corresp-96590_fnbu.htm

SCHELL BRAY AYCOCK ABEL & LIVINGSTON PLLC P.O. Box 21847 Greensboro, North Carolina 27420


December 22, 2008	336.370.8808
	mtuttle@sbaal.com

Via Electronic Mail

Mr. Eric Envall

Mr. John Spitz

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-4561

	Re:	FNB United Corp.
		Preliminary Proxy Statement filed December 9, 2008
		File No. 000-13823

Dear Messrs. Envall and Spitz:

On behalf of our client, FNB United Corp., we are attaching revised unaudited pro forma financial information in connection with the preliminary proxy statement filed by FNB United Corp. on December 9, 2008. The Company believes this revised information is responsive to your comments during the telephone conversation on December 19, 2008, among yourselves, Mark A. Severson, and me. For your convenience, we are also attaching a copy of the definitive proxy statement we intend to file, exclusive of appendices and proxy card, marked to show changes from the preliminary proxy statement.

Should you have any questions, please feel free to contact the undersigned at (336) 370-8800 or Michael C. Miller or Mr. Severson of FNB United Corp. at (336) 626-8300.


	Very truly yours,

	/s/ Melanie Samson Tuttle

	Melanie Samson Tuttle

MST:acw

Attachments

cc: FNB United Corp.

Pro Forma Financial Information regarding Impact of Participation in the Capital Purchase Program

The following unaudited pro forma financial information of FNB United for the fiscal year ended December 31, 2007 and the nine months ended September 30, 2008 shows the effects of issuing $18.1 million (minimum estimated proceeds, equal to one percent of the Corporation’s risk-weighted assets) and $54.3 million (maximum estimated proceeds, requested amount and nearly equal to three percent of the Corporation’s risk-weighted assets) of preferred stock to the DOT pursuant to the Capital Purchase Program. The pro forma financial information below reflects the issuance of warrants to purchase 711,000 shares of FNB United common stock (minimum estimated warrants to be issued) and warrants to purchase 2,134,000 shares of FNB United common stock (maximum estimated warrants to be issued), assuming a purchase price of $3.8163 per share, which is the trailing 20-day FNB United average common share price as of December 18, 2008. It further assumes the proceeds from the Capital Purchase Program are used to reduce short-term borrowings.

The pro forma financial data presented below may change materially based on the actual proceeds received, the timing and utilization of proceeds, as well as certain other factors, including any subsequent changes in the price of the Corporation’s common stock, dividends and the discount rate to determine the fair value of the preferred stock and warrants. Accordingly, the Corporation can provide no assurance that the pro forma assumptions included in the following pro forma financial information will ever be achieved. The Corporation is providing the following pro forma financial information solely for the purpose of providing shareholders with information that may be useful for considering and evaluating the proposal to amend the Corporation’s articles of incorporation.

The following unaudited pro forma financial information should be read in conjunction with the consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk,” from the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and Quarterly Report on Form 10-Q for the period ended September 30, 2008. Such historical information is included as Appendices A, B, C and D to this proxy statement.

Pro Forma Condensed Consolidated Summaries of Income (unaudited)

(in thousands – except per share data)	Historical 12 Months Ended		Pro Forma 12 Months Ended Minimum (1)		Pro Forma 12 Months Ended Maximum (1)

	12/31/2007		12/31/2007		12/31/2007
Total interest income	$	126,640	$	126,640	$	126,640
Total interest expense (2)		63,028		62,100		60,245
Net interest income		63,612		64,540		66,395
Provision for loan and lease losses		5,514		5,514		5,514
Net interest income after provision for loan and lease losses		58,098		59,026		60,881
Total noninterest income		21,593		21,593		21,593
Total noninterest expense		61,044		61,044		61,044
Applicable income taxes (3)		6,286		6,611		7,260
Net income		12,361		12,964		14,170
Dividends on preferred stock (4)		0		1,072		3,215
Net income available to common shareholders	$	12,361	$	11,892	$	10,955
PER COMMON SHARE DATA
Earnings per share, basic	$	1.09	$	1.05	$	0.97
Earnings per share, diluted	$	1.09	$	1.00	$	0.85
Cash dividends declared	$	0.60	$	0.60	$	0.60
Average number of shares outstanding		11,322		11,322		11,322
Average number of shares outstanding diluted (5)		11,336		11,877		12,957

(1)

The income statement effect is given assuming the cash proceeds were received at the beginning of the period. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million) and issuance of warrants for 711,000 shares. The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million) and issuance of warrants for 2,134,000 shares.

(2)	The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 5.125%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)	Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%.

(4)	This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method.

(5)	Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding.

Pro Forma Condensed Consolidated Summaries of Income (unaudited)

(in thousands – except per share data)	Historical 9 Months Ended		Pro Forma 9 Months Ended Minimum (1)		Pro Forma 9 Months Ended Maximum (1)

	09/30/2008		09/30/2008		09/30/2008
Total interest income	$	87,391	$	87,391	$	87,391
Total interest expense(2)		41,410		41,073		40,401
Net interest income		45,981		46,318		46,990
Provision for loan and lease losses		12,267		12,267		12,267
Net interest income after provision for loan and lease losses		33,714		34,051		34,723
Total noninterest income		15,693		15,693		15,693
Total noninterest expense		48,292		48,292		48,292
Applicable income taxes (3)		363		481		716
Net income		752		971		1,408
Dividends on preferred stock (4)		0		804		2,411
Net income available to common shareholders	$	752	$	167	$	(1,003	)
PER COMMON SHARE DATA
Earnings per share, basic	$	0.07	$	0.01	$	(0.09	)
Earnings per share, diluted	$	0.07	$	0.01	$	(0.09	)
Cash dividends declared	$	0.35	$	0.35	$	0.35
Average number of shares outstanding		11,408		11,408		11,408
Average number of shares outstanding diluted(5)		11,411		11,844		11,408

(1)

(2)	The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 2.478%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)	Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%.

(4)	This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method.

(5)	Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding.

