----

----

----

| 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)                           |

----

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

----

----

----

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

|                                                                                                                                                                          |   |               |      |   |              |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                          |   | September      30, |      |   | December      31, |   |
| (in      thousands, except share and per share data)                                                                                                                          |   | 2008               |      |   | 2007              |   |
| ASSETS                                                                                                                                                                        |   |               |      |   |              |   |
| Cash      and due from banks                                                                                                                                                  |   | $                  | 35,550    |   |              | $      | 37,739 |   |
| Interest-bearing      bank balances                                                                                                                                           |   |               | 287       |   |              |   | 836 |   |
| Federal      funds sold                                                                                                                                                       |   |               | 207       |   |              |   | 542 |   |
| Investment      securities:                                                                                                                                                   |   |               |      |   |              |   |   |   |
|      Available      for sale, at estimated fair value (amortized                                                                                     |   |               |      |   |              |   |   |   |
|           cost      of $200,363 and $160,903)                                                                               |   |               | 198,056   |   |              |   | 161,809 |   |
|      Held      to maturity (estimated fair value of                                                                                                  |   |               |      |   |              |   |   |   |
|           $22,970      and $35,251)                                                                                         |   |               | 23,328    |   |              |   | 35,650 |   |
| Loans      held for sale                                                                                                                                                      |   |               | 20,261    |   |              |   | 17,586 |   |
| Loans      held for investment                                                                                                                                                |   |               | 1,589,101 |   |              |   | 1,446,116 |   |
|      Less      allowance for loan losses                                                                                                             |   |               | (26,750   | )      |              |   | (17,381 | ) |
|                      Net      loans held for investment              |   |               | 1,562,351 |   |              |   | 1,428,735 |   |
| Premises      and equipment, net                                                                                                                                              |   |               | 51,038    |   |              |   | 46,614 |   |
| Goodwill                                                                                                                                                                      |   |               | 108,395   |   |              |   | 110,195 |   |
| Core      deposit premiums                                                                                                                                                    |   |               | 5,961     |   |              |   | 6,564 |   |
| Other      assets                                                                                                                                                             |   |               | 65,692    |   |              |   | 60,236 |   |
|                      Total      Assets                               |   | $                  | 2,071,126 |   |              | $      | 1,906,506 |   |
|                                                                                                                                                                          |   |               |      |   |              |   |   |   |
| LIABILITIES      AND SHAREHOLDERS' EQUITY                                                                                                                                     |   |               |      |   |              |   |   |   |
| Deposits:                                                                                                                                                                     |   |               |      |   |              |   |   |   |
|      Noninterest-bearing      demand deposits                                                                                                        |   | $                  | 159,882   |   |              | $      | 158,564 |   |
|      Interest-bearing      deposits:                                                                                                                 |   |               |      |   |              |   |   |   |
|           Demand,      savings and money market deposits                                                                    |   |               | 484,701   |   |              |   | 464,731 |   |
|           Time      deposits of $100,000 or more                                                                            |   |               | 452,992   |   |              |   | 375,419 |   |
|           Other      time deposits                                                                                          |   |               | 422,107   |   |              |   | 442,328 |   |
|                      Total      deposits                             |   |               | 1,519,682 |   |              |   | 1,441,042 |   |
| Retail      repurchase agreements                                                                                                                                             |   |               | 25,552    |   |              |   | 29,133 |   |
| Federal      Home Loan Bank advances                                                                                                                                          |   |               | 212,387   |   |              |   | 131,790 |   |
| Federal      funds purchased                                                                                                                                                  |   |               | 9,000     |   |              |   | 13,500 |   |
| Subordinated      debt                                                                                                                                                        |   |               | 15,000    |   |              |   | - |   |
| Junior      subordinated debentures                                                                                                                                           |   |               | 56,702    |   |              |   | 56,702 |   |
| Other      borrowings                                                                                                                                                         |   |               | 5,000     |   |              |   | - |   |
| Other      liabilities                                                                                                                                                        |   |               | 16,386    |   |              |   | 18,083 |   |
|                      Total      Liabilities                          |   |               | 1,859,709 |   |              |   | 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      - 11,422,003 and 11,426,902                                                                           |   |               | 28,555    |   |              |   | 28,567 |   |
|      Surplus                                                                                                                                         |   |               | 114,593   |   |              |   | 114,119 |   |
|      Retained      earnings                                                                                                                          |   |               | 70,609    |   |              |   | 74,199 |   |
|      Accumulated      other comprehensive loss                                                                                                       |   |               | (2,340    | )      |              |   | (629 | ) |
|                      Total      Shareholders' Equity                 |   |               | 211,417   |   |              |   | 216,256 |   |
|                      Total      Liabilities and Shareholders' Equity |   | $                  | 2,071,126 |   |              | $      | 1,906,506 |   |
|                                                                                                                                                                          |   |               |      |   |              |   |   |   |
| See      accompanying notes to consolidated financial statements.                                                                                                             |   |               |      |   |              |   |   |   |

----

| FNB      United Corp. and Subsidiary               |
|----------------------------------------------------|
| CONSOLIDATED      STATEMENTS OF INCOME (unaudited) |

