any and all Obligations held by the Lender, irrespective of whether the Lender shall have made demand hereunder and although such Obligations may be unmatured.  The Lender agrees promptly to notify the Borrower after any such set-off and any application made by the Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application.

Section 9.8.   Counterparts; Integration.  This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Lender constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters.

Section 9.9.  Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making  of any Revolving Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Revolving Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Revolving Commitment has not expired or terminated.  The provisions of Sections 2.10 and 9.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Revolving Loans, the expiration or termination of the Revolving Commitment or the termination of this Agreement or any provision hereof.  All representations and warranties made herein, in the cer­tifi­cates, reports, notices, and other documents delivered pursu­ant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Revolving Loans.

Section 9.10.  Severability.  Any provision of this Agreement ­or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular

29

provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.11.  Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Revolving Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the "Charges"), shall exceed the maximum lawful rate of interest (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender in accordance with applicable law, the rate of interest payable in respect of such Revolving Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges  that would have been payable in respect of such Revolving Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to the Lender in respect of other Revolving Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by the Lender.

Section 9.12.  Patriot Act.   The Lender hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender  to identify the Borrower in accordance with the Patriot Act.  The Borrower shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such other actions as are reasonably requested by the Lender in order to assist the Lender in maintaining compliance with the Patriot Act.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal in the case of the Borrower by their respective authorized officers as of the day and year first above written.

FNB UNITED CORP.
By	/s/ Michael C. Miller
	Name:  Michael C. Miller
	Title:  President
[SEAL]
SUNTRUST BANK
By	/s/ Susan M. Thigpen
	Name:  Susan M. Thigpen
	Title:  Director

31

SCHEDULE 4.5

LITIGATION MATTERS

None

Schedule 4.5

SCHEDULE  4.12

Financial Institution Subsidiaries

CommunityONE Bank, National Association, a national banking association

Other Subsidiaries

Name	Jurisdiction of Incorporation	Ownership
Dover Mortgage Company	North Carolina	100% by Bank
First National Investor Services, Inc.	North Carolina	100% by Bank

Schedule 4.12

EXHIBIT A

REVOLVING CREDIT NOTE

$10,000,000.00 Atlanta, Georgia

May 27, 2008

FOR VALUE RECEIVED, the undersigned, FNB UNITED CORP.,  a North Carolina corporation (the “Borrower”), hereby promises to pay to SunTrust Bank (the “Lender”) or its registered assigns at its principal office or any other office that the Lender designates, on the Commitment Termination Date (as defined in the Revolving Credit Agreement dated as of May 27, 2008, as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), between  the Borrower and  the Lender, the lesser of the principal sum of Ten Million and no/100 Dollars ($10,000,000) and the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in the Credit Agreement.  In addition, should legal action or an attorney-at-law be utilized to collect any amount due hereunder, the Borrower further promises to pay all costs of collection, including the reasonable attorneys’ fees (determined at customary rates of the firm or firms representing the Lender for hours actually worked, and not as a statutory percentage of amounts outstanding under this Revolving Credit Note) of the Lender.

The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates provided in the Credit Agreement.

All borrowings evidenced by this Revolving Credit Note and all payments and prepayments of the principal hereof and the date thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower to make the payments of principal and interest in accordance with the terms of this Revolving Credit Note and the Credit Agreement.

This Revolving Credit Note is issued in connection with, and is entitled to the benefits of, the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified.  THIS REVOLVING CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

FNB UNITED CORP.
By:
	Name:
	Title:
[SEAL]

Exhibit A-1

LOANS AND PAYMENTS

        Date         Amount and Type of Loan       Payments of Principal     Unpaid
Principal Balance of Note       Name of Person Making Notation

Exhibit A-2

EXHIBIT 2.2

SunTrust Bank

303 Peachtree Street, 3rd Floor

Atlanta, Georgia 30308

Attention:

Dear Sirs:

Reference is made to the Revolving Credit Agreement dated as of May 27, 2008  (as amended and in effect on the date hereof, the “Credit Agreement”), between the undersigned, as Borrower, and SunTrust Bank, as Lender.  Terms defined in the Credit Agreement are used herein with the same meanings.  This notice constitutes a Notice of Borrowing, and the Borrower hereby requests a Revolving Loan under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to the Revolving Loan requested hereby:

(A)           Principal amount of Revolving Loan:________________________

(B)           Date of Revolving Loan (which is a Business Day): _________________

(C)           Purpose (if larger than $500,000):_______________________________

(D) Location and number of Borrower’s account to which proceeds of Revolving Loan are to be disbursed:__________________________

The Borrower hereby represents and warrants that the conditions specified in paragraphs (a), (b) and (c) of Section 3.2 of the Credit Agreement are satisfied.

Very truly yours,
FNB UNITED CORP.
By:
	Name:
	Title:

Exhibit 2.2

EX-10.43

Exhibit 10.43

CONFORMED COPY

SUBORDINATED DEBT LOAN AGREEMENT

dated as of June 30, 2008

between

COMMUNITYONE BANK, NATIONAL ASSOCIATION

as Borrower

and

SUNTRUST BANK

as Lender

SUBORDINATED DEBT LOAN AGREEMENT

THIS SUBORDINATED DEBT LOAN AGREEMENT (this "Agreement")is made and entered into as of June 30, 2008, by and between COMMUNITYONE BANK, NATIONAL ASSOCATION,   a national banking association  (the “Borrower”), and SUNTRUST BANK, a Georgia banking corporation (the "Lender").