Pro Forma Condensed Consolidated Balance Sheets (unaudited)

(in thousands – except per share data)	Historical As of			Pro Forma Minimum (1)			Pro Forma Maximum (1)
ASSETS	09/30/2008			09/30/2008			09/30/2008
Cash and due from banks	$	35,550		$	35,550		$	35,550
Securities		221,384			221,384			221,384
Other short-term investments		207			207			207
Total portfolio loans and leases		1,589,101			1,589,101			1,589,101
Allowances for loans and lease losses		(26,750	)		(26,750	)		(26,750	)
Other assets		251,634			251,634			251,634
Total assets	$	2,071,126		$	2,071,126		$	2,071,126
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total deposits	$	1,519,682		$	1,519,682		$	1,519,682
Federal Funds purchased		9,000			0			0
Other short-term borrowings (2)		49,500			40,400			4,200
Other liabilities		96,938			96,938			96,938
Long-term debt		184,589			184,589			184,589
Total liabilities	$	1,859,709		$	1,841,609		$	1,805,409
Common stock		28,555			28,555			28,555
Preferred stock (3)		0			18,100			54,300
Warrants discount (3)		0			(1,000	)		(3,000	)
Capital surplus		114,593			114,593			114,593
Warrants (3)		0			1,000			3,000
Retained earnings		70,609			70,609			70,609
Accumulated other comprehensive		(2,340	)		(2,340	)		(2,340	)
Total shareholders’ equity	$	211,417		$	229,517		$	265,717
Total liabilities and shareholders’ equity	$	2,071,126		$	2,071,126		$	2,071,126
REGULATORY CAPITAL RATIOS
Tier 1 capital		7.21	%		8.21	%		10.20	%
Total risk-based capital		10.50	%		11.50	%		13.49	%
Tier 1 leverage		6.73	%		7.67	%		9.52	%

(1)

The balance sheet effect is given assuming the cash proceeds were received at the balance sheet date. The minimum amounts reflect the pro forma impact assuming minimum estimated proceeds from the issuance of preferred stock (approximately $18.1 million). The maximum amounts reflect the pro forma impact assuming maximum estimated proceeds from the issuance of preferred stock (approximately $54.3 million).

(2)	The cash proceeds are assumed to be used initially to pay down other short-term borrowings. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)

The carrying values of the preferred stock and the warrants expected to be issued to the DOT are based on their estimated relative fair values. The fair value of the preferred stock was estimated using a 12.00% discount rate and a ten-year expected life. The fair value of the warrants was estimated using a Black-Scholes valuation. The Black-Scholes valuation requires assumptions regarding the Corporation’s common stock price, dividend yield, stock price volatility, and a risk-free rate. The assumptions used for these estimated fair values may be different from the assumptions used at the time of the receipt of the cash proceeds from the DOT due to changing economic, market and other conditions and factors set forth under “Forward-Looking Statements” in this proxy statement.

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]	Preliminary Proxy Statement

[ ]	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[X]	Definitive Proxy Statement

[ ]	Definitive Additional Materials

[ ]	Soliciting Material Pursuant to Section 240.14a-12

FNB United Corp.

(Name of Registrant as Specified in Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if Other than Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]	No fee required.

[ ]	Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.

Title of each class of securities to which transaction applies:

Aggregate number of securities to which transaction applies:

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule O-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

Proposed maximum aggregate value of transaction:

Total fee paid:

[ ]	Fee paid previously with preliminary materials.

[ ]	Check box if any part of the fee is offset as provided by Exchange Act Rule O-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:

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Date Filed:

FNB UNITED CORP.

150 South Fayetteville Street

Asheboro, North Carolina 27203

_____________________

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held January 23, 2009

_____________________

Notice is hereby given that a Special Meeting of Shareholders of FNB United Corp. (the “Corporation”) will be held at The Exchange, 204 South Fayetteville Street, Asheboro, North Carolina, on Friday, January 23, 2009, at 9:30 a.m., local time, for the following purposes:

To consider and act upon a proposal to amend the Corporation’s articles of incorporation to provide that the Corporation’s currently authorized preferred stock, consisting of 200,000 shares, shall no longer be nonvoting.

To consider and vote on any proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the amendment to the Corporation’s articles of incorporation.

To transact any other business as may properly come before the meeting or any adjournment thereof.

All shareholders are invited to attend the meeting. Only those shareholders of record at the close of business on December 18, 2008, shall be entitled to notice of the meeting and to vote at the meeting.

	By Order of the Board of Directors

	/s/ R. Larry Campbell

	R. Larry Campbell
	Secretary

December 24, 2008

Whether or not you plan to attend the meeting in person, your Board of Directors urges you to mark, date, sign and return the enclosed proxy as promptly as possible or to vote by the Internet or telephone as described on the proxy form.

FNB UNITED CORP.

150 South Fayetteville Street

Asheboro, North Carolina 27203

__________________________

PROXY STATEMENT

_______________________

GENERAL INFORMATION

The following information is furnished in connection with the solicitation of proxies by the board of directors of FNB United Corp. (sometimes referred to in this proxy statement as the “Corporation” or “FNB United”) for use at the Special Meeting of Shareholders to be held on January 23, 2009, at 9:30 a.m., local time, at The Exchange, 204 South Fayetteville Street, Asheboro, North Carolina. The principal executive offices of the Corporation are located at 150 South Fayetteville Street, Asheboro, North Carolina 27203 (Telephone: 336-626-8300). This proxy statement and the enclosed form of proxy were first sent or made available to shareholders on or about December 26, 2008.

Shareholders may vote either by completing and returning the enclosed form of proxy or through the Internet or by telephone. Information and applicable deadlines for voting through the Internet or by telephone are set forth on the enclosed form of proxy. Regardless of the method of voting, a shareholder may revoke a proxy before it is voted at the meeting by completing and returning a proxy form with a later date, by voting by telephone or on the Internet at a later date and prior to the close of the telephone or Internet voting facilities, by writing to the Secretary of the Corporation and stating that the shareholder is revoking an earlier proxy, or by voting in person at the meeting. If a shareholder votes more than once, the latest vote will be counted. The shares represented by all properly executed proxies received by the Corporation in time to be taken to the meeting will be voted; and, if a choice is specified on the proxy, the shares represented thereby will be voted in accordance with such specification. If a specification is not made, the proxy will be voted for the proposals set forth in the Notice of Special Meeting of Shareholders.

FNB United will pay the costs of the Special Meeting and the solicitation of proxies. Solicitation of proxies may be made in person or by mail or telephone by directors, officers and regular employees of the Corporation or its subsidiary, CommunityONE Bank, National Association (sometimes referred to in this proxy statement as “CommunityONE Bank”), without receiving additional compensation. The Corporation may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of FNB United common stock held of record by such person, and the Corporation will reimburse such forwarding expenses. In addition, FNB United has engaged Laurel Hill Advisory Group, LLC to assist in the solicitation of proxies and has agreed to pay them $6,500 plus reasonable expenses for these services.