|                                                                                                                                                   |   |                    |       |   |                   |   |       |   |   |   |       |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------|------------------------|--------|------------|--------|--------|--------|------------|--------|
|                                                                                                                                                   |   | Three      Months Ended |       |   | Nine      Months Ended |   |
|                                                                                                                                                   |   | September      30,      |       |   | September      30,     |   |
| (in      thousands, except share and per share data)                                                                                                   |   | 2008                    |       |   | 2007                   |   |       | 2008   |   |   | 2007       |   |
|                                                                                                                                                   |   |                    |       |   |                   |   |       |   |   |   |       |   |
| Interest      Income                                                                                                                                   |   |                    |       |   |                   |   |       |   |   |   |       |   |
|      Interest      and fees on loans                                                                                          |   | $                       | 26,386     |   |                   | $      | 29,308     |   |   | $      | 79,781     |   |   | $ | 85,720 |   |
|      Interest      and dividends on investment securities:                                                                    |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
|           Taxable      income                                                                        |   |                    | 1,982      |   |                   |   | 2,297      |   |   |   | 6,075      |   |   |   | 6,185 |   |
|           Non-taxable      income                                                                    |   |                    | 471        |   |                   |   | 519        |   |   |   | 1,501      |   |   |   | 1,564 |   |
|      Other      interest income                                                                                               |   |                    | 17         |   |                   |   | 49         |   |   |   | 34         |   |   |   | 1,290 |   |
|                     Total      interest income     |   |                    | 28,856     |   |                   |   | 32,173     |   |   |   | 87,391     |   |   |   | 94,759 |   |
| Interest      Expense                                                                                                                                  |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
|      Deposits                                                                                                                 |   |                    | 10,150     |   |                   |   | 13,488     |   |   |   | 32,578     |   |   |   | 39,531 |   |
|      Retail      repurchase agreements                                                                                        |   |                    | 148        |   |                   |   | 344        |   |   |   | 560        |   |   |   | 969 |   |
|      Federal      Home Loan Bank advances                                                                                     |   |                    | 1,922      |   |                   |   | 923        |   |   |   | 5,444      |   |   |   | 2,278 |   |
|      Federal      funds purchased                                                                                             |   |                    | 170        |   |                   |   | 62         |   |   |   | 468        |   |   |   | 90 |   |
|      Other      borrowed funds                                                                                                |   |                    | 865        |   |                   |   | 1,358      |   |   |   | 2,360      |   |   |   | 4,007 |   |
|                     Total      interest expense    |   |                    | 13,255     |   |                   |   | 16,175     |   |   |   | 41,410     |   |   |   | 46,875 |   |
| Net      Interest Income                                                                                                                               |   |                    | 15,601     |   |                   |   | 15,998     |   |   |   | 45,981     |   |   |   | 47,884 |   |
|      Provision      for loan losses                                                                                           |   |                    | 9,370      |   |                   |   | 1,470      |   |   |   | 12,267     |   |   |   | 2,470 |   |
| Net      Interest Income After Provision for Loan Losses                                                                                               |   |                    | 6,231      |   |                   |   | 14,528     |   |   |   | 33,714     |   |   |   | 45,414 |   |
| Noninterest      Income                                                                                                                                |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
|      Service      charges on deposit accounts                                                                                 |   |                    | 2,405      |   |                   |   | 2,249      |   |   |   | 6,628      |   |   |   | 6,578 |   |
|      Gains      on sale of mortgage loans                                                                                     |   |                    | 1,590      |   |                   |   | 1,191      |   |   |   | 3,910      |   |   |   | 3,915 |   |
|      Trust      and investment services                                                                                       |   |                    | 458        |   |                   |   | 436        |   |   |   | 1,389      |   |   |   | 1,268 |   |
|      Cardholder      and merchant services income                                                                             |   |                    | 660        |   |                   |   | 499        |   |   |   | 1,795      |   |   |   | 1,649 |   |
|      Other      service charges, commissions and fees                                                                         |   |                    | 136        |   |                   |   | 165        |   |   |   | 523        |   |   |   | 547 |   |
|      Bank      owned life insurance                                                                                           |   |                    | 243        |   |                   |   | 240        |   |   |   | 728        |   |   |   | 691 |   |
|      Other      income                                                                                                        |   |                    | 428        |   |                   |   | 1,862      |   |   |   | 720        |   |   |   | 2,414 |   |
|                     Total      noninterest income  |   |                    | 5,920      |   |                   |   | 6,642      |   |   |   | 15,693     |   |   |   | 17,062 |   |
| Noninterest      Expense                                                                                                                               |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
|      Personnel      expense                                                                                                   |   |                    | 8,434      |   |                   |   | 8,511      |   |   |   | 26,331     |   |   |   | 25,608 |   |
|      Net      occupancy expense                                                                                               |   |                    | 1,354      |   |                   |   | 1,358      |   |   |   | 4,012      |   |   |   | 3,931 |   |
|      Furniture      and equipment expense                                                                                     |   |                    | 1,106      |   |                   |   | 1,174      |   |   |   | 3,380      |   |   |   | 3,550 |   |
|      Data      processing services                                                                                            |   |                    | 490        |   |                   |   | 476        |   |   |   | 1,561      |   |   |   | 1,582 |   |
|      Goodwill      impairment                                                                                                 |   |                    | -          |   |                   |   | -          |   |   |   | 1,800      |   |   |   | - |   |
|      Other      expense                                                                                                       |   |                    | 4,048      |   |                   |   | 4,101      |   |   |   | 11,208     |   |   |   | 10,951 |   |
|                     Total      noninterest expense |   |                    | 15,432     |   |                   |   | 15,620     |   |   |   | 48,292     |   |   |   | 45,622 |   |
| Income      (loss) before income taxes                                                                                                                 |   |                    | (3,281     | )      |                   |   | 5,550      |   |   |   | 1,115      |   |   |   | 16,854 |   |
| Income      taxes (benefit)/expense                                                                                                                    |   |                    | (1,570     | )      |                   |   | 1,884      |   |   |   | 363        |   |   |   | 5,744 |   |
| Net      Income (Loss)                                                                                                                                 |   | $                       | (1,711     | )      |                   | $      | 3,666      |   |   | $      | 752        |   |   | $ | 11,110 |   |
|                                                                                                                                                   |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
| Net      income (loss) per common share:                                                                                                               |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
|      Basic                                                                                                                    |   | $                       | (0.15      | )      |                   | $      | 0.32       |   |   | $      | 0.07       |   |   | $ | 0.98 |   |
|      Diluted                                                                                                                  |   | $                       | (0.15      | )      |                   | $      | 0.32       |   |   | $      | 0.07       |   |   | $ | 0.98 |   |
| Weighted      average number of common shares outstanding:                                                                                             |   |                    |       |   |                   |   |       |   |   |   |       |   |   |
|      Basic                                                                                                                    |   |                    | 11,404,885 |   |                   |   | 11,335,672 |   |   |   | 11,408,037 |   |   |   | 11,306,233 |   |
|      Diluted                                                                                                                  |   |                    | 11,404,885 |   |                   |   | 11,352,625 |   |   |   | 11,410,830 |   |   |   | 11,330,614 |   |
|                                                                                                                                                   |   |                    |       |   |                   |   |       |   |   |   |       |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                                                                                      |   |                    |       |   |                   |   |       |   |   |   |       |   |   |