W I T N E S S E T H:

WHEREAS, the Borrower has requested the Lender, and the Lender has agreed, subject to the terms and conditions of this Agreement, to make a $15,000,000 seven (7) year subordinated term loan that will qualify as Tier II capital.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower and the Lender agree as follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

Section 1.1.  Definitions.  In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

 “Base Rate” shall mean the higher of (i) the per annum rate which the Lender publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers.  The Lender may make commercial loans or other loans at rates of inter­est at, above or below the Lender's prime lend­ing rate.  Each change in the Lender’s prime lending rate shall be effective from and including the date such change is publicly announced as being effective.

“Call Report” shall mean, with respect to the Borrower, the “Consolidated Reports of Condition and Income” (FFIEC Form 031 or 041 or any successor form of the Federal Financial Institutions Examination Council).

“Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by the Lender (or for purposes of Section 2.5(b), by the Lender’s holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 have been satisfied or waived in accordance with Section 9.2, and unless otherwise indicated, shall be the date of this Agreement.

“Company” shall mean FNB United Corp., a North Carolina corporation.

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“Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender.

“FR Report Y-9C” shall mean the “Consolidated Financial Statements for Bank Holding Companies-FR Y-9C” submitted by the Company as required by Section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844) and Section 225.5(b) of Regulation Y [12 CFR 225.5(b)], or any successor or similar replacement report.

“FR Report Y9-LP” shall mean the “Parent Company Only Financial Statements for Large Bank Holding Companies-FR Y-9LP” submitted by the Company as required by Section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844) and Section 225.5(b) of Regulation Y [12 CFR 225.5(b)], or any successor or similar replacement report.

 “GAAP” shall mean generally accepted accounting prin­ciples in the United States applied on a consistent basis.

“Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including without limitation any federal or state agency charged with the supervision or regulation of depositary institutions or holding companies of depositary institutions (as used herein, including any trust company subsidiaries whether or not they take deposits), or engaged in the insurance of depositary institution deposits, or any court, administrative agency or commission or other governmental agency, authority or instrumentality having supervisory or regulatory authority with respect to the Company or any of its Subsidiaries (including the Borrower).

"Loan Documents" shall mean, collectively, this Agree­ment, the Subordinated Note, [any Hedging Agreemententered into with Lender in connection with the Indebtedness under this Agreement or the Subordinated Note] and any and all other instruments, agreements, documents and writings executed by the Borrower in connection with any of the foregoing.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, results of operations, finan­cial condition, assets, or liabilities  of the Company and of Company and its Subsidiaries taken as a whole , (ii) the ability of the Borrower to perform any of its obligations under the Loan Documents, or (iii)  the legality, validity or enforceability of any of the Loan Documents.

Maturity Date” shall mean June 30, 2015.

2

“Person” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

“Revolving Credit Agreement” shall mean that certain Revolving Credit Agreement dated as of May 27, 2008 between the Company and the Lender.

“Subordinated Term Loan” shall mean the Fifteen Million Dollar ($15,000,000) term loan made to the Borrower by the Lender pursuant to the Subordinated Note and this Agreement.

“Subordinated Note” shall mean that certain Floating Rate Subordinated Note due 2015 dated June 30, 2008 made by the Borrower in favor of the Lender in the form attached as Exhibit A hereto.

                      “Subsidiary” shall mean, with respect to any Person (the “parent”), any corporation, part­nership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, part­nership, joint venture, limited liability company, association or other entity (i) of which securities  or other ownership interests representing more than 30% of the equity  or more than 30% of  the ordinary voting power, or in the case of a partnership, more than 30% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to "Subsidiary" hereunder shall mean a Subsidiary of the Company.

Section 1.2.  Terms Generally.The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  The words "include", "includes" and "including" shall be deemed to be followed by the phase "without limitation".  In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, and (iv) all references to a specific time shall be construed to refer to the time in the city and state of the Lender's principal office, unless otherwise indicated. All defined terms used in this Agreement that are not defined herein shall have the meanings set forth in the Subordinated Note.

ARTICLE II

AMOUNT AND TERMS OF THE SUBORDINATED TERM LOAN

Section 2.1.  Subordinated Term Loan and Subordinated Note.  (a) Subject to the terms and conditions set forth herein, the Lender agrees to make the Subordinated Term Loan to the Borrower on the Closing Date in a principal amount equal to Fifteen Million Dollars ($15,000,000).

(b)           The Borrower's obligation to pay the principal of, and interest on, the Subordinated Term Loan shall be evidenced by the records of the Lender and by the Subordinated Note.  The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded;provided, that the failure or delay of the Lender in maintaining or making entries into any

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such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Subordinated Term Loan (both principal and unpaid accrued interest) in accordance with the terms of this Agreement and the Subordinated Note.

Section 2.2.  Subordinated Note. The terms of the Subordinated Note are hereby incorporated by reference into this Agreement as if fully set forth herein.