Only holders of record of FNB United common stock at the close of business on December 18, 2008, are entitled to a notice of and to vote on matters to come before the Special Meeting or any adjournment thereof. At such time, there were 11,422,003 shares of FNB United common stock issued and outstanding.

Each share is entitled to one vote on all matters. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of FNB United common stock entitled to vote is necessary to constitute a quorum. Abstentions and broker nonvotes will be counted as present and entitled to vote for purposes of determining a quorum.

INFORMATION ABOUT THE SPECIAL MEETING

Why is FNB United holding a Special Meeting?

The Corporation is considering raising capital through the sale of preferred stock to the United States Department of the Treasury (DOT) pursuant to the DOT’s Troubled Asset Relief Program Capital Purchase Program, which was created under the Emergency Economic Stabilization Act of 2008. The Special Meeting is being held to approve a proposed amendment to the Corporation’s articles of incorporation, as amended, to enable the Corporation to participate in the Capital Purchase Program.

What is the Capital Purchase Program?

The DOT announced on October 14, 2008, the creation of the Troubled Asset Relief Program Capital Purchase Program to encourage United States financial institutions to build capital to increase the flow of financing to businesses and consumers in the United States and to support the United States economy. The Capital Purchase Program is designed to attract broad participation by healthy financial institutions and to do so in a way that attracts private capital to them as well as with a goal of increasing confidence in United States banks and increasing the confidence of such banks to lend their capital. Under the program, the DOT will purchase up to $250 billion of senior preferred shares from qualifying financial institutions that meet the program’s eligibility requirements and that applied to participate in the program by November 14, 2008.

Why does FNB United need to amend its articles of incorporation to participate in the Capital Purchase Program?

For FNB United to participate in the Capital Purchase Program, the Corporation must be able to issue and sell preferred stock to the DOT upon certain standard terms required by the DOT, including certain limited class voting rights. Although the Corporation’s preferred stock currently authorized and available for issuance may be issued upon action by the board of directors without further shareholder approval, the Corporation’s articles of incorporation prohibit the issuance of shares of preferred stock with voting rights, except for voting rights as otherwise required by law. Consequently, for FNB United to participate in the program, the articles of incorporation must be amended to permit the board of directors to include the standard limited voting rights required by the DOT in the terms of the preferred stock that the corporation would sell to the DOT. In particular, the DOT’s standard terms require, among other things, that the shares of preferred stock purchased by it, voting as a single class, be entitled to elect two persons to the FNB United board of directors if the Corporation fails to pay dividends on such preferred stock for six quarterly periods, whether or not consecutive, and to vote on any merger, exchange or similar transaction that would adversely affect the rights of such preferred stock.

Why would FNB United consider participating in the Capital Purchase Program?

The challenges experienced by financial institutions due to the recent economic downturn and turbulence in the financial markets make it prudent for financial institutions not only to preserve their existing capital but also to supplement their capital as a protection against the uncertain duration and severity of the current economic situation. Under the DOT’s Capital Purchase Program, eligible financial institutions will be able to sell preferred stock to the DOT on attractive financial terms in amounts equal to one percent to three percent of the institution’s risk-weighted assets. The preferred stock will constitute Tier 1 capital for the eligible institution. Although FNB United is presently well-capitalized under applicable regulatory guidelines, the board of directors believes it is advisable to take advantage of the opportunity offered by the DOT’s Capital Purchase Program to raise additional capital to ensure that during these uncertain economic times FNB United is well-positioned to support its existing operations as well as anticipated future growth.

What does FNB United plan to do with the proceeds of the Capital Purchase Program?

FNB United anticipates that if it is selected to participate in the Capital Purchase Program, and receives the $54.3 million applied for, it would initially use the proceeds to pay down short-term borrowings.

The sale of preferred stock to the DOT, if completed, is expected to yield both cash proceeds and increased capital to the Corporation. The cash proceeds will supplement the Corporation’s cash and other

sources of liquidity, including deposits, to provide for the general operating needs of the Corporation. These needs are expected to include making loans to qualified borrowers; purchasing securities, which will consist primarily of securities backed by residential mortgage loans; repaying liabilities in the ordinary course of business; and financing other ordinary activities of the Corporation.

The capital represented by the shares of preferred stock anticipated to be sold to the DOT would be expected to be prudently leveraged to further enhance earnings opportunities, primarily through lending and other indirect forms of lending, such as purchases of securities backed by residential mortgage loans. To the extent that the capital is not immediately deployed to a level of leverage equivalent to that of the Corporation’s current balance sheet, due to timing or other factors, that capital would serve to enhance the Corporation’s existing capital levels.

What will happen if the proposed amendment to FNB United’s articles of incorporation is not adopted?

If the Corporation’s shareholders do not approve the proposed amendment to the articles of incorporation set forth in Proposal 1, the Corporation believes that it may not be able to participate in the Capital Purchase Program under the DOT’s current standard terms. A failure to qualify for the program will potentially eliminate a possible low-cost source of additional capital that would allow FNB United to strengthen its capital position, increase its ability to extend credit to qualified borrowers, support its existing operations, improve its ability to leverage future strategic operations to grow, add value for its shareholders, and enhance its competitive position.

If the proposed amendment to the articles of incorporation is approved, is FNB United’s participation in the Capital Purchase Program guaranteed?

There can be no assurance that the Corporation’s application to participate in the Capital Purchase Program will be accepted or, if accepted, that the Corporation will ultimately participate in the program or that the Corporation will issue any preferred stock to the DOT, even if shareholders approve the proposed amendment. Until the application is approved and final documents have been executed by FNB United and the DOT, either party could decide not to continue with the issuance and sale of the preferred stock.

Where and when is the Special Meeting?

The Special Meeting of shareholders of the Corporation will be held at The Exchange, 204 South Fayetteville Street, Asheboro, North Carolina, on Friday, January 23, 2009, at 9:30 a.m., local time.

What will be voted upon at the Special Meeting?

Shareholders will be voting on the following matters:

1. To amend the Corporation’s articles of incorporation to delete the restriction on voting rights as to the Corporation’s presently authorized preferred stock.

2. To approve the adjournment of the Special Meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to adopt the proposed amendment to the articles of incorporation.

What constitutes a quorum and how many votes are needed to adopt the proposals?