----

| FNB      United Corp. and Subsidiary                                           |
|--------------------------------------------------------------------------------|
| CONSOLIDATED      STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE  INCOME |
| Nine      Months Ended September 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                                                         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | 11,110 |   |   |   | - |   |   |   | 11,110 |   |
|      Other      comprehensive income, net of taxes:                          |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|           Unrealized      securities losses         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | -      |   |   |   | (213 | ) |   |   | (213 | ) |
|      Total      comprehensive income                                         |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   | 10,897 |   |
| Cash      dividends declared, $0.45 per share                                                         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | (5,113 | )      |   |   | - |   |   |   | (5,113 | ) |
| Stock      options:                                                                                   |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      Proceeds      from options exercised                                    |   |              | 81,012     |   |   |   | 202    |     |   |   | 525           |   |   |               | -      |   |   |   | - |   |   |   | 727 |   |
|      Compensation      expense recognized                                    |   |              | -          |   |   |   | -      |     |   |   | 381           |   |   |               | -      |   |   |   | - |   |   |   | 381 |   |
|      Net      tax benefit related to option exercises                        |   |              | -          |   |   |   | -      |     |   |   | 156           |   |   |               | -      |   |   |   | - |   |   |   | 156 |   |
| Restricted      stock:                                                                                |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      Shares      issued/terminated,                                          |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|           subject      to restriction               |   |              | 231        |   |   |   | 1      |     |   |   | (1            | )      |   |               | -      |   |   |   | - |   |   |   | - |   |
|      Compensation      expense recognized                                    |   |              | -          |   |   |   | -      |     |   |   | 207           |   |   |               | -      |   |   |   | - |   |   |   | 207 |   |
| Other      compensatory stock issued                                                                  |   |              | 432        |   |   |   | 1      |     |   |   | 7             |   |   |               | -      |   |   |   | - |   |   |   | 8 |   |
| Balance,      September 30, 2007                                                                      |   |              | 11,375,667 |   |   | $      | 28,439 |     |   | $      | 113,488       |   |   | $                  | 74,659 |   |   | $      | (1,655 | ) |   | $ | 214,931 |   |
|                                                                                                  |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
| 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                                  |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | (344   | )      |   |   | - |   |   |   | (344 | ) |
| Comprehensive      income:                                                                            |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      Net      income                                                         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | 752    |   |   |   | - |   |   |   | 752 |   |
|      Other      comprehensive income, net of taxes:                          |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|           Unrealized      securities losses         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | -      |   |   |   | (1,945 | ) |   |   | (1,945 | ) |
|           Interest      rate swap                   |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | -      |   |   |   | 192 |   |   |   | 192 |   |
|           Pension      and postretirement liability |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | -      |   |   |   | 42 |   |   |   | 42 |   |
|      Total      comprehensive income (loss)                                  |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   | (959 | ) |
| Cash      dividends declared, $0.35 per share                                                         |   |              | -          |   |   |   | -      |     |   |   | -             |   |   |               | (3,998 | )      |   |   | - |   |   |   | (3,998 | ) |
| Stock      options:                                                                                   |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      Proceeds      from options exercised                                    |   |              | 150        |   |   |   | 1      |     |   |   | 1             |   |   |               | -      |   |   |   | - |   |   |   | 2 |   |
|      Compensation      expense recognized                                    |   |              | -          |   |   |   | -      |     |   |   | 328           |   |   |               | -      |   |   |   | - |   |   |   | 328 |   |
| Restricted      stock:                                                                                |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|      Shares      issued/terminated,                                          |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
|           subject      to restriction               |   |              | (5,049     | )      |   |   | (13    | )        |   |   | (60           | )      |   |               | -      |   |   |   | - |   |   |   | (73 | ) |
|      Compensation      expense recognized                                    |   |              | -          |   |   |   | -      |     |   |   | 205           |   |   |               | -      |   |   |   | - |   |   |   | 205 |   |
| Balance,      September 30, 2008                                                                      |   |              | 11,422,003 |   |   | $      | 28,555 |     |   | $      | 114,593       |   |   | $                  | 70,609 |   |   | $      | (2,340 | ) |   | $ | 211,417 |   |
|                                                                                                  |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                                     |   |              |       |   |   |   |   |     |   |   |          |   |   |               |   |   |   |   |   |   |   |

----

|  FNB      United Corp. and Subsidiary                             |
|------------------------------------------------------------------------|
|  CONSOLIDATED      STATEMENTS OF CASHFLOWS  (unaudited) |