Section 2.3.   Inability to Determine Interest Rates.  If prior to the occurrence of any Interest Reset Date, the Lender shall have determined (which determination shall be conclusive and binding upon the Borrower) that (a) by reason of circumstances affecting the relevant interbank market, ad­equate means do not exist for ascertaining LIBOR, or (b) LIBOR does not adequately and fairly reflect the cost to the Lender of maintaining the Subordinated Term Loan, the Lender shall give written notice (or telephonic notice, promptly confirmed in writing) to the Borrower as soon as practicable thereafter. Until the Lender notifies the Borrower that the circumstances giv­ing rise to such notice no longer exist, interest on the Subordinated Term Loan shall be calculated at the Base Rate, plus 1.30% per annum.

 Section 2.4.  Illegality.  If any Change in Law shall make it unlawful or impossible for the Lender to maintain the Subordinated Term Loan, the Lender shall promptly give notice thereof to the Borrower, whereupon until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lender to continue accruing interest based on LIBOR shall be suspended. In such case, the outstanding Subordinated Term Loan shall be converted to a loan accruing interest at the Base Rate, plus 1.30% per annum either (x) on the next Interest Reset Date if the Lender may lawfully continue to maintain the Subordinated Term Loan using LIBOR to such date or (y) immediately if the Lender shall determine that it may not lawfully continue to maintain the Subordinated Term Loan at LIBOR to such Interest Reset Date.

Section 2.5.  Increased Costs.

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Lender; or

(ii)           impose on the Lender or the eurodollar interbank market any other condition affecting this Agreement or the Subordinated Term Loan; and the result of the foregoing is to increase the cost to the Lender of maintaining the Subordinated Term Loan or to reduce the amount received or receivable by the Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by the Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate the Lender for such additional costs incurred or reduction suffered.

(b)           If the Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the ef­fect of reducing the rate of return on the Lender's capital (or on the capital of the Lender's parent corporation) as a consequence of its obligations here­under to a level below that which the Lender or the Lender's parent corporation could have achieved but for such Change in Law (taking into consideration the Lender's policies or the policies of the Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written de­mand by the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender or the Lender's parent corporation for any such reduction suffered.

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(c)           A certifi­cate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be con­clusive, absent manifest error.  The Borrower shall pay the Lender such amount or amounts within 10 days after receipt thereof.

(d)           Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender's right to demand such compensation.

Section 2.6.  Funding Indemnity.  In the event of the payment of any principal of the Subordinated  Loan other than on an Interest Reset Date or the Maturity Date, the Borrower shall compensate the Lender, within five (5) Business Days after written demand from the Lender,  for any loss, cost or expense attributable to such event. Such loss, cost or expense shall be deemed to include an amount determined by the Lender to be the excess, if any, of  (A) the amount of interest that would have accrued on the principal amount of the Subordinated Term Loan if such event had not occurred at LIBOR applicable to the Subordinated Term Loan for the period from the date of such event to the next Interest Reset Date  over (B) the amount of interest that would accrue on the principal amount of the Subordinated Loan for the same period if LIBOR were set on the date the Subordinated Term Loan was prepaid.  A certifi­cate as to any additional amount payable under this Section 2.6 submitted to the Borrower by the Lender shall be con­clusive, absent manifest error.

ARTICLE III

CONDITIONS PRECEDENT TO SUBORDINATED  TERM LOAN

Section 3.1.   Conditions To Making the Subordinated Term Loan.  The obligation of the Lender to make the Subordinated Term Loan hereunder is subject to the receipt by the Lender of the following documents in form and substance reasonably satisfactory to the Lender:

(a) this Agreement duly executed and delivered by the Borrower;

(b) a duly executed Subordinated Note;

(c)           a certificate of the Secretary or Assistant Secre­tary of the Borrower, attaching and certifying copies of its articles of incorporation, bylaws and of the resolutions of its board of directors, authorizing the execution, delivery and performance of the Loan Documents and certifying the name, title and true signature of each officer of the Borrower authorized to execute the Loan Documents;

(d)           a certificate of corporate existence issued by the Office of the Comptroller of the Currency dated not later than 5 Business Days prior to the Closing Date;

(e)           a favorable written opinion of  Schell Bray Aycock Abel & Livingston PLLC, counsel to the Borrower, addressed to the Lender, and covering such matters relating to the Borrower, the Loan Documents and the transactions contemplated therein as the Lender shall reasonably request;

(f)           a certificate of Borrower, signed by the Chief Executive Officer, President or an Executive Vice President and by the Chief Financial Officer, Treasurer or Assistant Treasurer of the Borrower,  certifying that : (a)all representations and warranties of the Borrower  herein shall be true and correct in all material respects on and as of the Closing Date, both before and after giving effect to the Subordinated Term Loan,  and (b) since December 31, 2007, there has been no material adverse change in the condition (financial or other), earnings, business, prospects or assets of the Borrower or of the Company and its Subsidiaries; and

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(g)           the payment of the fee owed to SunTrust Robinson Humphrey, Inc. set forth in that certain letter dated June 6, 2008 from SunTrust Robinson Humphrey, Inc. to the Borrower.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

Section 4.1.  Existence; Power. The Borrower is a national bank chartered under the laws of the United States and has all requisite power and authority to carry on its business as now conducted.

Section 4.2.  Organizational Power; Authorization.  The execution, delivery and performance by the Borrower of each of the Loan Documents are within the Borrower’s corporate powers and have been duly authorized by all necessary corporate, and if required, stockholder, action. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document when executed and delivered by the Borrower will constitute, valid and binding obligations of the Borrower, en­forceable against it in accordance with their re­spective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

Section 4.3. Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents  (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the articles of incorporation or by-laws of the Borrower or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding on the Company or any of its Subsidiaries or any of their respective assets or give rise to a right thereunder to require any payment to be made by the Company or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower.