Under the Corporation’s bylaws, a quorum is a majority of the shares of FNB United common stock outstanding. Shares of common stock may be present in person or represented by proxy at the Special Meeting. Both abstentions and broker non-votes are counted as being present for purposes of determining the presence of a quorum. There were 11,422,003 shares of FNB United common stock outstanding and entitled to vote on December 18, 2008, the record date. A majority of the outstanding common shares, or 5,711,002 shares, present in person or by proxy, will constitute a quorum. A quorum must exist to conduct business at the Special Meeting.

Approval of each of the proposals requires the affirmative vote of a majority of the shares of FNB United common stock voted on the proposal at the Special Meeting. Abstentions and broker non-votes will not count as votes on either proposal and will not affect the outcome of the vote.

What is the recommendation of FNB United’s board of directors?

The Corporation’s board of directors recommends that each shareholder vote “FOR” the adoption of the amendment to the articles of incorporation to delete the restriction against voting rights on the Corporation’s authorized preferred stock and “FOR” the proposal to adjourn the Special Meeting to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to adopt the proposed amendment to the articles of incorporation.

Who should I call if I have questions about these proxy materials or the proposals to be considered at the Special Meeting?

Shareholders who have questions about these proxy materials, need additional copies or require assistance with the procedures for voting shares may call our proxy solicitor, Laurel Hill Advisory Group, LLC at 1-888-742-1305. This is a toll-free number.

Who can vote?

December 18, 2008 has been fixed as the record date for the determination of shares entitled to notice of and to vote at the Special Meeting. You are entitled to vote if you are a holder of record of FNB United common stock as of the close of business on December 18, 2008. Each eligible shareholder is entitled to one vote per share of common stock.

How do I vote my shares of common stock?

You may vote your shares of common stock on matters that are properly presented at the Special Meeting by any of the following methods:

●

By completing the accompanying form of proxy and returning it in the envelope provided;

●

By submitting your vote by telephone;

●

By submitting your vote electronically via the Internet; or

●

By attending the Special Meeting and casting your vote in person.

For the Special Meeting, the Corporation is offering record holders of common stock the opportunity to vote their shares electronically through the Internet or by telephone. Instead of submitting your vote for shares of common stock by mail on the enclosed proxy card, you may vote by telephone or via the Internet by following the procedures described on your proxy card. To vote via telephone or the Internet, please have the enclosed proxy card in hand, and call the number or go to the website listed on the proxy card and follow the instructions. The telephone and Internet voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their voting instructions, and to confirm that shareholders’ instructions have been properly recorded.

Can the proxy materials be accessed electronically?

FNB United has sent the proxy materials for the Special Meeting to shareholders on or about December 26, 2008 by first-class U.S. mail. Additionally, the proxy statement for the Special Meeting is available at www.myyesbank.com.

How do I vote if my shares of common stock are held in “street name”?

If you hold your shares of FNB United common stock in “street name” with a broker, financial institution or another holder of record, then that entity is considered the shareholder of record for voting purposes and should give you instructions for voting your shares of common stock. As a beneficial owner of FNB United common stock, you have the right to direct the record holder on how to vote the shares held on your behalf. If you hold your shares of common stock in “street name,” your record holder, or nominee, may be participating in a program that allows you to submit a proxy by telephone or via Internet. If so, the voting form your nominee sent you will provide instructions for submitting your proxy telephonically or electronically via the Internet.

If you hold your shares of common stock in “street name” and wish to attend the Special Meeting and vote in person, you must bring an account statement or letter from your broker, financial institution or other holder of record authorizing you to vote on behalf of such record holder. The account statement or letter must show that you were the direct or indirect beneficial owner of shares of FNB United common stock as of the close of business on December 18, 2008, the record date for voting at the Special Meeting.

How will my shares of common stock be voted?

Shares of FNB United common stock represented by properly executed proxies will be voted at the Special Meeting, and if a shareholder has specified how the shares of common stock represented by the proxy are to be voted, they will be voted in accordance with that specification. It is intended that shares of common stock represented by a proxy card that has been properly signed and returned but on which no specification has been made, will be voted “FOR” both Proposals 1 and 2.

How do I change or revoke my proxy representing my shares of common stock?

A proxy may be revoked at any time before a vote is taken or the authority granted is otherwise exercised. Unless revoked, the shares of common stock represented by a submitted proxy will be voted at the Special Meeting and any adjournment thereof. You may revoke your proxy at any time before it is actually voted or exercised at the Special Meeting by executing and delivering a later dated proxy, by executing a later casted telephone or Internet vote with regard to the same shares, by giving notice of revocation to the Secretary of FNB United in writing, or by attending the Special Meeting and giving notice of revocation in person. Any shareholder who attends the Special Meeting and revokes his or her proxy may vote in person. However, your attendance at the Special Meeting alone will not revoke your proxy. The last-dated proxy you submit (by any means) will supersede any previously submitted proxy. If you hold your common stock in “street name” and instructed your broker, financial institution or other record holder to vote your shares and you would like to revoke or change your vote, then you must follow the instructions provided by your record holder.

If I vote my shares of common stock in advance, can I still attend the Special Meeting?

Yes. You are encouraged to vote promptly by telephone, Internet or by returning your signed proxy card by mail, so that your shares of common stock will be represented at the Special Meeting. However, voting your shares of common stock by proxy does not affect your right to attend the Special Meeting in person.

PROPOSAL 1 – AMENDMENT OF THE ARTICLES OF INCORPORATION

The FNB United board of directors has adopted, subject to shareholder approval, an amendment to FNB United’s articles of incorporation, as amended, to provide for a modification to the Corporation’s already authorized preferred stock to permit such preferred stock to have voting rights. Under the articles of incorporation as presently in effect, the Corporation is authorized to issue up to 200,000 shares of preferred stock with such preferences, limitations and relative rights as may be fixed by the board of directors except that the preferred stock will be nonvoting. If this amendment is approved by the shareholders, the second sentence of Article IV of FNB United’s articles of incorporation will be modified to delete the provision that the preferred stock will be nonvoting by replacing the sentence with the following: “The Preferred Stock shall have such preferences, limitations and relative rights as may be fixed by resolution of the Board of Directors of the corporation.” This amendment provides for no additional authorized shares of preferred stock beyond the 200,000 shares that are currently authorized.