|                                                                                            |   |                   |     |   |   |   |
|-------------------------------------------------------------------------------------------------|--------|------------------------|----------|--------|--------|--------|
|                                                                                            |   | Nine      Months Ended |     |
|                                                                                            |   | September      30,     |     |
| (dollars      in thousands)                                                                     |   | 2008                   |     |   | 2007   |   |
|  Operating      Activities                                                                 |   |                   |     |   |   |   |
|  Net      income                                                                           |   | $                      | 752      |   |   | $      | 11,110 |   |
|  Adjustments      to reconcile net income to cash provided                                 |   |                   |     |   |   |   |   |   |
|   by      operating activities:                                                       |   |                   |     |   |   |   |   |   |
|  Depreciation      and amortization  of premises and equipment                   |   |                   | 2,571    |   |   |   | 2,691 |   |
|  Provision      for loan losses                                                            |   |                   | 12,267   |   |   |   | 2,470 |   |
|  Deferred      income taxes                                                                |   |                   | 486      |   |   |   | 466 |   |
|  Deferred      loan fees and costs, net                                                    |   |                   | 131      |   |   |   | (948 | ) |
|  Premium      amortization and discount accretion of investment securities,      net       |   |                   | (172     | )      |   |   | (58 | ) |
|  Amortization      of core deposit premiums                                                |   |                   | 603      |   |   |   | 612 |   |
|  Stock      compensation expense                                                           |   |                   | 533      |   |   |   | 596 |   |
|  Income      from bank owned life insurance                                                |   |                   | (728     | )      |   |   | (691 | ) |
|  Mortgage      loans held for sale:                                                        |   |                   |     |   |   |   |   |   |
|  Origination      of mortgage loans held for sale                                          |   |                   | (237,627 | )      |   |   | (294,178 | ) |
|  Proceeds      from sale of mortgage loans held for sale                                   |   |                   | 238,383  |   |   |   | 292,044 |   |
|  Gain      on mortgage loan sales                                                          |   |                   | (3,910   | )      |   |   | (2,354 | ) |
|  Mortgage      servicing rights capitalized                                                |   |                   | (958     | )      |   |   | (775 | ) |
|  Mortgage      servicing rights amortization and impairment                                |   |                   | 289      |   |   |   | 285 |   |
|  Goodwill      impairment                                                                  |   |                   | 1,800    |   |   |   | - |   |
|  Changes      in assets and liabilities:                                                   |   |                   |     |   |   |   |   |   |
|  Decrease      (increase) in interest receivable                                           |   |                   | 1,261    |   |   |   | (1,245 | ) |
|  Decrease      in other assets                                                             |   |                   | 17       |   |   |   | 4,657 |   |
|  Decrease      (increase) in accrued interest and other liabilities                        |   |                   | 50       |   |   |   | (12 | ) |
|       Net      cash provided by operating activities              |   |                   | 15,748   |   |   |   | 14,670 |   |
|  Investing      Activities                                                                 |   |                   |     |   |   |   |   |   |
|  Available-for-sale      securities:                                                       |   |                   |     |   |   |   |   |   |
|  Proceeds      from maturities and calls                                                   |   |                   | 82,978   |   |   |   | 47,222 |   |
|  Purchases                                                                                 |   |                   | (122,218 | )      |   |   | (113,861 | ) |
|  Held-to-maturity      securities:                                                         |   |                   |     |   |   |   |   |   |
|  Proceeds      from maturities and calls                                                   |   |                   | 12,268   |   |   |   | 6,513 |   |
|  Net      increase in loans held for investment                                            |   |                   | (151,045 | )      |   |   | (85,148 | ) |
|  Purchases      of premises and equipment                                                  |   |                   | (7,273   | )      |   |   | (3,679 | ) |
|       Net      cash used in investing activities                  |   |                   | (185,290 | )      |   |   | (148,953 | ) |
|  Financing      Activities                                                                 |   |                   |     |   |   |   |   |   |
|  Net      increase in deposits                                                             |   |                   | 78,640   |   |   |   | 31,119 |   |
|  (Decrease)      increase in retail repurchase agreements                                  |   |                   | (3,581   | )      |   |   | 7,367 |   |
|  Increase      in Federal Home Loan Bank advances                                          |   |                   | 80,478   |   |   |   | 48,527 |   |
|  Decrease      in federal funds purchased                                                  |   |                   | (4,500   | )      |   |   | - |   |
|  Increase      (decrease) in other borrowings                                              |   |                   | 20,000   |   |   |   | (16,314 | ) |
|  Proceeds      from exercise of stock options                                              |   |                   | 2        |   |   |   | 727 |   |
|  Tax      benefit from exercise of stock options                                           |   |                   | -        |   |   |   | 156 |   |
|  Cash      dividends paid                                                                  |   |                   | (4,570   | )      |   |   | (5,328 | ) |
|       Net      cash provided by financing activities              |   |                   | 166,469  |   |   |   | 66,254 |   |
|  Net      Decrease in Cash and Cash Equivalents                                            |   |                   | (3,073   | )      |   |   | (68,029 | ) |
|  Cash      and Cash Equivalents at Beginning of Period                                     |   |                   | 39,117   |   |   |   | 108,340 |   |
|  Cash      and Cash Equivalents at End of Period                                           |   | $                      | 36,044   |   |   | $      | 40,311 |   |
|                                                                                            |   |                   |     |   |   |   |   |   |
|  Supplemental      disclosure of cash flow information:                                    |   |                   |     |   |   |   |   |   |
|  Cash      paid during the period for:                                                     |   |                   |     |   |   |   |   |   |
|  Interest                                                                                  |   | $                      | 41,855   |   |   | $      | 46,835 |   |
|  Income      taxes, net of refunds                                                         |   |                   | 1,374    |   |   |   | 2,171 |   |
|  Noncash      transactions:                                                                |   |                   |     |   |   |   |   |   |
|  Foreclosed      loans transferred to other real estate                                    |   |                   | 6,400    |   |   |   | 3,019 |   |
|  Unrealized      securities gains (losses), net of income taxes      (benefit)/expense     |   |                   | (1,945   | )      |   |   | (213 | ) |
|  Application      of SFAS No. 158 to employee benefit plan costs, net of income      taxes |   |                   | 42       |   |   |   | - |   |
|  Interest      rate swap                                                                   |   |                   | 192      |   |   |   | - |   |
|  Adoption      of EITF Issue 06-4                                                          |   |                   | (344     | )      |   |   | - |   |
|                                                                                            |   |                   |     |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                               |   |                   |     |   |   |   |   |   |

----

| 1. | Basis      of Presentation |
|----|----------------------------|

| 2. | Cash      and Cash Equivalents |
|----|--------------------------------|

| 3. | Earnings      per Share |
|----|-------------------------|

----

|                                                     |   | Three      Months Ended |       |   | Nine      Months Ended |   |
|----------------------------------------------------------|--------|-------------------------|------------|--------|------------------------|--------|
|                                                     |   | September      30,      |       |   | September      30,     |   |
|                                                     |   | 2008                    |       |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                     |   |                    |       |   |                   |   |   |   |   |   |   |   |
| Basic      EPS denominator - weighted average number     |   |                    |       |   |                   |   |   |   |   |   |   |   |
|    of      common shares outstanding      |   |                    | 11,404,885 |   |                   |   | 11,335,672 |   |   |   | 11,408,037 |   |   |   | 11,306,233 |   |
| Dilutive      share effect arising from potential common |   |                    |       |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|    stock      issuances                   |   |                    | -          |   |                   |   | 16,953 |   |   |   | 2,793 |   |   |   | 24,381 |   |
| Diluted      EPS denominator                             |   |                    | 11,404,885 |   |                   |   | 11,352,625 |   |   |   | 11,410,830 |   |   |   | 11,330,614 |   |
|                                                     |   |                    |       |   |                   |   |   |   |   |   |   |   |   |   |   |   |

|   | For      the three months ended September 30, 2008 and 2007 there were 690,088 and      496,369 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 nine      months ended September 30, 2008 and 2007, there were 667,791 and 411,411      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 |   |   | Nine      Months Ended |   |
|----------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                                           |   | September      30,      |   |   | September      30,     |   |
| (dollars      in thousands)                                    |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |
| Balance,      at beginning of period                           |   | $                       | 18,845 |   |                   | $      | 15,705 |   |   | $ | 17,381 |   |   | $ | 15,943 |   |
| Provision      for loan losses                                 |   |                    | 9,370  |   |                   |   | 1,470 |   |   |   | 12,267 |   |   |   | 2,470 |   |
| Net      chargeoffs                                            |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Chargeoffs                                                     |   |                    | (2,031 | )      |                   |   | (1,135 | ) |   |   | (4,183 | ) |   |   | (3,376 | ) |
| Recoveries                                                     |   |                    | 566    |   |                   |   | 378 |   |   |   | 1,285 |   |   |   | 1,381 |   |
|  Net      chargeoffs                                      |   |                    | (1,465 | )      |                   |   | (757 | ) |   |   | (2,898 | ) |   |   | (1,995 | ) |
| Allowance      adjustment for loans sold                       |   |                    |   |   |                   |   | (302 | ) |   |   |   |   |   |   | (302 | ) |
| Balance,      end of period                                    |   | $                       | 26,750 |   |                   | $      | 16,116 |   |   | $ | 26,750 |   |   | $ | 16,116 |   |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Annualized      net charge-offs during                         |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|   the      period to average loans                   |   |                    | 0.37   | %      |                   |   | 0.22 | % |   |   | 0.25 | % |   |   | 0.20 | % |
| Annualized      net charge-offs during                         |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|    the      period to allowance for loan losses |   |                    | 21.91  | %      |                   |   | 18.79 | % |   |   | 14.44 | % |   |   | 16.51 | % |
| Allowance      for loan loss to loans held                     |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|    for      investment                          |   |                    | 1.68   | %      |                   |   | 1.17 | % |   |   | 1.68 | % |   |   | 1.17 | % |
|                                                           |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |

----

| 5. | Postretirement      Employee Benefit Plans |
|----|--------------------------------------------|

|                                             |   | Three      Months Ended |   |   | Nine      Months Ended |   |
|--------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
|                                             |   | September      30,      |   |   | September      30,     |   |
| (dollars      in thousands)                      |   | 2008                    |   |   | 2007                   |   |   | 2008 |   |   | 2007 |   |
| Pension      Plan                                |   |                    |   |   |                   |   |   |   |   |   |   |   |
| Service      cost                                |   | $                       | 66     |   |                   | $      | 67 |   |   | $ | 198 |   |   | $ | 201 |   |
| Interest      cost                               |   |                    | 165    |   |                   |   | 157 |   |   |   | 495 |   |   |   | 471 |   |
| Expected      return on plan assets              |   |                    | (235   | )      |                   |   | (236 | ) |   |   | (705 | ) |   |   | (708 | ) |
| Amortization      of prior service cost          |   |                    | 1      |   |                   |   | 1 |   |   |   | 3 |   |   |   | 3 |   |
| Amortization      of net actuarial loss          |   |                    | 2      |   |                   |   | 6 |   |   |   | 6 |   |   |   | 18 |   |
| Net      periodic pension cost (income)          |   | $                       | (1     | )      |                   | $      | (5 | ) |   | $ | (3 | ) |   | $ | (15 | ) |
|                                             |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      Executive Retirement Plan      |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                                |   | $                       | 34     |   |                   | $      | 35 |   |   | $ | 102 |   |   | $ | 105 |   |
| Interest      cost                               |   |                    | 36     |   |                   |   | 33 |   |   |   | 108 |   |   |   | 99 |   |
| Expected      return on plan assets              |   |                    | -      |   |                   |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of prior service cost          |   |                    | 17     |   |                   |   | 17 |   |   |   | 51 |   |   |   | 51 |   |
| Amortization      of net actuarial loss          |   |                    | 2      |   |                   |   | 7 |   |   |   | 6 |   |   |   | 21 |   |
| Net      periodic SERP cost                      |   | $                       | 89     |   |                   | $      | 92 |   |   | $ | 267 |   |   | $ | 276 |   |
|                                             |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Postretirement Defined Benefit Plans  |   |                    |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                                |   | $                       | 4      |   |                   | $      | 4 |   |   | $ | 12 |   |   | $ | 12 |   |
| Interest      cost                               |   |                    | 18     |   |                   |   | 17 |   |   |   | 54 |   |   |   | 51 |   |
| Expected      return on plan assets              |   |                    | -      |   |                   |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of prior service cost (credit) |   |                    | (1     | )      |                   |   | (1 | ) |   |   | (3 | ) |   |   | (3 | ) |
| Amortization      of transition obligation       |   |                    | -      |   |                   |   | - |   |   |   | - |   |   |   | - |   |
| Amortization      of net actuarial loss (gain)   |   |                    | -      |   |                   |   | 2 |   |   |   | - |   |   |   | 6 |   |
| Net      periodic postretirement benefit cost    |   | $                       | 21     |   |                   | $      | 22 |   |   | $ | 63 |   |   | $ | 66 |   |

|   | 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 requirement to      adjust the value of |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 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 $344,000 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 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 exposuredrafts. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 September 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 September 30, 2008 and 2007, total other      comprehensive (loss) income was ($732,000) and $288,000, respectively. The      deferred income tax benefit (liability) related to the components of other      comprehensive income amounted to $464,000 and ($187,000),      respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | For      the nine months ended September 30, 2008 and 2007, total other      comprehensive loss was ($1.7 million) and ($213,000), respectively. The      deferred income tax benefit related to the components of other      comprehensive income amounted to $1.1 million and $138,000,      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 the trust preferred at 4.01% through      December 15, 2010.  Holders of the trust preferred are not affected.      The swap was effective at September 30, 2008 and is expected to remain      effective as long as the cash flows arematched. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 default by FNB United. For the quarter ended      September 30, 2008, FNB United was not in compliance with two of the      financial covenants in the credit agreement. A waiver has been requested      and is pending approval, which approval is expected. Prepayments may be      made without premium or penalty. As of September 30, 2008, FNB United had      drawn down $5 million of the available $10  million. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 qualifies 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%, |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------|

----

| (dollars      in thousands)                   |   | Total  |    |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |
|-----------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|
| Investment      securities available for sale |   | $      | 198,056 |   |         | $      | 2,121  |         |   | $      | 192,533      |   |   | $ | 3,402 |   |
| Derivative      assets                        |   |   | 288     |   |         |   | -      |         |   |   | 288          |   |   |   | - |   |
| Total      assets at fair value               |   | $      | 198,344 |   |         | $      | 2,121  |         |   | $      | 192,821      |   |   | $ | 3,402 |   |
|                                          |   |   |    |   |         |   |   |         |   |   |         |   |   |   |   |   |

----

| (dollars      in thousands)                          | Investment      Securities Available for Sale |
|------------------------------------------------------|-----------------------------------------------|
| Beginning      balance, June 30, 2008                |                                          | $ | 3,351 |   |
| Total      gains/losses (realized/unrealized):       |                                          |   |   |   |
| Included      in earnings (or changes in net assets) |                                          |   |                  - |   |
| Included      in other comprehensive income          |                                          |   |         (1,376) |   |
| Purchases,      issuances and settlements            |                                          |   |           1,427 |   |
| Transfers      in/out of Level 3                     |                                          |   |                  - |   |
| Ending      balance, September 30, 2008              |                                          | $ | 3,402 |   |

| (dollars      in thousands)     |   | Total  |   |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |
|---------------------------------|--------|--------|--------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|
| Loans                           |   | $      | 32,320 |   |         | $      | -      |         |   | $      | -            |   |   | $ | 32,320 |   |
| Mortgage      servicing rights  |   |   | 3,568  |   |         |   | -      |         |   |   | -            |   |   |   | 3,568 |   |
| Total      assets at fair value |   | $      | 35,888 |   |         | $      | -      |         |   | $      | -            |   |   | $ | 35,888 |   |