Section 4.4.  Financial Statements.  (a) The Borrower has furnished to the Lender (i) the con­solidated balance sheet of the Company and its Subsidiaries as of December 31, 2007 and the related consolidated statements of income, of shareholders' equity and comprehensive income and of cash flows for the fiscal year then ended, each as audited by Dixon Hughes PLLC and (ii) the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of the March 31, 2008, and the related unaudited consolidated statements of in­come and of cash flows for the fiscal quarter then ending, certified by the Chief Financial Officer of the Company.  Such financial statements fairly present the consolidated financial condition of the Company and its Subsidiaries as of such dates and the consolidated results of op­erations  and cash flows for such periods in conformity with GAAP consistently applied, subject to year end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii). Since December 31, 2007, there have been no changes with respect to the Company and its Subsidiaries which have had or couldreasonably be expected to have, singly or in the aggregate, a Material Adverse Effect.

(b)           The Company’s FR Report Y-9C and FR Report Y-9LP, each dated March 31, 2008, provided to the Lender is the most recently available of such  reports, and the information therein fairly presents in all material respects the financial position of the Company and its Subsidiaries as of such date.

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(c)           The Borrower’s then-current and a duly executed copy of the then-current Call Report provided to the Lender is the most recently available of such report, and the information therein fairly presents in all material respects the financial position of the Borrower.

Section 4.5.  Litigation Matters.  No litigation, investigation or proceeding of or before any arbitra­tors or Governmental Authorities is pending against, or, to the knowledge of the Borrower, threatened against or affecting the Company or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document.

Section 4.6. Compliance with Laws and Agreements.  The Company  and each Subsidiary is in compliance with (a) all applicable laws (including without limitation all federal and state banking statutes) and all rules, regulations (including without limitation all federal and state banking regulations) and orders of any Governmental Authority, and (b) all indentures, agreements or other instruments binding upon it or its properties, except in each case where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 4.7. Regulatory Enforcement Matters.Neither the Company nor any of its Subsidiaries (including the Borrower), nor any of their respective officers, directors, employees or representatives, is subject or is party to, or has received any notice from any Governmental Authority that any of them will become subject or party to any investigation with respect to, any cease-and-desist order, agreement, civil monetary penalty, bar or suspension from the securities investment or banking businesses, consent agreement, memorandum of understanding or other regulatory enforcement action, proceeding or order with or by, or is a party to any commitment letter or similar undertaking to, or is subject to any directive by, or has been a recipient of any supervisory letter from, or has adopted any board resolutions at the request or suggestion of, any Governmental Authority that, in any such case, currently restricts in any material respect the conduct of their business or that in any material manner relates to their capital adequacy, their credit policies, their management or their business (each, a “Regulatory Action”), nor has the Company or any of its Subsidiaries (including the Borrower) been advised by any Governmental Authority that it is considering issuing or requesting any such Regulatory Action; and there is no unresolved violation, criticism or exception by any Governmental Authority with respect to any report or statement relating to any examinations of the Company or any of its Subsidiaries (including the Borrower), except where such unresolved violation, criticism or exception would not, singly or in the aggregate, have a Material Adverse Effect.

Section 4.8.  Investment Company Act.  The Borrower is not an "investment company", as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.

Section 4.9.  Taxes.  The Borrower and its Subsidiaries have timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are re­quired to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except (i) to the extent the failure to do so would not have a Material Adverse Effect or (ii)where the same are currently being contested in good faith by ap­propriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves.

Section 4.10.   Disclosure. The Borrower has disclosed to the Lender all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  None of the reports (including without limitation all reports that the

7

Borrower is required to file with the Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading.

Section 4.11. Dividend Restrictions; Other Restrictions.  (a)The Borrower has not violated any applicable regulatory restrictions on dividends, and no Governmental Authority has taken any action to restrict the payment of dividends by the Borrower.

(b) Neither the Company nor any Subsidiary is under investigation by, or is operating under any restrictions (excluding any restrictions on the payment of dividends referenced in subsection (a) above) imposed by or agreed to with, any Governmental Authority, other than routine examinations by such Governmental Authorities.

Section 4.12.  Capital Measures.  On the Closing Date, the Borrower has been, or is deemed to have been, notified by the appropriate Governmental Authority having regulatory authority over it that it is “adequately capitalized”,  as determined in accordance with any regulations established by such Governmental Authority.

Section 4.13. FDIC Insurance. The deposits of the Borrower are insured by the FDIC to the fullest extent permitted by law and the rules and regulations of the FDIC, and no proceedings for the termination of such insurance are pending or, to the knowledge of the Borrower, threatened.