Reasons for the Amendment

FNB United intends to finance its operations and continued growth through, among other things, the issuance from time to time of various equity securities, including preferred stock. The board of directors has had since the Corporation’s formation in 1984 the ability to cause FNB United to issue up to 200,000 shares of preferred stock with such preferences, limitations and relative rights, including dividend rates, conversion prices, redemption prices, and maturity dates, as the board may determine from time to time. The board of directors does not, however, have the ability to cause such issued shares of preferred stock to carry voting rights because the Corporation’s articles of incorporation expressly provide that the preferred stock shall be nonvoting. The board of directors believes it is in the best interests of the Corporation and its shareholders to permit the Corporation to issue preferred stock that may carry voting rights, along with all other preferences, limitations and relative rights, as may be determined by the board of directors from time to time. Accordingly, the proposed amendment is necessary to provide the Corporation the fullest flexibility to take advantage of opportunities to raise capital through the issuance of preferred stock in the future.

Having preferred shares available for issuance that are not precluded from having voting rights will enable the Corporation to respond promptly to market conditions and other opportunities without incurring the delay and expense associated with calling a shareholders’ meeting to approve a contemplated issuance of voting preferred stock. As such, if the proposed amendment is approved by the shareholders, the board of directors will have the power to issue voting preferred stock from time to time without further action by the shareholders, except as may be required by applicable law or the requirements of any market on which the Corporation’s shares are traded. Other than the possibility of participating in the Capital Purchase Program recently announced by the United States Department of the Treasury and described below under “Capital Purchase Program,” the Corporation has no plans, agreements or understandings with anyone to issue shares of preferred stock, voting or otherwise.

Although the board of directors has no present intention of issuing preferred stock for any defensive or antitakeover purpose, FNB United would be able to issue voting preferred shares that could, depending on the terms of such series, make more difficult or discourage an attempt to obtain control of the Corporation by means of a merger, tender offer, proxy contest or other means. When in the judgment of the board of directors this action will be in the best interests of the Corporation and its shareholders, such shares could be used to create voting or other impediments or to discourage persons seeking to gain control of FNB United. Such shares could be privately placed with purchasers aligned with the board of directors in opposing such action. In addition, the board of directors could authorize holders of a class or series of preferred stock to vote either separately as a class or with holders of FNB United common stock on any merger, share exchange, sale or exchange of assets or other extraordinary corporate transaction. The issuance of new preferred shares could be used to dilute the stock ownership of a person or entity seeking to obtain control of FNB United. The existence of additional authorized shares with potential voting rights could have the effect of discouraging unsolicited takeover attempts.

Under North Carolina law, the Corporation’s shareholders do not have the right to dissent and obtain payment for the “fair value” of their shares in connection with the proposed amendment to the articles of incorporation. Moreover, if this amendment is approved, FNB United shareholders will not have the right to dissent and obtain payment for the “fair value” of their shares in connection with any issuance of shares of preferred stock subsequently authorized by the board of directors.

The proposal to amend the articles of incorporation to permit the already authorized 200,000 shares of preferred stock to have voting rights will be approved if the number of votes cast in favor of the proposed amendment exceeds the number votes cast against the proposed amendment. Abstentions and broker nonvotes, as well as the failure to return a signed proxy card assuming a quorum is present, will not be counted as a vote for or against the proposed amendment and will not affect voting on the proposal. The board of directors has unanimously recommended a vote “FOR” this proposal. If the proposal is approved, officers of FNB United will promptly make the appropriate filings with the Department of the North Carolina Secretary of State and take any other action necessary to implement the amendment.

Capital Purchase Program

The United States government recently enacted the Emergency Economic Stabilization Act of 2008 to attempt to restore liquidity and stability to the financial system in the United States. Pursuant to the Act, on October 14, 2008 the United States Department of the Treasury (DOT) announced a voluntary Capital Purchase Program to encourage United States financial institutions to raise additional capital to increase the flow of financing to United States businesses and consumers and to support the United States economy in general. Under this program, the DOT has announced that it will purchase up to $250 billion of senior preferred shares in qualifying U.S. financial institutions, as determined by the DOT. The Corporation is eligible to participate in the Capital Purchase Program and has filed an application with the federal banking regulators to participate. There can be no assurance that the Corporation will be selected to participate in the program. Moreover, if the Corporation is so selected, FNB United is unable at this time to determine the amount of capital that will be made available to it under the program.

To participate in the Capital Purchase Program, an eligible financial institution must have applied with its primary banking regulator(s) on or before November 14, 2008. The Corporation’s and its bank subsidiary’s primary banking regulators are the Board of Governors of the Federal Reserve System (FRB) and the Office of the Comptroller of the Currency (OCC). The DOT, in consultation with each applicant’s primary banking regulator, will determine whether a financial institution will be permitted to participate in the program and the amount of capital to be allocated to that financial institution.

Each financial institution selected to participate in the Capital Purchase Program (a “participating institution”) may sell senior preferred shares to the DOT (“Program preferred shares”) in an amount not less than 1% nor more than 3% of its risk-weighted assets, as determined by the DOT. The Corporation applied for $54.3 million, which is equal to almost 3% of its risk-weighted assets based on its September 30, 2008 financial statements.

The Corporation intends to use the proceeds of any issuance of Program preferred shares to strengthen the capital position of the Corporation’s subsidiary bank, CommunityONE Bank, and to supplement its cash and other sources of liquidity, including deposits, to provide for the general operating needs of CommunityONE Bank. By strengthening the capital position of CommunityONE Bank, we believe the Corporation will be better positioned to meet the credit needs of the markets the Corporation serves, withstand any adverse effects of the current and future economic environment, and grow the Corporation’s business, whether it be from organic growth in the existing market area or from acquisition of other banks or branches. Although the Corporation is currently “well capitalized” under applicable regulatory guidelines, the board of directors believes it is advisable to take advantage of the Capital Purchase Program to raise additional capital on attractive financial terms to ensure that FNB United remains well-positioned during these uncertain economic times to support its existing operations and anticipated growth.

The Program preferred shares constitute Tier 1 capital and:



rank senior to common stock,



for bank holding companies like FNB United, pay cumulative compounded quarterly dividends at the rate of 5% per annum for five years and 9% per annum thereafter,



entitle their holder(s) to elect two directors if the participating institution fails to pay dividends on the Program preferred shares for six quarterly dividend periods, whether or not consecutive, in which event the authorized number of directors of the participating institution would automatically be increased by two pursuant to the terms of the Program preferred shares, and



will otherwise be non-voting, other than having class voting rights on the issuance of any shares ranking senior to the Program preferred shares, any amendment that adversely affects the terms of the Program preferred shares, or any merger, exchange or similar transaction which would adversely affect the rights of the Program preferred shares.