| 10. | Goodwill |
|-----|----------|

----

----

| (dollars      in thousands, except per share data)                   |   | As      of / For the Quarter Ended |       |   |      |   |
|----------------------------------------------------------------------|--------|------------------------------------|------------|--------|-----------|--------|
|                                                                 |   | 9/30/2008                          |       |   | 9/30/2007 |   |   | 9/30/2008 |   |   | 9/30/2007 |   |
| Selected      Components Income Statement Data                       |   |                               |       |   |      |   |   |   |   |   |   |   |
|   Interest      income                                     |   | $                                  | 28,856     |   |      | $      | 32,173 |   |   | $ | 87,391 |   |   | $ | 94,759 |   |
|   Interest      expense                                    |   |                               | 13,255     |   |      |   | 16,175 |   |   |   | 41,410 |   |   |   | 46,875 |   |
|   Net      interest income                                 |   |                               | 15,601     |   |      |   | 15,998 |   |   |   | 45,981 |   |   |   | 47,884 |   |
|   Provision      for loan losses                           |   |                               | 9,370      |   |      |   | 1,470 |   |   |   | 12,267 |   |   |   | 2,470 |   |
|   Net      interest income after provision for loan losses |   |                               | 6,231      |   |      |   | 14,528 |   |   |   | 33,714 |   |   |   | 45,414 |   |
|   Noninterest      income                                  |   |                               | 5,920      |   |      |   | 6,642 |   |   |   | 15,693 |   |   |   | 17,062 |   |
|   Noninterest      expense                                 |   |                               | 15,432     |   |      |   | 15,620 |   |   |   | 48,292 |   |   |   | 45,622 |   |
|   Income      (loss) before income taxes                   |   |                               | (3,281     | )      |      |   | 5,550 |   |   |   | 1,115 |   |   |   | 16,854 |   |
|   Income      taxes                                        |   |                               | (1,570     | )      |      |   | 1,884 |   |   |   | 363 |   |   |   | 5,744 |   |
|   Net      Income (Loss)                                   |   | $                                  | (1,711     | )      |      | $      | 3,666 |   |   | $ | 752 |   |   | $ | 11,110 |   |
|                                                                 |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Common      Share Data                                               |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
|   Basic      earnings per share                            |   | $                                  | (0.15      | )      |      | $      | 0.32 |   |   | $ | 0.07 |   |   | $ | 0.98 |   |
|   Diluted      earnings per share                          |   |                               | (0.15      | )      |      |   | 0.32 |   |   | $ | 0.07 |   |   |   | 0.98 |   |
|   Dividends      declared per share                        |   |                               | 0.10       |   |      |   | 0.15 |   |   |   | 0.35 |   |   |   | 0.45 |   |
|   Book      value per share                                |   |                               | 18.51      |   |      |   | 18.89 |   |   |   | 18.51 |   |   |   | 18.89 |   |
|   Weighted      average shares outstanding-basic           |   |                               | 11,404,885 |   |      |   | 11,335,672 |   |   |   | 11,408,037 |   |   |   | 11,306,233 |   |
|   Weighted      average shares outstanding-diluted         |   |                               | 11,404,885 |   |      |   | 11,352,625 |   |   |   | 11,410,830 |   |   |   | 11,330,614 |   |
|                                                                 |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Financial      Condition Data                                        |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
|   Total      assets                                        |   | $                                  | 2,071,126  |   |      | $      | 1,893,546 |   |   | $ | 2,071,126 |   |   | $ | 1,893,546 |   |
|   Securities                                               |   |                               | 221,384    |   |      |   | 234,148 |   |   |   | 221,384 |   |   |   | 234,148 |   |
|   Loans      held for sale                                 |   |                               | 20,261     |   |      |   | 21,653 |   |   |   | 20,261 |   |   |   | 21,653 |   |
|   Net      loans held for investment                       |   |                               | 1,562,351  |   |      |   | 1,366,801 |   |   |   | 1,562,351 |   |   |   | 1,366,801 |   |
|   Deposits                                                 |   |                               | 1,519,682  |   |      |   | 1,452,099 |   |   |   | 1,519,682 |   |   |   | 1,452,099 |   |
|   Goodwill      and core deposit intangible                |   |                               | 114,356    |   |      |   | 117,319 |   |   |   | 114,356 |   |   |   | 117,319 |   |
|   Borrowings                                               |   |                               | 298,089    |   |      |   | 176,055 |   |   |   | 298,089 |   |   |   | 176,055 |   |
|   Shareholders'      equity                                |   |                               | 211,417    |   |      |   | 214,931 |   |   |   | 211,417 |   |   |   | 214,931 |   |
|                                                                 |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Average      Balances                                                |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
|   Total      assets                                        |   | $                                  | 2,067,661  |   |      | $      | 1,868,412 |   |   | $ | 2,024,784 |   |   | $ | 1,851,573 |   |
|   Securities                                               |   |                               | 213,930    |   |      |   | 246,645 |   |   |   | 218,094 |   |   |   | 220,973 |   |
|   Loans                                                    |   |                               | 1,566,837  |   |      |   | 1,386,773 |   |   |   | 1,525,780 |   |   |   | 1,358,584 |   |
|   Interest-earning      assets                             |   |                               | 1,824,809  |   |      |   | 1,637,632 |   |   |   | 1,784,210 |   |   |   | 1,612,072 |   |
|   Goodwill      and core deposit intangible                |   |                               | 114,486    |   |      |   | 117,415 |   |   |   | 115,901 |   |   |   | 117,888 |   |
|   Deposits                                                 |   |                               | 1,489,468  |   |      |   | 1,441,866 |   |   |   | 1,476,390 |   |   |   | 1,438,898 |   |
|   Total      interest-bearing liabilities                  |   |                               | 1,670,932  |   |      |   | 1,476,209 |   |   |   | 1,627,369 |   |   |   | 1,459,961 |   |
|   Shareholders'      equity                                |   |                               | 215,737    |   |      |   | 214,052 |   |   |   | 216,958 |   |   |   | 211,654 |   |
|                                                                 |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Performance      Ratios                                              |   |                               |       |   |      |   |   |   |   |   |   |   |   |   |   |   |
|   Return      on average assets                            |   |                               | -0.33      | %      |      |   | 0.78 | % |   |   | 0.05 | % |   |   | 0.80 | % |
|   Return      on tangible assets                           |   |                               | -0.35      | %      |      |   | 0.83 | % |   |   | 0.05 | % |   |   | 0.86 | % |
|   Return      on average equity                            |   |                               | -3.16      | %      |      |   | 6.79 | % |   |   | 0.46 | % |   |   | 7.02 | % |
|   Return      on tangible equity                           |   |                               | -6.72      | %      |      |   | 15.05 | % |   |   | 0.99 | % |   |   | 15.84 | % |
|   Net      interest margin                                 |   |                               | 3.48       | %      |      |   | 3.96 | % |   |   | 3.52 | % |   |   | 4.05 | % |
|   Noninterest      income to average assets                |   |                               | 1.14       | %      |      |   | 1.41 | % |   |   | 1.04 | % |   |   | 1.23 | % |
|   Noninterest      expense to average assets               |   |                               | 2.97       | %      |      |   | 3.32 | % |   |   | 3.19 | % |   |   | 3.29 | % |
|   Efficiency      ratio                                    |   |                               | 71.71      | %      |      |   | 68.99 | % |   |   | 78.30 | % |   |   | 70.25 | % |