Section 4.14. OFAC. Neither the Company nor any of its Subsidiaries (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2 or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

Section 4.15. Patriot Act. Each of the Company and its Subsidiaries is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001).  No part of the proceeds of the Revolving Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

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ARTICLE V

COVENANTS

The Borrower covenants and agrees that so long as the Subordinated Term Loan has not been repaid in full and the Subordinated Note has been cancelled:

Section 5.1.  Financial Statements and Other Information. The Borrower will deliver to the Lender:

                       (a)           as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a copy of the annual audited report for such fiscal year for the Company and its Subsidiaries, containing a consolidated balance sheet and the related consolidated statements of income, of shareholders' equity and comprehensive income, and of cash flows (together with all footnotes thereto), setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and reported on by independent public accountants of nationally recognized standing (without a "going concern" or like qualification, exception or explanation  and without any qualification or exception as to scope of such audit) to the effect that  such financial statements present fairly in all material respects the financial condition and the results of operations and cash flows on a consolidated basis of the Company for such fiscal year in accordance with GAAP and that the exami­nation by such accountants in connection with such  financial statements has been made in accordance with generally accepted auditing standards; provided, that the requirements set forth in this clause (a) may be fulfilled by providing to the Lender the report of the Company to the Commission on Form 10-K for the applicable fiscal year;

(b)           as soon as avail­able and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, an unaudited balance sheet of the Company and its Subsidiaries on a consolidated basis as of the end of such fiscal quarter and the related unaudited statements of in­come and cash flows of the Company and its Subsidiaries on a consolidated basis for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Company's previous fiscal year, all certified by the chief financial officeror treasurerof the Company as presenting fairly in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; provided, that the requirements set forth in this clause (b) may be fulfilled by providing to the Lender the report of the Company to the Commission on Form 10-Q for the applicable fiscal quarter;

(c)           concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, duly executed copies of the Company’s then-current FR Report Y-9C and FR Report Y-9LP and a duly executed copy of the then-current Call Report for the Borrower; and

(e)           promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be.

Documents required to be delivered pursuant to Section 5.1(a) or (b) or Section 5.1(e) that are filed with, or furnished to, the Commission electronically shall be deemed to have been delivered to the Lender on the date (i) on which the Company posts such documents or provides a link thereto on the Company’s website on the internet at the website address set forth in Section 9.1 or (ii) on which such documents are posted on the Company’s behalf on an internet or intranet website, if any, to which the Lender has access; provided, that (A) the Borrower shall deliver paper copies of such documents to the Lender if the Lender so requests in writing  

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until a further written notice is received by the Borrower from the Lender to cease delivering paper copies and (B) the Borrower shall notify (which may be by facsimile or electronic mail) the Lender of the posting of any such documents. Notwithstanding the foregoing, as long as the Revolving Credit Agreement remains in effect, compliance by the Company of its requirements under Sections 5.1 and 5.2 of the Revolving Credit Agreement shall satisfy the Borrower’s requirements under Section 5.1 and Section 5.2 of this Agreement.

Section 5.2.  Notices of Material Events.  The Borrower will furnish to the Lender prompt written notice of the following:

(a)           the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Company or any Subsidiary which could reasonably be expected to result in a Material Adverse Effect;

(b)           any material investigation of the Company or any Subsidiary by any Governmental Agency having regulatory authority over the Company or any such Subsidiary (other than routine examinations of the Borrower and/or any such Subsidiary);

(c)           the issuance of any cease and desist order, written agreement, cancellation of insurance or other public enforcement action by the FDIC or other Governmental Authority having regulatory authority over the Company or any Subsidiary;

(d)           the issuance of any memorandum of understanding or proposed disciplinary action by or from any Governmental Authority having regulatory authority over the Company or any Subsidiary, to the extent that the Company or any such Subsidiary is permitted to disclose such information (provided that the Borrower shall take all reasonable efforts to obtain any necessary regulatory consents);

(e)           any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.3.  Use of Proceeds .  The Borrower will use the proceeds of the Subordinated  Loan for general working capital purposes. No part of the proceeds of the Subordinated Term Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulation T, U or X.

ARTICLE VI

MISCELLANEOUS

Section 6.1.  Notices.

(a)           Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

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To the Borrower:	CommunityONE Bank, National Association
	150 South Fayetteville Street
	Asheboro, North Carolina 27203
	Attn: Carey Chapman, Treasurer
	Telephone Number: (336) 318-7872
	Fax Number: (336) 328-1623
	Email: carey.chapman@myyesbank.com
	Website: www.myyesbank.com
To the Lender:	SunTrust Bank
	Atlanta, Georgia 30308
	Attn: Susan Thigpen
	Telephone Number: (404) 588-7270
	Fax Number: (404) 581-1775
	Email: Susan.Thigpen@suntrust.com

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient).

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.  All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to the Lender shall not be effective until actually received by the Lender at its address specified in this Section 6.1. With respect to any communications delivered or furnished by electronic communication under Section 5.1, such communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided, that if such communications are not sent during the normal business hours of the recipient, such communications shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii)  communications posted to an internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such communication is available and identifying the website address therefor.

(b)           Any agreement of the Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower.  The Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Lender shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Lender in reliance upon such telephonic or facsimile notice.

Section 6.2.  Waiver; Amendments.

(a)           No failure or delay by the Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Lender, shall oper­ate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or

11

discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exer­cise of any other right or power hereunder or thereunder.  The rights and remedies of the Lender hereunder and under the other Loan Documents are cumulative and are not exclu­sive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

(b)           No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Lender and then such waiver or consent shall be effective only in the specific instance and for the spe­cific purpose for which given.

Section 6.3.  Expenses; Indemnification.

(a)           The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Lender (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) in connection with the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), and (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside coun­sel and the allocated cost of inside counsel) incurred by the Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Subordinated Term Loan, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Subordinated Term Loan.