A participating institution may not redeem Program preferred shares during the first three years after issuance except with the proceeds from one or more “qualified equity offerings” generating gross proceeds of not less than 25% of the issue price of the Program preferred shares. A “qualified equity offering” means an offering of Tier 1 qualifying perpetual preferred stock or common stock for cash. After the third anniversary of issuance, a participating institution may redeem Program preferred shares without limitation. In all cases, the redemption price will be 100% of the issue price plus, for bank holding companies like FNB United, all accrued and unpaid dividends to the date of redemption.

If the Program preferred shares are outstanding, a participating institution may not:



without the consent of the DOT, until the third anniversary of the date of issuance of the Program preferred shares, increase the amount of dividends paid on any shares ranking junior to the Program preferred shares, unless the DOT has transferred the Program preferred shares to third parties;



without the consent of the DOT, redeem any shares ranking junior to the Program preferred shares until the third anniversary of the date of issuance, other than shares repurchased in connection with any employee benefit plans, unless prior to that time the DOT has transferred the Program preferred shares to third parties, or



pay dividends on or redeem any shares ranking junior to the Program preferred shares, unless all accrued dividends on the Program preferred shares have been paid in full.

A participating institution also is required to issue to the DOT a 10-year warrant to acquire a number of shares of common stock having a market price equal to 15% of the original issue price of the Program preferred shares. The warrant exercise price is based on the 20-day trailing average price for shares of common stock immediately prior to the DOT’s approval of the participating institution’s participation in the program. The warrant exercise price also will be subject to certain customary antidilution adjustments, including if the participating institution issues shares of common stock at less than 90% of their then current market value. If the participating institution is able, prior to December 31, 2009, to raise additional capital through one or more “qualified equity offerings” generating gross proceeds of not less than 100% of the original issue price of the Program preferred shares, the number of shares covered by the warrant will be automatically reduced by 50%. The DOT has agreed not to exercise any voting power with respect to any common shares it acquires upon exercise of the warrant.

The Program preferred shares, warrants and underlying warrant shares will be freely transferable by the DOT, and a participating institution will be required to take all steps reasonably requested to facilitate the transfer of the Program preferred shares and related warrant and warrant shares, including by filing a shelf registration statement with the SEC covering the resale by the DOT of these securities.

A participating institution is required to comply with certain executive compensation and corporate governance requirements so long as the Program preferred shares are outstanding. These requirements generally will:



limit the amount of severance paid to its CEO, CFO and three other most-highly compensated executive officers (the “covered officers”) to no more than three times the officer’s average W-2 compensation over the five years prior to separation;



require its compensation committees to periodically evaluate the institution’s compensation program with the assistance of its chief risk officer to ensure that no incentive compensation plan could lead the covered officers to take unnecessary and excessive risks that could threaten the value of the company;



require any bonus plan to provide that any covered officer must surrender any bonus or incentive compensation paid on account of inaccurate financial statements or metric; and



prohibit any participating institution from taking a deduction for federal tax purposes for compensation paid to any of the covered officers in excess of $500,000 in any year.

We do not believe that these requirements would materially affect the Corporation’s existing executive compensation and corporate governance practices.

The foregoing summarizes the material provisions of the Capital Purchase Program as it would apply to FNB United and was prepared based solely on a summary of the program published by the DOT. The terms of the program are subject to change by the DOT and expressly subject to the detailed terms of the program agreements prepared by the DOT to evidence the purchase and sale of Program preferred shares.

The Corporation’s ability to participate in the Capital Purchase Program required submission of an application to the FRB and the OCC on behalf of the Corporation by the close of business on November 14, 2008. We submitted the Corporation’s application to participate in the program on October 28, 2008. The Corporation applied for $54.3 million. We cannot assure you that FNB United will be approved to participate in the Program. Moreover, if FNB United is approved to participate in the program, we are unable at this time to determine the amount of capital that will be made available to it under the program.

Impact on Common Shareholders

Except for the possible issuance of Program preferred shares in connection with the Capital Purchase Program discussed above, FNB United does not have any plans or arrangements to issue other shares of preferred stock. FNB United currently has available 200,000 authorized shares of nonvoting preferred stock that if issued in the future could be issued on terms that may adversely affect the rights of FNB United common shareholders. Such preferred shares, if issued, could restrict the Corporation’s ability to pay dividends on shares of common stock, dilute the economic interests of the common shareholders to the extent that the new preferred shares are convertible into common shares or have preferential economic entitlements, or limit the amount of assets available to common shareholders upon liquidation. If the proposal to amend the articles of incorporation to permit the preferred stock to have voting rights is approved, issued shares of preferred stock could dilute the voting power of the common shareholders to the extent the new preferred shares have voting rights.

As indicated above, the Program preferred shares will affect the rights of the Corporation’s common shareholders in certain ways, including by:



requiring the Corporation to apply a portion of its cash resources to fund the payment of dividends on the Program preferred shares,



restricting the Corporation’s ability to increase the amount of dividends it pays on its common shares prior to the third anniversary of the Corporation’s investment in the Capital Purchase Program,



prohibiting the Corporation from paying any dividends on its common shares if the Corporation is not current in the payment of dividends on the Program preferred shares,



limiting the Corporation’s ability to redeem any common shares, subject to certain exceptions,



permitting the holders of the Program preferred shares to elect two directors, if the Corporation does not pay dividends for six dividend periods, and to vote as a class on certain amendments to the Corporation’s articles of incorporation adversely affecting the Program preferred shares and certain mergers, exchanges or similar transactions adversely affecting the rights of the Program preferred shares,



requiring the Corporation to reserve additional common shares for issuance upon the exercise of the 10-year warrant to purchase common shares that it would be required to issue in connection with the Corporation’s participation in the Capital Purchase Program, and to register these shares for immediate resale under the Securities Act of 1933, and,



providing the holders of the Preferred program shares with preferential liquidation rights.