----

----

----

|                                                             |   | Three      Months Ended September 30, |      |
|------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                             |   |  2008                            |      |   |  2007 |   |
| (dollars      in thousands)                                      |   |                                  |      |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                                             |   | Average                               |      |   | Income      / |   |   | Yield      / |   |   | Average |   |   | Income      / |   |   | Yield      / |   |
|                                                             |   | Balance(3)                            |      |   | Expense |   |   | Rate |   |   | Balance(3) |   |   | Expense |   |   | Rate |   |
| Interest      earning assets:                                    |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                                                   |   | $                                     | 1,607,289 |   |   | $ | 26,484 |   |   |   | 6.56 | % |   | $ | 1,386,773 |   |   | $ | 29,333 |   |   |   | 8.39 | % |
| Taxable      investment securities                               |   |                                  | 164,625   |   |   |   | 1,982 |   |   |   | 4.79 |   |   |   | 191,763 |   |   |   | 2,298 |   |   |   | 4.75 |   |
| Tax-exempt investment      securities (1)                        |   |                                  | 49,305    |   |   |   | 725 |   |   |   | 5.85 |   |   |   | 54,882 |   |   |   | 798 |   |   |   | 5.77 |   |
| Other      earning assets                                        |   |                                  | 3,590     |   |   |   | 17 |   |   |   | 1.91 |   |   |   | 4,214 |   |   |   | 49 |   |   |   | 4.61 |   |
|    Total      earning assets                      |   |                                  | 1,824,809 |   |   |   | 29,208 |   |   |   | 6.37 |   |   |   | 1,637,632 |   |   |   | 32,478 |   |   |   | 7.87 |   |
|                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-earning      assets:                                         |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and due from banks                                     |   |                                  | 30,571    |   |   |   |   |   |   |   |   |   |   |   | 33,785 |   |   |   |   |   |   |   |   |   |
| Goodwill      and core deposit premiums                          |   |                                  | 114,486   |   |   |   |   |   |   |   |   |   |   |   | 117,415 |   |   |   |   |   |   |   |   |   |
| Other      assets, net                                           |   |                                  | 97,795    |   |   |   |   |   |   |   |   |   |   |   | 79,580 |   |   |   |   |   |   |   |   |   |
|    Total      assets                              |   | $                                     | 2,067,661 |   |   |   |   |   |   |   |   |   |   | $ | 1,868,412 |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      bearing liabilities:                               |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      demand deposits                            |   |                                  | 167,799   |   |   |   | 507 |   |   |   | 1.20 |   |   |   | 158,885 |   |   |   | 623 |   |   |   | 1.56 |   |
| Savings      deposits                                            |   |                                  | 40,789    |   |   |   | 29 |   |   |   | 0.28 |   |   |   | 46,222 |   |   |   | 33 |   |   |   | 0.28 |   |
| Money      market deposits                                       |   |                                  | 285,774   |   |   |   | 1,668 |   |   |   | 2.32 |   |   |   | 262,288 |   |   |   | 2,751 |   |   |   | 4.16 |   |
| Time      deposits                                               |   |                                  | 833,920   |   |   |   | 7,947 |   |   |   | 3.79 |   |   |   | 815,365 |   |   |   | 10,081 |   |   |   | 4.91 |   |
| Retail      repurchase agreements                                |   |                                  | 37,934    |   |   |   | 148 |   |   |   | 1.55 |   |   |   | 28,616 |   |   |   | 344 |   |   |   | 4.77 |   |
| Federal      Home Loan Bank advances                             |   |                                  | 212,970   |   |   |   | 1,923 |   |   |   | 3.59 |   |   |   | 87,509 |   |   |   | 869 |   |   |   | 3.94 |   |
| Federal      funds purchased                                     |   |                                  | 19,804    |   |   |   | 170 |   |   |   | 3.41 |   |   |   | 4,596 |   |   |   | 62 |   |   |   | 5.35 |   |
| Other      borrowed funds                                        |   |                                  | 71,942    |   |   |   | 865 |   |   |   | 4.78 |   |   |   | 72,728 |   |   |   | 1,386 |   |   |   | 7.56 |   |
|    Total      interest bearing liabilities        |   |                                  | 1,670,932 |   |   |   | 13,257 |   |   |   | 3.16 |   |   |   | 1,476,209 |   |   |   | 16,149 |   |   |   | 4.34 |   |
|                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      liabilities and shareholders' equity:                 |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      demand deposits                         |   |                                  | 161,186   |   |   |   |   |   |   |   |   |   |   |   | 159,106 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                           |   |                                  | 19,806    |   |   |   |   |   |   |   |   |   |   |   | 19,045 |   |   |   |   |   |   |   |   |   |
| Shareholders'      equity                                        |   |                                  | 215,737   |   |   |   |   |   |   |   |   |   |   |   | 214,052 |   |   |   |   |   |   |   |   |   |
|   Total      liabilities and equity                    |   | $                                     | 2,067,661 |   |   |   |   |   |   |   |   |   |   | $ | 1,868,412 |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and net yield      on earning assets (3) (4) |   |                                  | $         | 15,951 |   |   |   | 3.48 | % |   |   |   |   |   | $ | 16,329 |   |   |   | 3.96 | % |
|                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate spread      (5)                                    |   |                                  |      |   |   |   |   |   |   |   | 3.21 | % |   |   |   |   |   |   |   |   |   |   | 3.53 | % |