                        (b)The Borrower shall indemnify the Lender and each affiliate of the Lender, and each officer, director, employee, agents and advisors of the Lender and each affiliate of the Lender (each, an "Indemnitee") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by any Indemnitee,  or asserted against any Indemnitee by the Borrower or any third Person, arising out of, in connection with or as a result of (i) the execution or delivery of any this Agreement or any other agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation  of any of the transactions contemplated hereby, (ii) the Subordinated Term Loan or any actual or proposed use of the proceeds therefrom, or (iii)any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether brought by the Borrower or any third Person and whether based on contract, tort, or any other theory  and regardless of whether any Indemnitee is a party thereto; provided, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined  by a court of competent jurisdiction in a final and nonappealable judgment to have resulted from the  gross negligence or willful misconduct of such Indemnitee.

                            (c)The Borrower shall pay, and hold the Lender harmless from and against, any and all present and future stamp, documentary, and other similar taxes with re­spect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

(d)           To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of,

12

this Agreement, any other Loan Document, the transactions contemplated herein or therein, the Subordinated Term Loan or the use of proceeds thereof.

(e)           All amounts due under this Section shall be payable promptly after written demand therefor.

Section 6.4.  Successors and Assigns.

(a)           The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void).

(b)           The Lender may at any time sell participations or assignments in all or a portion of its rights and obligations under this Agreement and the other Loan Documents.

Section 6.5.   Governing Law; Jurisdic­tion; Consent to Service of Process.

(a)           This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of North Carolina.

(b)           The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of any Federal and/or state court (including without limitation the North Carolina Business Court, if applicable)  located in the State of North Carolina and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such North Carolina state court (including the North Carolina Business Court) or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final nonappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.

(c)           The Borrower ir­­revocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)           Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 6.1.  Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 6.6.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS

13

CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

Section 6.7.   Counterparts; Integration.  This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Lender constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters.

Section 6.8.  Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making  of the Subordinated Term Loan, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Subordinated Term Loan or any other amount payable under this Agreement is outstanding and unpaid.  The provisions of Section 6.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Subordinated Term Loan,  or the termination of this Agreement or any provision hereof.  All representations and warranties made herein, in the cer­tifi­cates, reports, notices, and other documents delivered pursu­ant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents.

Section 6.9.  Severability.  Any provision of this Agreement ­or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 6.10.  Patriot Act.   The Lender hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender  to identify the Borrower in accordance with the Patriot Act.  The Borrower shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such other actions as are reasonably requested by the Lender in order to assist the Lender in maintaining compliance with the Patriot Act.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal in the case of the Borrower by their respective authorized officers as of the day and year first above written.

COMMUNITYONE BANK, NATIONAL ASSOCIATION
By	/s/ Mark A. Severson
	Name:  Mark A. Severson
	Title:  EVP/ CFO
[SEAL]
SUNTRUST BANK
By	/s/ Susan M. Thigpen
	Name:  Susan M. Thigpen
	Title:  Director

15

EXHIBIT A

FLOATING RATE SUBORDINATED NOTE DUE 2015

THIS NOTE IS NOT REQUIRED TO BE, AND IS NOT, REGISTERED UNDER

THE SECURITIES ACT OF 1933, AS AMENDED.

THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.  THIS OBLIGATION IS SUBORDINATED TO THE CLAIMS OF DEPOSITORS AND GENERAL CREDITORS OF THE BORROWER, IS UNSECURED, AND IS INELIGIBLE AS COLLATERAL FOR A LOAN BY THE BORROWER.

Principal Amount:  $15,000,000 Original Issue Date: June 30, 2008

COMMUNITYONE BANK, NATIONAL ASSOCIATION

FOR VALUE RECEIVED, CommunityONE Bank, National Association (the “Borrower”), hereby promises to pay to SunTrust Bank (the “Bank”) at its offices at 303 Peachtree Street, Atlanta, GA 30308 or at any other place as the Bank may from time to time designate the principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) on June 30, 2015 (the “Maturity Date”) and to pay interest thereon in arrears on each March 31, June 30, September 30, and December 31 of each year and on the Maturity Date (each, an “Interest Payment Date”), beginning on September 30, 2008, at a rate equal to LIBOR plus three and one-half percent (3.50%) per annum (the “Interest Rate”).

The Interest Rate for the initial interest period from the Original Issue Date to September 30, 2008 shall be 6.30063% per annum, which was determined by reference to the then prevailing LIBOR.  Thereafter, the Interest Rate shall be reset quarterly (the “Interest Reset Period” and the first day of each Interest Reset Period shall be an “Interest Reset Date”) by reference to the then prevailing LIBOR.  The Interest Reset Dates for this Note shall be March 31, June 30, September 30, and December 31of each year, beginning on September 30, 2008.  If any Interest Reset Date falls on a day that is not a Business Day, the Interest Reset Date shall be postponed to the next succeeding Business Day, except if that Business Day is in the next succeeding calendar month, the Interest Reset Date shall be the immediately preceding Business Day.