Pro Forma Financial Information regarding Impact of Participation in the Capital Purchase Program

Pro Forma Condensed Consolidated Summaries of Income (unaudited)

(in thousands – except per share data)	Historical 12 Months Ended		Pro Forma 12 Months Ended Minimum (1)		Pro Forma 12 Months Ended Maximum (1)

	12/31/2007		12/31/2007		12/31/2007
Total interest income	$	126,640	$	126,640	$	126,640
Total interest expense (2)		63,028		62,100		60,245
Net interest income		63,612		64,540		66,395
Provision for loan and lease losses		5,514		5,514		5,514
Net interest income after provision for loan and lease losses		58,098		59,026		60,881
Total noninterest income		21,593		21,593		21,593
Total noninterest expense		61,044		61,044		61,044
Applicable income taxes (3)		6,286		6,611		7,260
Net income		12,361		12,964		14,170
Dividends on preferred stock (4)		0		1,038		3,115
Net income available to common shareholders	$	12,361	$	11,926	$	11,055
PER COMMON SHARE DATA
Earnings per share, basic	$	1.09	$	1.05	$	0.98
Earnings per share, diluted	$	1.09	$	1.00	$	0.85
Cash dividends declared	$	0.60	$	0.60	$	0.60
Average number of shares outstanding		11,322		11,322		11,322
Average number of shares outstanding diluted (5)		11,336		11,877		12,957

(1)

(2)	The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 5.125%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)	Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%.

(4)	This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method.

(5)	Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding.

Pro Forma Condensed Consolidated Summaries of Income (unaudited)

(in thousands – except per share data)	Historical 9 Months Ended		Pro Forma 9 Months Ended Minimum (1)		Pro Forma 9 Months Ended Maximum (1)

	09/30/2008		09/30/2008		09/30/2008
Total interest income	$	87,391	$	87,391	$	87,391
Total interest expense(2)		41,410		41,073		40,401
Net interest income		45,981		46,318		46,990
Provision for loan and lease losses		12,267		12,267		12,267
Net interest income after provision for loan and lease losses		33,714		34,051		34,723
Total noninterest income		15,693		15,693		15,693
Total noninterest expense		48,292		48,292		48,292
Applicable income taxes (3)		363		481		716
Net income		752		971		1,408
Dividends on preferred stock (4)		0		779		2,336
Net income available to common shareholders	$	752	$	192	$	(928	)
PER COMMON SHARE DATA
Earnings per share, basic	$	0.07	$	0.02	$	(0.08	)
Earnings per share, diluted	$	0.07	$	0.02	$	(0.08	)
Cash dividends declared	$	0.35	$	0.35	$	0.35
Average number of shares outstanding		11,408		11,408		11,408
Average number of shares outstanding diluted(5)		11,411		11,844		11,408

(1)

(2)	The cash proceeds are assumed to be used initially to pay down short-term borrowings at the weighted- average correspondent bank overnight lending rate of 2.478%. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)	Income taxes on incremental income due to the pay down of short-term borrowings are assumed to be 35%.

(4)	This amount includes dividends paid on the preferred stock and accretion of the discount recorded at issuance. The discount on the preferred stock is amortized over a five-year period using the effective yield method.

(5)	Treasury stock method was used for purposes of evaluating the effect of the warrants on diluted shares outstanding.

Pro Forma Condensed Consolidated Balance Sheets (unaudited)

(in thousands – except per share data)	Historical As of			Pro Forma Minimum (1)			Pro Forma Maximum (1)

ASSETS	09/30/2008			09/30/2008			09/30/2008
Cash and due from banks	$	35,550		$	35,550		$	35,550
Securities		221,384			221,384			221,384
Other short-term investments		207			207			207
Total portfolio loans and leases		1,589,101			1,589,101			1,589,101
Allowances for loans and lease losses		(26,750	)		(26,750	)		(26,750	)
Other assets		251,634			251,634			251,634
Total assets	$	2,071,126		$	2,071,126		$	2,071,126
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total deposits	$	1,519,682		$	1,519,682		$	1,519,682
Federal Funds purchased		9,000			0			0
Other short-term borrowings (2)		49,500			40,400			4,200
Other liabilities		96,938			96,938			96,938
Long-term debt		184,589			184,589			184,589
Total liabilities	$	1,859,709		$	1,841,609		$	1,805,409
Common stock		28,555			28,555			28,555
Preferred stock (3)		0			18,100			54,300
Discount on preferred stock (3)		0			(833	)		(2,500	)
Capital surplus		114,593			114,593			114,593
Warrants (3)		0			833			2,500
Retained earnings		70,609			70,609			70,609
Accumulated other comprehensive		(2,340	)		(2,340	)		(2,340	)
Total shareholders’ equity	$	211,417		$	229,517		$	265,717
Total liabilities and shareholders’ equity	$	2,071,126		$	2,071,126		$	2,071,126
REGULATORY CAPITAL RATIOS
Tier 1 capital		7.21	%		8.21	%		10.20	%
Total risk-based capital		10.50	%		11.50	%		13.49	%
Tier 1 leverage		6.73	%		7.67	%		9.52	%

(1)

(2)	The cash proceeds are assumed to be used initially to pay down other short-term borrowings. Subsequent redeployment of the funds is anticipated, but the timing of such redeployment is uncertain.

(3)

The carrying values of the preferred stock and the warrants expected to be issued to the DOT are based on their estimated relative fair values. The fair value of the preferred stock was estimated using a 12.00% discount rate and a five-year expected life. The fair value of the warrants was estimated using a Black-Scholes valuation. The Black-Scholes valuation requires assumptions regarding the Corporation’s common stock price, dividend yield, stock price volatility, and a risk-free rate. The assumptions used for these estimated fair values may be different from the assumptions used at the time of the receipt of the cash proceeds from the DOT due to changing economic, market and other conditions and factors set forth under “Forward-Looking Statements” in this proxy statement.

Board Recommendation

The FNB United board of directors recommends a vote “FOR” the proposal to amend FNB United’s articles of incorporation to delete the provision that the Corporation’s authorized shares of preferred stock shall be nonvoting.

PROPOSAL 2 – ADJOURNMENT OF THE MEETING

The Corporation may ask its shareholders to vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the adjournment to approve the amendment to the Corporation’s articles of incorporation. FNB United does not currently intend to propose adjournment at the special meeting if there are sufficient votes to approve the amendment to the Corporation’s articles of incorporation. If the proposal to adjourn the special meeting for the purpose of soliciting additional proxies is submitted to the shareholders for approval at the special meeting, the approval requires that there be more votes in favor of the proposal to adjourn the special meeting than votes against the proposal.

The FNB United board of directors recommends a vote “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

SECURITY OWNERSHIP OF MANAGEMENT AND OTHER BENEFICIAL OWNERS

The following table sets forth as of December 18, 2008, certain information with respect to the beneficial ownership of FNB United common stock by directors and executive officers, individually and as a group. The Corporation is not aware of any holders of more than 5% of the outstanding shares of FNB United common stock as of December 18, 2008.