| (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.                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                             |   | Nine      Months Months Ended September 30, |      |
|------------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                             |   |  2008                                  |      |   |  2007 |   |
| (dollars      in thousands)                                      |   |                                        |      |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                                             |   | Average                                     |      |   | Income      / |   |   | Yield      / |   |   | Average |   |   | Income      / |   |   | Yield      / |   |
|                                                             |   | Balance(3)                                  |      | Expense |   |   | Rate |   |   | Balance(3) |   |   | Expense |   |   | Rate |   |
| Interest      earning assets:                                    |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)                                                   |   | $                                           | 1,564,070 |   |   | $ | 80,002 |   |   |   | 6.83 | % |   | $ | 1,358,584 |   |   | $ | 85,883 |   |   |   | 8.45 | % |
| Taxable      investment securities                               |   |                                        | 165,094   |   |   |   | 6,075 |   |   |   | 4.92 |   |   |   | 165,601 |   |   |   | 6,185 |   |   |   | 4.99 |   |
| Tax-exempt investment      securities (1)                        |   |                                        | 53,000    |   |   |   | 2,309 |   |   |   | 5.82 |   |   |   | 55,372 |   |   |   | 2,406 |   |   |   | 5.81 |   |
| Other      earning assets                                        |   |                                        | 2,046     |   |   |   | 34 |   |   |   | 2.23 |   |   |   | 32,515 |   |   |   | 1,289 |   |   |   | 5.30 |   |
|    Total      earning assets                      |   |                                        | 1,784,210 |   |   |   | 88,420 |   |   |   | 6.62 |   |   |   | 1,612,072 |   |   |   | 95,763 |   |   |   | 7.94 |   |
|                                                             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-earning      assets:                                         |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and due from banks                                     |   |                                        | 31,249    |   |   |   |   |   |   |   |   |   |   |   | 33,143 |   |   |   |   |   |   |   |   |   |
| Goodwill      and core deposit premiums                          |   |                                        | 115,901   |   |   |   |   |   |   |   |   |   |   |   | 117,888 |   |   |   |   |   |   |   |   |   |
| Other      assets, net                                           |   |                                        | 93,424    |   |   |   |   |   |   |   |   |   |   |   | 88,470 |   |   |   |   |   |   |   |   |   |
|    Total      assets                              |   | $                                           | 2,024,784 |   |   |   |   |   |   |   |   |   |   | $ | 1,851,573 |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      bearing liabilities:                               |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      demand deposits                            |   |                                        | 166,948   |   |   |   | 1,548 |   |   |   | 1.24 |   |   |   | 164,665 |   |   |   | 2,005 |   |   |   | 1.63 |   |
| Savings      deposits                                            |   |                                        | 41,367    |   |   |   | 87 |   |   |   | 0.28 |   |   |   | 48,677 |   |   |   | 103 |   |   |   | 0.28 |   |
| Money      market deposits                                       |   |                                        | 277,789   |   |   |   | 5,049 |   |   |   | 2.43 |   |   |   | 253,761 |   |   |   | 7,865 |   |   |   | 4.14 |   |
| Time      deposits                                               |   |                                        | 828,975   |   |   |   | 25,895 |   |   |   | 4.17 |   |   |   | 812,516 |   |   |   | 29,558 |   |   |   | 4.86 |   |
| Retail      repurchase agreements                                |   |                                        | 34,041    |   |   |   | 560 |   |   |   | 2.20 |   |   |   | 27,717 |   |   |   | 969 |   |   |   | 4.67 |   |
| Federal      Home Loan Bank advances                             |   |                                        | 194,736   |   |   |   | 5,444 |   |   |   | 3.73 |   |   |   | 72,748 |   |   |   | 2,278 |   |   |   | 4.19 |   |
| Federal      funds purchased                                     |   |                                        | 21,705    |   |   |   | 468 |   |   |   | 2.88 |   |   |   | 2,170 |   |   |   | 90 |   |   |   | 5.55 |   |
| Other      borrowed funds                                        |   |                                        | 61,808    |   |   |   | 2,361 |   |   |   | 5.10 |   |   |   | 77,707 |   |   |   | 4,007 |   |   |   | 6.89 |   |
|    Total      interest bearing liabilities        |   |                                        | 1,627,369 |   |   |   | 41,412 |   |   |   | 3.40 |   |   |   | 1,459,961 |   |   |   | 46,875 |   |   |   | 4.29 |   |
|                                                             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      liabilities and shareholders' equity:                 |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      demand deposits                         |   |                                        | 161,311   |   |   |   |   |   |   |   |   |   |   |   | 159,279 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                           |   |                                        | 19,146    |   |   |   |   |   |   |   |   |   |   |   | 20,679 |   |   |   |   |   |   |   |   |   |
| Shareholders'      equity                                        |   |                                        | 216,958   |   |   |   |   |   |   |   |   |   |   |   | 211,654 |   |   |   |   |   |   |   |   |   |
|   Total      liabilities and equity                    |   | $                                           | 2,024,784 |   |   |   |   |   |   |   |   |   |   | $ | 1,851,573 |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income and net yield      on earning assets (3) (4) |   | $                                           | 47,008    |   |   |   | 3.52 | % |   |   |   |   |   | $ | 48,888 |   |   |   | 4.05 | % |
|                                                             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate spread      (5)                                    |   |                                        |      |   |   |   |   |   |   |   | 3.22 | % |   |   |   |   |   |   |   |   |   |   | 3.65 | % |

| (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.                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

----

----

----

|                  |   | Regulatory      Guidelines |   |                  |   |            |   |         |
|-----------------------|--------|----------------------------|--------|-----------------------|--------|-----------------|--------|--------------|
|                  |   | WellCapitalized            |   | AdequatelyCapitalized |   | FNB      United |   | CommunityONE |
|                  |   |                       |   |                  |   |            |   |         |   |   |   |   |
| Total      Capital    |   |                       | 10.0   | %                     |   |            | 8.0    | %            |   |   | 10.50 | % |   |   | 10.34 | % |
| Tier      1 Capital   |   |                       | 6.0    |                  |   |            | 4.0    |         |   |   | 7.21 |   |   |   | 8.26 |   |
| Leverage      Capital |   |                       | 5.0    |                  |   |            | 4.0    |         |   |   | 6.73 |   |   |   | 7.70 |   |

----

----

----

|   | 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                                             |
|   |           |                                                                                                 |
|   |           | None.                                                                                                |
|   |           |                                                                                                 |
|   | Item      5.   | Other      Information                                                                               |
|   |           |                                                                                                 |
|   |           | None.                                                                                                |
|   |           |                                                                                                 |
|   | Item      6.   | Exhibits                                                                                             |
|   |           |                                                                                                 |
|   |           | Exhibits      to this report are listed in the index to exhibits on pages 30-33 of this      report. |
|   |           |                                                                                                 |

----

|                  | FNB      United Corp.                               |
|-----------------------|-----------------------------------------------------|
|                  | (Registrant)                                        |
|                  |                                                |
|                  |                                                |
|                  |                                                |
| November      7, 2008 | /s/ Mark      A. Severson                           |
|                  |      Mark      A. Severson |
|                  | Chief      Financial Officer                        |

----

| 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.                              |

----

| 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.                                                                                                                                                                                                              |

----

| 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.                                                                                 |

----

|             |   |                                                                                                                                                                                                                                                                                                                                                           |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 by      reference 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, incorporated herein by reference to Exhibit 10.42 to the      Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30,      2008.                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.43            |   | Subordinated      Debt Loan Agreement dated as of June 30, 2008, between CommunityONE Bank,      National Association and SunTrust Bank, incorporated herein by reference      to Exhibit 10.43 to the Registrant’s Form 10-Q Quarterly Report for the      quarter ended June 30, 2008.                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                           |
| 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.                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                           |