"LIBOR" means that rate per annum that is equal to the London interbank offered rate for deposits in U.S. dollars for a three-month period, which rate appears on Reuters Screen LIBOR01 Page (or any successor page), or such similar service as determined by the Bank that displays British Bankers' Association interest settlement rates for deposits in U.S. dollars, as of 11:00 A.M. (London, England time) two (2) London Business Days prior to the Original Issue Date and each Interest Reset Date; provided, that if no such offered rate appears on such page, the rate used will be the per annum rate of interest determined by the Bank to be the rate at which deposits in U.S. dollars for a three-month period are offered to the Bank in the London Inter-Bank Market as of 10:00 A.M. (Atlanta, Georgia time), on the day which is two (2) Business Days prior to each Interest Reset Date.

The amount of interest payable for any interest period shall be computed and paid on the basis of a 360-day year and the actual number of days elapsed in the relevant interest period. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name

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this Note is registered at the close of business on the date for such interest installment.

The term “Business Day” means any day that is not a Saturday or Sunday and that is not a day on which banking institutions are generally authorized or required to be closed in Atlanta, Georgia. The term “London Banking Day” means any day that is not a Saturday or Sunday and that is not a day on which banking institutions are generally authorized or required to be closed in Atlanta, Georgia and London, England.

Reference is made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as though fully set forth at this place.

IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed and its corporate seal to be hereunto affixed and attested.

COMMUNITYONE BANK, NATIONAL ASSOCIATION

By:

Name:

Title:

[Reverse Side of Note]

1.        Payment of the principal on the Maturity Date and interest payable on each Interest Payment Date will be made by wire transfer in immediately available funds to a bank account in the United States designated by the Bank (the Bank, and any assignee or transferee of the Bank, shall herein be referred to as the “Holder”), in a written notice received by the Borrower. To the extent permitted by applicable law, interest shall accrue at the rate at which interest accrues on the principal of this Note, on any amount of principal of or interest on this Note not paid when due.  All payments on this Note shall be applied first to accrued interest and the balance, if any, to principal.

2.        Payments of principal and interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.  Until the date on which the Note shall have been surrendered or delivered to the Borrower for cancellation or destruction, or become due and payable and a sum sufficient to pay the principal of and interest on the Note shall have been made available for payment and either paid or returned to the Borrower as provided herein, the Borrower shall at all times maintain an office where the Note or Notes may be presented or surrendered for payment, and the location shall be communicated promptly to the Holder of this Note.

3.        Except as otherwise provided on the face of this Note, this Note is transferable, in whole or in part, and may be exchanged for a like aggregate principal amount of Notes of other authorized denominations, by the Holder in person, or by his attorney duly authorized in writing, at the office of the Borrower.  Upon surrender or presentation of this Note for exchange or transfer, the Borrower shall execute and deliver in exchange therefor a Note or Notes, which has or have an aggregate denomination equal to the denomination of this Note and is or are issued in such name or names requested by the Holder.  Any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed, or accompanied by a written instrument of transfer with such evidence of due authorization and guarantee of signature as may reasonably be required by the

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Borrower in form satisfactory to the Borrower, duly executed by the Holder or his attorney duly authorized in writing, and with such tax identification number or other information for each person in whose name a Note is to be issued as the Borrower may reasonably request to comply with applicable law.  No exchange or transfer of this Note shall be made on or after the 15th day immediately preceding the Maturity Date.

No service charge (other than any cost of delivery) shall be imposed for any exchange or transfer of this Note, but the Borrower may require the payment of a sum sufficient to cover any stamp or other tax or governmental charge that may be imposed in connection therewith (or presentation of evidence that such tax or charge has been paid).

Prior to due presentment of this Note for exchange or transfer, the Borrower and its respective agents may treat the Holder on its books as the absolute owner of this Note for the purpose of receiving payments of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note be overdue, and the Borrower shall not be affected by any notice to the contrary.

4.        ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, THIS NOTE IS NOT SUBJECT TO ANY SINKING FUND.

5.        This Note ranks pari passu with all other Notes issued hereunder and pari passu, in the event of a liquidation or similar proceeding with respect to the Borrower, with all other present or future unsecured subordinated debt obligations of the Borrower, except any unsecured subordinated debt which may be expressly stated to be subordinated to this Note and any other Notes issued hereunder.

6.        The indebtedness of the Borrower evidenced by this Note, including the principal and interest, is unsecured and subordinate and junior in right of payment to the Borrower’s obligations to its depositors, its obligations under bankers’ acceptances and letters of credit, its obligations to any Federal Reserve Bank or the Federal Deposit Insurance Corporation (“FDIC”) and its obligations to its other creditors, and to any rights acquired by the FDIC as a result of loans made by the FDIC to the Borrower or the purchase or guarantee of any of its assets by the FDIC pursuant to the provisions of 12 U.S.C. Section 1823(c), (d) or (e), in each case whether outstanding at the date of this Note or hereafter incurred (except any obligations which expressly rank on a parity with or junior to this Note).  In the event of any insolvency proceedings, receivership, conservatorship, reorganization, readjustment of debt, marshalling of assets and liabilities or similar proceedings or any liquidation, dissolution or winding-up of or relating to the Borrower, whether voluntary or involuntary, all such obligations, except obligations that expressly rank on a parity with or junior to this Note, shall be entitled to be paid in full before any payment shall be made on account of the principal of, or interest on, this Note.  In the event of any such proceedings, after payment in full of all sums owing with respect to such prior obligations, the Holder, together with the holders of any other obligations of the Borrower ranking on a parity with this Note, shall be entitled to be paid from the remaining assets of the Borrower, the unpaid principal of, and the unpaid interest on, this Note or such other obligations before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock or any obligations of the Borrower ranking junior to this Note.  Nothing herein shall impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of and any premium and any interest on this Note in accordance with its terms.