	Amount and Nature of			Percent
Name	Beneficial Ownership (1) (2)			of Class

Jacob F. Alexander III		3,751			*
Robert O. Bratton		-			*
Larry E. Brooks		21,626			*
James M. Campbell, Jr.		84,193			*
R. Larry Campbell		80,238	(3)		*
Darrell L. Frye		15,750			*
R. Mark Hensley		17,764			*
Hal F. Huffman, Jr.		43,402			*
Thomas A. Jordan		55,485			*
Jerry A. Little		12,049			*
Lynn S. Lloyd		23,944			*
H. Ray McKenney, Jr.		91,399			*
Eugene B. McLaurin, II		17,841			*
Michael C. Miller		124,780	(4)		1.09	%
R. Reynolds Neely, Jr.		161,160	(5)		1.41	%
J. M. Ramsay III		90,411			*
Suzanne B. Rudy		1,400			*
Mark A. Severson		10,616			*
Carl G. Yale		14,500			*

Directors and executive officers		870,309	(3)(4)(5)		7.52	%
as a group (19 persons)

______________

* Less than one percent.

(1)	Includes shares held by directors’ and executive officers’ immediate families, including spouse and/or children residing in same household. Does not include 1,000 shares owned by the Ferree Educational and Welfare Fund, of which Mr. Miller is a trustee and treasurer.

(2)

Includes shares subject to stock options exercisable as of December 18, 2008 or within 60 days thereafter for Mr. J. Campbell (13,500 shares), Mr. R. Campbell (19,500 shares), Mr. Frye (13,500 shares), Mr. Jordan (13,500 shares), Mr. McKenney (5,287 shares), Mr. McLaurin (4,500 shares), Mr. Miller (53,500 shares), Mr. Neely (13,500 shares), Mr. Ramsay (5,000 shares), Mr. Hensley (12,500 shares), Mr. Severson (1,500 shares) and all directors and executive officers as a group (155,787 shares). With respect to executive officers, also includes shares allocated to such persons’ individual accounts under the Corporation’s 401(k) plan as follows: Mr. Miller (8,783 shares), Mr. Campbell (3,924 shares), Mr. Hensley (1,097 shares) and Mr. Severson (116 shares).

(3)	22,000 of these shares are pledged to Silverton Bank to secure a loan made to Mr. Campbell.

(4)	19,440 of these shares are pledged to Silverton Bank to secure a loan made to Mr. Miller.

(5)

Includes 70,143 shares held of record by the estate of Mr. Neely’s mother, Stella H. Neely, and over which Mr. Neely and his sister have joint voting and dispository control as co-executors. All of these 70,143 shares are pledged to CommunityONE Bank to secure a loan made to the Stella H. Neely Estate.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the 2009 Annual Meeting of Shareholders must have been received by the Secretary of FNB United Corp., 150 South Fayetteville Street, P.O. Box 1328, Asheboro, North Carolina 27204, no later than December 6, 2008 for inclusion in the Corporation’s proxy statement and form of proxy relating to such meeting. If a shareholder notifies the Corporation any later than February 19, 2009 of an intent to present a proposal at the next Annual Meeting of Shareholders, the Corporation will have the right to exercise its discretionary voting authority with respect to such proposal without including information regarding such proposal in its proxy materials related to such meeting.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Dixon Hughes PLLC is the Corporation’s independent registered accounting firm, and served as such for the years ended December 31, 2007 and 2006 and for the nine months ended September 30, 2008. Representatives from Dixon Hughes PLLC will be present at the special meeting to make such comments as they desire and to respond to questions from shareholders.

FORWARD-LOOKING STATEMENTS

This proxy statement, including its appendices, contains statements that could be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not purely historical and, as such, are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations, intentions, goals, objectives, estimates or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “may,” “could,” “should,” “would,” “expect,” “believe,” “estimate,” “intend,” “anticipate,” “plan,” “project,” or other statements concerning opinion or judgment of the Corporation and its management about future events.

FNB United cautions the reader that factors, such as those listed below, in some cases have affected and could affect the Corporation’s actual results, causing actual results to differ materially from those in any forward-looking statement. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, competitive pressure in the banking industry or in FNB United’s markets may increase significantly; inflation, interest rate, market and monetary fluctuations; general economic conditions, either

nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration or a reduced demand for credit; the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; adverse changes in the securities markets; changes may occur in banking and other applicable legislation and regulation; changes in accounting principles; adverse changes in financial performance or condition of FNB United’s borrowers, which could affect repayment of such borrowers’ outstanding loans; changes in general business conditions; and FNB United’s success at managing the risks involved in the foregoing. FNB United cautions that this list of factors is not exclusive.

You should refer to the Corporation’s periodic and current reports filed with the Securities and Exchange Commission for further information on other factors that could cause actual results to be significantly different from those expressed or implied by these forward-looking statements. Copies of those filings are available at no cost on the Commission’s website at www.sec.gov or on the Corporation’s website at www.myyesbank.com. All forward-looking statements speak only as of the date on which such statements are made, and FNB United undertakes no obligation to update any statement to reflect events or circumstances after the date of this proxy statement.

DELIVERY OF PROXY MATERIALS

To reduce the expenses of delivering duplicate proxy materials to our shareholders, we are relying upon rules of the Securities and Exchange Commission that permit us to deliver only one proxy statement to multiple shareholders who share an address unless we received contrary instructions from any shareholder at that address. If you share an address with another shareholder and have received only one proxy statement, you may write or call us as specified below to request a separate copy of the proxy statement and we will promptly send it to you at no cost to you. For future meetings, if you hold shares directly registered in your own name, you may request separate copies of our proxy statement, or request that we send only a single copy of the proxy statement to you if you are receiving multiple copies, by contacting us at: Secretary, FNB United Corp., 150 South Fayetteville Street, P.O. Box 1328, Asheboro, North Carolina 27204, or by telephoning us at (336) 626-8300. If your shares are held in the name of a bank, broker, or other nominee and you wish to receive separate copies of our proxy statement, or request that we send only a single copy of the proxy statement to you if you are receiving multiple copies, please contact the bank, broker or other nominee.

OTHER MATTERS

There is no business other than as set forth, so far as now known, to be presented for action by the shareholders at the meeting. It is intended that the proxies will be exercised by the persons named therein upon matters that may properly come before the meeting or any adjournment thereof, in accordance with the recommendations of management.

	By Order of the Board of Directors

	/s/ Michael C. Miller

	Michael C. Miller
	Chairman and President

Date: December 24, 2008