7.        Notwithstanding any other provisions of this Note, including specifically those set forth in the sections relating to subordination, events of default and covenants of the Borrower, it is expressly understood and agreed that the Office of the Comptroller of the Currency (the “Comptroller”) or any receiver or conservator of the Borrower appointed by the Comptroller shall have the right in the performance of his legal duties, and as part of any transaction or plan of reorganization or liquidation designed to protect or further the continued existence of the Borrower or the rights of any parties or agencies with an interest in, or claim against, the Borrower or its assets, to transfer or direct the transfer of the obligations of this Note to any national banking association, state bank or bank holding company selected by such official which shall expressly assume the obligation of the due and punctual payment of the unpaid principal, interest and premium, if any, on this Note and the due and punctual performance of all covenants and conditions hereof; and the completion of such

18

transfer and assumption shall serve to supersede and void any default, acceleration or subordination which may have occurred, or which may occur due or related to such transaction, plan, transfer or assumption, pursuant to the provisions of this Note, and shall serve to return the Holder to the same position, other than for substitution of the obligor, it would have occupied had no default, acceleration or subordination occurred; except that any interest and principal previously due, other than by reason of acceleration, and not paid shall, in the absence of a contrary agreement by the Holder of this Note, be deemed to be immediately due and payable as of the date of such transfer and assumption, together with the interest from its original due date at the rate provided for herein.

8.        All notices to the Borrower under this Note shall be in writing and addressed to the Borrower at 150 South Fayetteville, Asheboro, North Carolina 27203, Attention:  Carey Chapman, Treasurer, or to such other address of the Borrower as the Borrower may notify to the Holder.

9.        The term “Event of Default,” as used in this Note, means any of the following events (whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any decree, order, rule or regulation of any governmental agency or body):

(i)           the Borrower shall consent to the appointment of a receiver, liquidator, trustee or other similar official in any receivership, liquidation, insolvency or similar proceeding with respect to the Borrower or all or substantially all of the property of the Borrower; or

(ii)           a court or other governmental agency or body having jurisdiction in the premises shall enter a decree or order for the appointment of a receiver, liquidator, trustee or other similar official of the Borrower in any receivership, liquidation, insolvency or similar proceeding with respect to the Borrower or all or substantially all of the property of the Borrower, or for the winding up or liquidation of the affairs or business of the Borrower.

The Borrower will promptly notify the Holder upon the occurrence of an Event of Default.

10.        If an Event of Default shall occur and be continuing, the Holder may, at its option, by written notice to the Borrower, declare this Note to be, and on the day of such declaration shall have been delivered to the Borrower, this Note shall become, immediately due and payable at its principal amount, together with accrued and unpaid interest thereon to the date of payment;  provided, however, that to the extent then required under or pursuant to applicable regulations of the Comptroller (including, without limitation 12 C.F.R. § 5.47) no accelerated payment may be made without the prior written approval of the Comptroller.

The Holder of this Note may rescind a declaration of an Event of Default and acceleration with respect to this Note under certain circumstances and may waive any past Event of Default and its consequences.

11.        There is no right of acceleration in the case of a default in the payment of the principal of or interest on this Note or the performance of any other obligation of the Borrower under this Note.

12.        Subject to paragraph 7 hereof, the Borrower shall not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, unless (a) the person formed by such consolidation or into which the Borrower is merged or the person which acquires by conveyance or transfer, or which leases, the properties and assets of the Borrower substantially as an entirety shall be a corporation, partnership or other entity organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume the due and punctual payment of the principal of and any premium and interest on this Note and the performance or observance of every provision of this Note on the part of the Borrower to be performed or observed and (b) immediately after giving effect to such transaction, no Event of Default or nonpayment as described in Section 13 of this Note, and no event which, after notice or lapse of time or both, would become such an Event of Default or nonpayment, shall have happened and be continuing.

13.        No provision of this Note shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or

19

currency, herein prescribed.  No failure or delay on the part of the Holder in exercising any right under this Note shall operate as a waiver of, or impair, any such right.  No waiver of any such rights shall be effective unless given in writing.

14.        This Note constitutes subordinated debt which qualifies as capital as provided in 12 C.F.R. Part 3, Appendix A.

15.        This Note is a debt of the Borrower only and is not an obligation of FNB United Corp. or any of its affiliates other than the Borrower.

16.        THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA AND, WHERE APPROPRIATE, THE LAWS OF THE UNITED STATES.

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EX-31.10

Exhibit 31.10

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael C. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of FNB United Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   August 8, 2008	/s/ Michael C. Miller
	Michael C. Miller
	Chief Executive Officer

EX-31.11

Exhibit 31.11

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark A. Severson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of FNB United Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     August 8, 2008	/s/ Mark A. Severson
	Mark A. Severson
	Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of FNB United Corp., a North Carolina corporation (the “Corporation”), does hereby certify that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (the “Form 10-Q”) of the Corporation fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all materials respects, the financial condition and results of operations of the Corporation.

Date:  August 8, 2008	/s/ Michael C. Miller
	Michael C. Miller
	Chief Executive Officer
Date:  August 8, 2008	/s/ Mark A. Severson
	Mark A. Severson
	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.